Put Option Sold For Over 36% In 14 Days


I totally realize that’s a completely disingenuous post title, but it’s true as far as it goes, and it’s fun to write. makes up for the thrashing I took in the markets on Friday….a little.

You may recall I dipped my toe into the options water for the first time here, with what I thought was a brilliant earnings-surprise options put play. Turns out the surprise was on me, because the earnings report was poor and yet nothing much happened to the stock price. While I don’t live on Patience Street, I know how to find it on a map, so I held on figuring I had little to lose.

Sure enough, the price of the underlying stock crept downward slowly. However the options on Questar (STR) are so thinly traded that the bid/ask price (not to mention the last or closing price) didn’t change for most of the time I was in this trade! That’s a little disconcerting.

I decided I’d use a ‘soft’ trailing stop for this based on the underlying stock price, and sell if the stop got hit. After Friday’s big sell-off though, I figured I needed a win and ought to take some profit while I can.

This morning the spread was a $2.15/$2.45 bid/ask, although amusingly the “last” price was my purchase of $1.60. Had no one traded this option since I did? I put in a sell-limit order of $2.30 just for yucks, and it was hit within about an hour or so. That yielded a profit of 36.70% after commissions.

But with options, that’s not as exciting as it sounds. It’s just as easy to lose 100% as it is to gain 36%. Treat an option like you would treat your risk money, not your capital. If you were willing to invest $2000 in a stock and willing to risk $200 in that move, then don’t buy $2000 worth of options. Buy $200 worth of options! If you’re ‘long’ a stock and it moves the wrong way, you can sell and get some of your money back. But it’s easy for an option to move quickly to the point where you get NONE of your money back. My Comcast call option  lost 11% in just a few days when it moved the wrong way, so I sold it.

Did I mention STR options are thinly traded? 🙂 It was funny to look at the bid/ask spread later on and to see the volume as “1”. Hey that’s my contract I sold!

Swing Trade Entry Signal for 03/05/15


Taser International has generated a buy signal using my Band-to-Band Swing Trade System.
Taser International has generated a buy signal using my Band-to-Band Swing Trade System.

Taser International (TASR) has generated a buy signal using my Band-to-Band swing-trade system (details here).

I think I’m going to try this play with a call option. An in-the-money call with enough time left for this to play out properly (hopefully). The June $22 call to be exact.

Momentum Based Swing Trade: AMED

The vertical black line shows where I bought AMED at open on February 11th, 2015.

I’ve mentioned in previous posts that I’ve gotten into some momentum-anticipation set ups that haven’t gone well, and I was frustrated because I didn’t really have a tested system. I follow the Stockbee site but Pradeep Bonde doesn’t simply issue buy/sell triggers for you to blindly invest with (and wisely so). After flying by the seat of my pants on a couple of trades and getting burned on one of them, I set out to get a system for momentum burst swing trades that I could actually backtest with AmiBroker.

Unfortunately I found a system that would make someone with a lot of money a whole lot richer. But it all fell apart when using smaller position sizes like I do. I discovered this bug in my system too late (discussed here), and had already invested in Amedsys Inc (AMED).

So what to do? I went back and corrected my position sizes for testing, and I haven’t quite come up with a new system that works for po’ folk like me. But I feel like I’m close. But what to do about AMED? The stock was still in its low-momentum stage, and I’d bought when it pipped up to a predetermined buy-stop and then settled back down. It might burst at any moment. But also the company had an earnings report due on March 4th 2015…tomorrow as it turns out.

So I threw up my arms metaphorically speaking and decided a 5% stop and a 8% profit margin, sell on the following open if either point was hit, but for chrissake get the hell out before the earnings announcement! Betting on earnings reports is one way to speculate, but it’s best not to mix and match your systems.

Fortunately I got the little bump I’d hoped for. It didn’t hit my sell threshold before reaching my exit-date stop, but it did give me a decent increase before exiting.

As it stands, I made 6.66% on this trade before commissions. Sweet! And since that’s the number of the beast, it’s probably best I didn’t sit through the earnings announcement.