Weekly trade summary 15 nov 2009

Life and trade optimization

Yeah, I know, I didn’t update last week. It’s not because I lost big or anything. I just got too busy and didn’t get to trade much. Trading, unlike what I used to think, requires more research than a full time job. I decided that I shouldn’t make a trade, unless I’ve done enough research for a particular stock. As can be seen from my last statement update,  10% of my profits got eaten away by commissions to my broker. The solution that I applied is simply to trade less and ride the swing for a longer period of time.

On top of that, because I day trade now, the concept of money and time is even more distorted than it used to. I am basically losing and gaining thousands of dollars daily, while living a very frugal life where I barter for anything that cost more than $50. I started to realize that most of the cost cutting that I’ve been doing isn’t really worth my time. The enjoyment of life is slowly creeping to the #1 spot in my life’s goal. Which is why I took that Metallica trip and had to basically abandoned trading for 3 days because of the aftermath.

Performance analysis

Starting balance: $5149.48

Closing balance: $6368.08

Trade carrying over to next week: $4814.5 (75.60%)

Derivative risk: $21,000(329.79%)

Increase from opening balance: $1218.60  (23.66%)

Cost of capital: $241.4  (19.80%)

Earnings excluding one time lucky shot: $0

Successful bets: Lost track

Failed bets:  Lost track

Carryover bets: Lost track

Strategy

I tried a strange straddle technique by buying one put option on the FAS and another one on the FAZ. Figuring that since these two both decay, it is best to buy the put options. Also, because they are way cheaper than the calls. I am still waiting for it to play out, if the financials experience a big rally or big drop, I’ll profit greatly.

Reflections

I slipped and missed out on a few earnings release that should’ve reaped some great benefits for me. At the same time, I am abandoning the straddle strategies that I’ve been using for earnings release. Upon some initial estimations, I realized that for a straddle to earn anything, the underlying stock needs to have a wild swing of at least 10%. A great feat if you’ve seen enough of the market. At most, it’s a 5% swing for stocks that are large cap and even when it’s a small cap, the volatility is usually already discounted into the options price. You lose either way.

On another note, writing options is making my books look terrible. The risk of having everything exercised will require me to pony up $21000. Which is an astronomical number compared to the actual underlying cash. This is part of the reason why we have a financial crisis at the moment. The problem is not that I’ll lose big, but rather, when people exercise the options, I need to have that amount of cash on hand. Which, means liquidating a lot of assets just to have cash on hand, exacerbating the problem.

After much thought, I’ve decided to stop writing options because the risk/reward is not worth the small amount of income it generates. So far, for small transactions, the best risk/reward is still in the direct buying of a call or a put option.