Day trading? Perhaps...

I had the day to myself yesterday, so I decided to go to Barnes & Noble to see if I couldn't find something interesting to read. I found a few trading magazines, including Futures, Technical Analysis of Stocks & Commodities, and Active Trader. Some of the articles were about trading strategies, and they refered to the TradeStation platform and its EasyLanguage. I was intrigued. Apparently, one can set up one's own program trading system, and for something on the order of only $100 per month. Since my day job is being a computer programmer, this seemed like something I should have checked out a long time ago! So, last night I spent a few hours on tradestation.com, looking at all their brochure-ware and some tutorials. It seems really awesome. You can set up rules to alert you or to actually enter orders, and you can back-test the rules using their intraday historical database of stocks, options, futures, and forex prices.

Of course, when something seems too good to be true, it usually is. I'm going to open an account and let you all know how I do.

Also, at the Goodwill yesterday I picked up a cheap copy of "The Compleat Day Trader" by Jake Bernstein. Even though the book is from 1995, it references TradeStation! So they've been around a long, long time. That says something about them, I think. The book has tons of simple strategies for the beginning day trader, and also some more advanced stuff that the author himself says needs more research. I think I've discovered a new toy.

Things I've come across lately

I've come across some interesting articles on computing the "mathematical advantage" of option trades, all by C. B. Reehl in Futures Magazine:

August 2002: Determining Expected Results of an Option Trade
December 2002: Calculating Optimum Position Size for Option Trades
March 2003: Covering Up With Options

You can download the spreadsheets to go along with the articles from the magazine's web site. Also, all the concepts in the articles can be found in Reehl's book (which I just received today from Amazon!) called The Mathematics of Options Trading.

It seems straightforward to implement Reehl's strategies. Right now, I've got a few options trades working for June expiration, which I put on before I learned of the "mathematical expectation" concept:

Execution Date	Action Description	Quantity	Symbol	Description	Price	Commission	Reg Fees	Total Cost
5/4/2009	Sell To Open	3	.QGMRH	GMCR JUN 40 Put	$0.40	$14.95	$0.03	$105.02
5/1/2009	Sell To Open	1	.QHBRD	FSLR JUN 120 Put	$1.30	$14.95	$0.02	$115.03
5/1/2009	Sell To Open	1	.AMQRI	AMGN JUN 45 Put	$1.27	$14.95	$0.02	$112.03
4/27/2009	Sell To Open	2	.INTRF	INT JUN 30 Put	$1.10	$14.95	$0.02	$205.03
4/27/2009	Sell To Open	2	.MVLRE	MVL JUN 25 Put	$0.70	$14.95	$0.03	$122.02
4/27/2009	Sell To Open	2	.DRCRE	DRC JUN 25 Put	$1.40	$14.95	$0.02	$265.03
4/27/2009	Sell To Open	2	.SQMRE	SQM JUN 25 Put	$0.95	$14.95	$0.02	$175.03
4/27/2009	Sell To Open	2	.NQZRX	TNDM JUN 22.5 Put	$1.45	$14.95	$0.02	$275.03
4/27/2009	Sell To Open	2	.CQNRH	CERN JUN 40 Put	$0.95	$14.95	$0.02	$175.03
4/27/2009	Sell To Open	2	.QBQRV	BECN JUN 12.5 Put	$0.55	$14.95	$0.02	$95.03
4/27/2009	Sell To Open	2	.UZKRI	SOHU JUN 45 Put	$2.05	$14.95	$0.03	$395.02
4/27/2009	Sell To Open	2	.QNQRZ	NFLX JUN 37.5 Put	$1.60	$14.95	$0.02	$305.03
4/27/2009	Sell To Open	2	.QYGRY	SYNA JUN 27.5 Put	$0.95	$14.95	$0.02	$175.03

So far the positions are working well, way below my break-even point for each one.

And he's off!

OK, I'm starting this new blog on the topic of making money--hopefully lots of it--trading options. So, I've traded options before, mostly very unsuccessfully. I've tried following the advice of various gurus, subscribing to options newsletters and the like, but I've never been satisfied with the results. Plus, the biggest problem for me was that I just didn't know why I was making the trades I was making (besides because I was being told to). Well, no more! Time to get serious. In this blog I plan on describing what I learn as I learn it, and sharing all my trades and the motivations behind them. Hopefully this will all turn into a trading plan that will actually consistently make money in the long run.

So, first off, here's a workbook I've made to keep track of my trades: options.xlsx. It's currently got two worksheets: Positions, and Profit Calc.

The Positions worksheet is pretty basic. Just a list of options that I've currently got positions in. I pretty haphazardly chose most of the underlying stocks using PortfolioGrader Pro, just by looking at the Top 3 of Sector/Industry listings. Some of the others I stumbled across on Louis Navellier's blog. He's one of the gurus I used to subscribe to.

The Profit Calc worksheet is a way to create profitability charts for up to 4 legs of puts, calls, or stocks.

Well, more about the spreadsheet tomorrow. Like I said, it's pretty basic, because my way of figuring out what to trade is still pretty basic. More to come later, including expectations, volatility, etc. Currently I'm reading Trading Options to Win by S. A. Johnson, and trying to make sense of the log-normal distribution.