Tonight is indeed a special night, as tonight is my first of many strategy posts that will be released in the month of October. When the exclusive move to the Davian Letter occurs next Friday, the week after will be filled with delicious strategy greatness. Until then, however, the standard technical analysis applies!
Tonight we're going to be discussing my Options Trading strategy that I've been briefly scripting over the past week. Because I am a rookie when it comes to Options, I'm ALWAYS looking for constructive criticism, innovative ideas, mentors, and of course reading material.
** As an aside to show you how ballin' Twitter is, last night I shot a tweet to @Aiki14 to get his take on the options reading material he was delving into. Just from that tweet, I received five others from all different people sharing their options education ideas with me and my rookie-ness. This helping hand is what makes Twitter so awesome **
My dabbling in the past week with my Virtual Trading Portfolio (play money, if you will) has allowed me to get the basic concepts of Calls and Puts, as well as how an option contract works and is priced. Last week, I decided to take the initiative and buy my first Call Option contract for X:
- Looking at the option spread and the 1 year daily chart, I thought that X had the potential to reach its 45 price resistance level.
- Breaking the trade down from a technical standpoint, I went through my routine and fiddled with my possible price targets.
- I then chose my strike price - just in case X stalled out before reaching the 45 price level, I decided to go with the 44 strike price to play it safe.
- After choosing my strike price, I found the option chart that followed the specific strike (with the 44 strike in X, the options chart is FBJ-JV on ProphetCharts in the thinkorswim Platform).
- Reviewing the FBJ-JV chart, I realized that the price was closing in on a key support level of 0.85. With my thoughts on the Basic Materials and Energy sectors, let alone the overall market, I decided to set a triggered buy towards the end of the trading session for the October '09 X single spread call options at strike 44. I ended up acquiring the contract at 0.75.
Not only was this an interesting trade to make, it was also very different than trading equities where as there are more variables to consider. The main variable to consider is your long term take on the underlying equity (in this case, X). This trade was carried out last Friday, and my Call option strategy was ultimately a success, as I integrated my Basic Materials/Energy theory that I used for my equity trading into this options trade. I sold the Call option this Tuesday at 1.23 for an overall gain of +0.48, +64.00% - not half bad for the first options trade ever made, whether the money used is real or fake.
The next leg of my options strategy is to trade a Put option contract. Because the market has been rising lately, I haven't been able to find a ticker that has much downside potential. Over the next week, I'll be hunting large cap tickers that are looking to technically breakdown, and from there I will outline my Put option contract trade as I did with my Call contract option trade.
My goal with options is to virtually trade them until January 2010 - at this point in time, I'll be integrating my options trading in with my equity trading. For the rest of October and all of November and December, I will be keeping you updated on my options strategies. These are NOT to be taken as legitimate trades, but rather journal entries that allow all of you to see my successes and blunders while virtually trading options.
To end off this post, I thought I'd throw a Position Update in your direction:
- Holding CSUN @ an average price of 4.27
- Holding GSI @ 3.77
- Bought COIN today @ 1.25
That's all for this evening everyone - good luck tomorrow!
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