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March 19 Readout And Other Good Stuff

M19 Options Read Out


The market has been on fire this year and so have we!


We had 131 trades close out between February 19 and March 19. Some basic stats:


Trades: 130 wins, 1 loss

Average trade: 2.55% (mean)

Average duration: 6.0 trading days

Trade quartiles:

Min: -18.70%

25%: 1.01%

50%: 2.08% (median)

75%: 4.08%

Max: 13.13%


We earned an average of 0.64% per trading day, for a total gain of 13.4% since F19.

This is an annualized rate of 159.2%


If you invested $6,500 per trade from F19 through M19, your returns would be:



Don't FREQ out over IDRA


This year we've had 201 wins and only 1 loss, which is pretty extraordinary and due to some great market conditions for options selling. Our algorithm targets 25% to 50% annualized returns, but we are churning over 200% year-to-date. We'll take what the market gives.


We had two positions go against us last cycle that we wanted to discuss so we can show how to manage such trades: FREQ and IDRA.


FREQ: We initially sold FREQ $40 M19 puts early in the cycle for a credit of $4.50. Our breakeven point was $35.50. FREQ then fell into the $34s just before expiration and we were faced with a potential loss if we closed out. We also had to take action if we didn't want to be put the shares (we did not!). Since there was a tremendous amount of premium still being offered for FREQ, we were able to roll down to $30 for A16 and receive a net credit of $2.10. Now we are in FREQ $30 A16 puts with a total credit of $6.60. Our new breakeven is $23.40.


The amazing thing here was our ability to roll $10 down and still earn a net credit. This means we could take money off the table without losing a penny, because our new position is smaller: only $3000 per contract versus $4000 for the original trade.


IDRA: We initially sold IDRA $3 M19 puts for $0.35 and $0.10 for an average of $0.225. IDRA was trading near $6 at the time, but it announced failed clinical trial data on the night before M19 expiry. The stock fell to $1.8 in after hours and settled around $2 during the day. To avoid taking the immediate loss, we rolled IDRA to $3 A16 puts for another $0.10 credit for an average entry of $0.335. Thus, our breakeven is about $2.64. There remain a number of options for us (no pun intended):

- we may close for a smaller loss;

- we may roll out for another $0.10 of credit; or

- we may roll out and double down to $2 for a $0.10 credit.

Which one we choose depends on IDRA's action in the next few weeks. We have time to figure it out! One thing to note: that $0.10 credit is still a solid 3.3%. If we drip 3% of premium for IDRA over the next month or two (or 4 or 5 months), isn't that great? That's a 36% annual rate of return on a position that many of you think is a loser. It isn't a loser, yet!


Positions And Sizing


At Least 10... Position sizing is important when you trade options. These are volatile trades and you need many of them to "smooth" things out. Let's assume we decided to close out those IDRA trades on Friday rather than roll them. With our breakeven around $2.75 and the stock at about $1.90, we would have lost about $0.90, or ~33%. If IDRA was all you owned, that would be horrible. But we already recommend having at least 10 trades open at once. Your overall loss, therefore, would only have been 3.3% if we had taken that hit, rather than managed the trade into April. Thus, you see the importance of having many positions. If you have 20 positions open, the IDRA trade would have been a 1.17% overall loss to your portfolio. Not too bad.


Don't double up...We send a lot of signals, at least 10 to 12 a day. You do not and should not trade all of them! Often, we send signals of the same underlying over the course of the week. Once you are in one option for a given stock, pick the others before you decide to double up. You should have 10 positions of different companies in your portfolio at once. This way you are not over exposed to any single corporate event.


Stay tuned and happy trading! Below are our trades from F19 to M19:



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