Locking in Profits and Testing Options Strategies — June 3 Trade Log
Another day, another rally for stocks, riots in the US have never been a big issue for wall street and once more it is demonstrating that this won’t be a great concern for the markets performance in the days to come.
We just recently discovered that the PDT rules and the transaction limit only applies for round trips, in other words, it only applies for actual day trading, since we haven’t been doing a lot of this lately and it is mostly swing trades which we have been placing then we can make as many transactions as we like as long as we don’t buy and sell the same security in the trading session. Of course this is to our understanding, we tested this theory of ours today to see whether or not a limit or a message would be set or sent as a warning, we even made a day trade to correct a trading mistake and kept buying and selling different securities after freely; messages sent are not always automatic, for the time being we haven’t received any notifications, if we are able to keep trading freely tomorrow then it would seem that our guess was right, if this were the case, the game would change A LOT.
IRON CONDOR
Since we were testing the limit on transactions, we thought that a good way to do this was to put into practice our first real options strategy, an IRON CONDOR. This strategy is composed by two vertical spreads, both OTM and close to expiration on the Long and Short side.
As seen in the picture above, we short CALL and PUT contracts which are closer to being in the money, this way we receive higher premiums than the ones we are paying for when covering the SHORT contracts, we cover them by buying further OTM CALLS and PUTS. Profits and Losses are limited in this strategy, still, it is a good way to cash in profits with a secured loss.
The short time to expiration makes these contracts really cheap, ideally this strategy would work better with 10 contracts which would allow for greater profits, the size of our account and our leverage restriction only allowed us to make this play with 1 contract. For learning and getting used to this strategy we thought it would be practical, losses would be minimal as well as profits but we could start testing the strategy for when we have more money to play.
LEAPS
The continued market rally amounted great appreciations on many of our LEAPS, Under Armour, Macy’s and Citi.
Knowing that we had unlimited transactions for swing trades we were more inclined to realize profits and enter the positions again for better prices the next day or when there was an opportunity, the market was really positive today and as I said before the contracts were on attractive numbers to sell and hopefully enter at another time but we wanted the cash in our pockets, as the saying goes, CASH IS KING.
Macy’s had a 29% appreciation, we sold for a net profit of $44.
Under Armour had a 33% appreciation, we sold for a net profit of $47.
A trading mistake happened when selling Citi, this was the harshest of them all; the contract had an appreciation of 84% and when placing the order we were not careful and instead of selling we bought another contract. The average price skyrocketed, luckily, the first contract we bought was really cheap relative to the market price at the moment and we were still able to profit. We sold for a net profit of $14.
SWING TRADES
Selling
We locked in profits from 2 swing trades placed earlier this week.
The IWM contract appreciated aggressively after a really positive start to the day, the contract had appreciated 52% by the time we sold. Nothing bad from a 2 day trade.
AMAT also appreciated greatly after a strong outbreak, the only issue with this contract was that the expiration date was really far off which made the contract a lot less volatile.
The trade quality for this underlying in general was not really attractive, the stock has a strong resistance around $58 and odds are it will return before breaking out any further, we preferred to cash in profits rather than sitting on the position and waiting on something we were not sure how long it would take to happen.
Buying
Today’s swing trades were mostly trend reversals, right after selling the AMAT and IWM CALLS for attractive profits we bought PUTS, both had appreciated a lot and we are expecting to sell these contracts soon, we are just waiting for a small correction in price to profit meanwhile another opportunity for a CALL shows up.
Since we are expecting a short term and small correction we bought closer to expiration contracts for more volatility.
The other swing we bought was a JPM Put.
We have a short term target on this trade as well; JPM rose aggressively today, once again, we are expecting a slight correction on the contract, our goal is to profit from a slight correction.
To our understanding, it looks like a Cup and Handle formation is going to take place before continuing its way up.
Takeaways:
- ALWAYS check twice before placing orders, it has happened a few times to us already and we have been lucky, trading options a mistake like this could burn out a small account easily.
- Reversing trends take guts but a smart traders does this to benefit from price fluctuations, I am not saying that we will profit from this but if we sell is because we have reason to believe that the stock will drop or make a correction, so why not profit or at least try to profit from the fluctuation.
