Would you like to take a stock and option trading journey with me? Great! Tap the heart icon on this journey to see my progress. The challenge: use $500 to trade stocks and options and grow my trading account value while minimizing losses.
My trading journey will be documented here with charts, analysis, reasons for the trades, and results. Charts will be focused on the options traded, but be sure to look at the underlying stock or ETF charts for perspective while reviewing results. I’ll be posting my lessons learned in a separate post. Are you ready for a fun ride?
Background
It was 2005 when the trading bug first appeared. With a bachelors in accounting in hand it was time to start the MBA program. In a Statistics course the professor used Excel exclusively to teach the basics. Our first example was related to stock trading. “You can use statistics to trade stocks- and succeed.” Whattt? I was inspired.
By 2011 I had caught the OTC (over-the-counter) penny stock bug. The long-term stock portfolio was simmering with the usual diversified portfolio optimization. The 2008 economic recession had placed the home in an underwater position. Thousands had been spent on trading resources such as software, mobile apps, trading signal services, and chat rooms. Much had been learned, with emphasis on what it meant to lose.
My OTC penny stock portfolio went from $2k to $20k in four months. The marijuana craze caught me and by June I had lost almost all my gains. I moved to option trading as the OTC liquidity failed that year, and the OTC liquidity still hasn’t been the same since. I had joined and created many chat rooms and starting teaching about chart analysis and the OTC, while learning about options.
Strategy
Using chart analysis, also called technical analysis, trades will be decided at oversold (price is too low) and overbought (price is too high) levels. Using fundamental analysis, that is research surrounding the company, and chart analysis trades will be decided for before or after earnings release (ER) for a company.
A greed line of 50% will also be used unless a strong trend prediction is present. A greed line is a point where a trader sells their position to grab the gain before the trader’s greed emotionally challenges them to hold longer for more gains.
A single trade will be limited to 25% of my portfolio so the gambler’s mindset of going all in doesn’t set in, and portfolio won’t be wiped it in one trade.
The Trades
Week 2/1–2/5/16
USO $9 Puts 2/5/16, 2/1/16 buy and 2/2/16 sell
Why traded: Oil had rebounded quickly the week before. $10 resistance was tested and appeared to fail. The $9 USO Puts looked ready to bounce via chart analysis.
Results: Oil prices fell Monday and my Puts gained. By Tuesday, 2/2, the Puts looked overbought via charting and my 50% greed line was reached. Sold for 81% gain. Yeah, my first win!
SPY $192 Puts 2/6/16, buy 2/1/16 and sell 2/2/16
Why traded: 2/1 trading looked bearish after a quick bounce 1/29. Traded due to daily overbought.
Results: CCI dipped and -DM started to rise so I sold. MACD was still uptrending but was below the threshold so I didn’t risk it. I made 46%! If I had held for a little longer I would have seen a 150% gain but sticking to technical analysis is best.
FB $115 Puts 2/5/16, buy 2/2/16 and sell 2/3/16
Why traded: FB was rising quickly the week before. It reached the overbought condition 2/1/16.
Results: I made 52% as profit takers took some FB profit and the price dipped. The quick CCI spike made me nervous but I trust the +DM and MACD uptrend. Once CCI dipped below 25 I sold.
WYNN $60 Puts 2/5/16, buy 2/2/16 and expired 2/5/16
Why traded: Many earnings release sources placed WYNN’s ER on 2/3 or 2/4. I was using my before ER strategy when ER didn’t happen this week.
Results: I held too long waiting for the ER to come. Always check the company’s investor relations website to confirm ER date when multiple sources conflict. By the time I realized I was 90% down as the stock went on a three day recovery. On day one I could have sold for a 40% gain but my greed line wasn’t triggered.
GPRO $160 Puts 2/12/16, buy 2/4/16 sell 2/5/15
Why traded: This was an after ER trade. GPRO had missed earnings. Coupled with the downward trend I thought there would be a drop.
Results: The drop did not continue. A recovery started a couple hours after ER as traders starting buying and social trading sites went abuzz. It’s best to wait a few hours after ER results to see stock direction. I should have also purchased the next week’s weekly options to weather the first day bounce. Note the option chart and the lack of option volume to generate the ADX/DMI indicator. Another sign to wait to trade. The CCI and MACD went up but not long after trade they dipped.
SPY $190 Puts 2/12/16, buy 2/5/16 and sell 2/5/16
Why traded: SPY was overbought on the daily chart. News was bearish about pending economic and jobs data before open.
Results: I waited for the first 20 minutes of trading and saw the bear trend develop. My chart indicator mix signaled buy for all four: CCI, MACD, ADX/DMI, and PSAR. I sold as CCI dipped and the -DM began to rise. This was a day trade as I didn’t want to hold through the weekend.
Week 2/1–2/5/16 Results
Out of 6 trades this week 4 were winners. My overall week gain was 50%! 2 trades were based on the before or after ER strategies. The other 4 trades were based on too high or too low chart analysis. I need to work on cutting losses faster, and remember trading after earnings is more risky than trading before. Not knowing the ER date makes a trade very risky.
This week was volatile just as the past two weeks.
Week 2/8–2/12/16
$SPY $190 Calls 2/19/16, buy 2/8/16 and sell 2/10/16
Why traded: Technical trade. 5-day charts showed oversold.
Results: 4% gain was made but this gain was limited by trading fees cost. $SPY didn’t take off as expected, and volatility continued most of the week, resulting in low $SPY Calls pps movement.
$TSLA $200 Calls 2/19/16, buy 2/8/16 and sell 2/10/16
Why traded: Before ER 2/10/16 AH trade.
Results: I got greedy and held through ER. I broke my own trading rule- don’t hold through ER. The ER results weren’t bad but $TSLA didn’t pop afterward. It appears two chances for exit were available before 2/10 close, but the first exit was low volume and the second was my missed opportunity (40% gain possible) due to greed.
$USO $7.50 Calls 2/19/16, buy 2/11/16 and sell 2/12/16
Why traded: Technical trade. 3-month chart showed $7.80 support and oversold with CCI moving upward.
Results: 11% gain due to trading fees. This was a decent winning trade with a 35% gain less trading fees. $USO may continue to gain into next week, hence why 2/19/16 expiration were traded, but oil has been volatile the past couple of weeks and I didn’t want to risk a dip next week.
$FB $90 Puts 2/12/16, buy 2/8/16 and expiration 2/12/16
Why traded: Technical trade. 5-day chart showed overbought.
Results: The trend prediction was correct for the first hour of trading the next day. I failed to place a limit order and missed an exit with gain possibility of 110%. I failed to enter a stop loss as these Puts fell into a 30% loss minutes after the spike. Lack of option volume and level 2 competition caused me to be trapped to expiration.
$GLD $112 Puts 2/12/16, buy 2/8/16 and expiration 2/12/16
Why traded: Gold has been on a tear the past few weeks. The uptrend has been strong. $GLD showed as overbought in the 3-month chart.
Results: The $GLD uptrend continued all week despite being overbought and the markets attempting to recover in stocks. It appears the flocking to gold is continuing. The best time to exit to minimize my loss was late 2/9/16. I held thinking the option volume spike was anticipation for gold’s value drop.
$SPY $190 Calls 2/19/16, buy 2/11/16 and sell 2/12/16
Why traded: Technical trade. 5-day chart showed oversold with bullish increase in volume.
Results: Trend prediction was accurate. Like my $SPY Calls trade early in the week I made a small gain limited by trading fees.
Week 2/8— 2/12/16 Results
Out of 6 trades this week 3 were winners. my overall performance was a 33% loss for the week.
This was a bad week for me. I failed to be available at the right times to exit to garner gains and minimize losses. I tried to be a contrarian and hoped for an uptrend in the markets too soon and it caused mainly losing trades this week. Trading fees ate into the gains I did have. My account value is back to my starting value. What a difference a week makes!
Week 2/16— 2/19/16
$SPY $190 Calls 2/19/16, buy 2/16/16 and sell 2/17/16
Why traded: Technical trade. 5-day chart showed oversold with bullish increase in volume.
Results: Trend prediction was accurate. Made 59% after fees. Sold due to dipping CCI and +DM, and left another 75% gain on the table.
$AMZN $577.50 Calls 2/19/16, buy 2/8/16 and expired 2/19/16
Why traded: Technical buy signal from oversold. Predicted pps could go to $600 before Calls expiration so entered Calls within my buying power range.
Results: Trend prediction was accurate. Due to a slower pps increase in the two weeks the $577.50 strike slowly decayed due to time. 2/18/16 trading ended the few days uptrend as the market succumbed to profit taking.
$MSFT $49 Puts 2/19/16, buy 2/12/16 and expired 2/19/16
Why traded: Technical overbought signal.
Results: The market continued a 3-day uptrend and $MSFT followed. A day after entry Calls went to $.20 and with trading fees wasn’t worth exiting 2/15/16.
$WMT $67 Calls 2/19/16, buy 2/16/16 and expired 2/19/16
Why traded: Before ER trade.
Results: $WMT struggled to gain before ER the week of 2/16–2/18/16. Even entry around 2/10 to 2/18 offered no Call gain opportunities, except a couple quick day trades, as $MSFT did slowly gain 2/10–2/16.
Decided to hold through ER and $MSFT beat earnings expectations but posted a weakened future outlook sending my Calls to no bid 2/18/16. This is the second time I broke my rule of not holding through ER. I should have sold at a 15% gain (includes fees) before ER.
Week 2/16 — 2/19/16 Results
This was week 3 of trading in the $500 challenge. $AMZN was entered 2/8 and $MSFT on 2/12. Because of these two trades entered in week 2 my account value available to trade was limited. The $AMZN loss should have been accepted in week 2. The $MSFT gain of 15% should have been taken before its ER.
It’s time to follow the trading lessons learned:
- Don’t hold through ER
- Sell at a certain stop loss
If the trading plan and rules aren’t followed then devastating portfolio losses or even complete loss will occur.
18 trades have been made with 9 gainers and 9 losers. That’s a 50% success rate. This success rate needs to be 70%+.
$SPY has been traded 5 times for a gain of $325.69 (65% portfolio gain overall). Predicting trends aren’t the issue. 6 option trades have been held to expiration: $WYNN, $GLD, $AMZN, $FB, $MSFT, and $WMT for a loss of $704.73. This is the second issue with lessons learned noted above.
Two trades remain going into week 4. $GLD $110 Puts 3/18/16 were entered 2/16, and $GLD has gone up 6% since. Puts are at a 30% loss with chart analysis showing $GLD at sell. $GRPN $4 Calls 3/18/16 were entered 2/17, and $GRPN is up 7% since. Calls are up 40% with chart analysis showing $GRPN at a buy.
The account is at around $200. This is a 60% loss from inception. A 150% gain between the two open trades will be needed to get back to a $500 account value.
Can the losses be made back? This trader is fighting to do so! Let’s get ready for week 4 with the odds against me…
Week 2/22— 2/26/16
$GLD $110 Puts 3/18/16, entry 2/17/16 and exit 2/22/16
Why traded: Technical trade. $GLD was signaling overbought 2/17/16.
Results: $GLD continued its bullishness longer as the market fell. Due to time decay considerations I sold 2/22 at the chart sell signal. 48% loss resulted as I entered too soon and exited on the last decent peak in pps before expy.
$GRPN $4 Puts 3/18/16, entry 2/17/16 and exit 2/22/16
Why traded: Rumors of $BABA take over coupled with strong ER results have made $GRPN bullish with momentum.
Results: Entry was after initial news. I had planned to hold these Calls for a few days but the chart signaled sell 2/22/16. $GRPN’s trading itself was volatile with a set range of $4.05 to $4.40. Not sure why the TDAmeritrade chart is off on my exit point. Made 19% gain.
$PCLN $1190 Puts 2/26/16, entry 2/23/16 and exit 2/24/16
Why traded: Technical trade. Chart showed overbought on 5-day.
Results: After a day hold these Puts gained 179%. My trend prediction was correct and entry was at a decent point. The market fell overall and that aided $PCLN’s fall.
$GLD $125 Calls 3/18/16, entry 2/22/16 and exit 2/24/16
Why traded: Technical trade. The market looked overbought on the 5-day, and gold has been the counter investment in a bearish market.
Results: My trend prediction was correct and these Calls jumped some at open 2/23. The market was flat after open 2/23. The market opened up really low 2/24/16. These $GLD Calls signaled sell at open as the market recovered the rest of 2/24. I sold for a 79% gain near the open.
Week 2/22 — 2/26/16 Results
This was week 4 of the $500 trading challenge. It started with limited capital to trade and with a losing trade in $GLD Puts. Overall, four trades were completed with a 75% win rate (3 of 4 trades gained).
The account had dipped to $150 from $500 on 2/22/16, but positions in $GRPN Puts and $PCLN aided the account reaching $320 by 2/24/16 mid-week. The final trade of $GLD Calls put the account at $400.
4 positions are open going into week 5, with losses going into the week:
- $GLD $120 Calls 3/4/16
- $TSLA $160 Puts 3/4/16
- $GRPN $5 Calls 3/18/16
Update 3/25/16
It is with sadness that I report a total loss with this contest. After 28 trades and $500 in trading options fees I’ve met an account value of $10.
Please see my new personal contest for myself here:
