Memphis,TN
Posts: 232 since Sep 2010
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I am going to lay out, my thoughts and conclusions, that I have come up with from the past 3 weeks, where I have done nothiong, but focus my attention on everything Options.
If there are things that I could add to it or take away from it, please feel free to add any and all suggestions
Trading Plan I hope to Implement................
On the higher priced stocks ( $75 and up ) , the options on the 2-3 month out options are to expensive for my trading account size at this time. So with that and still wanting to trade the AAPL, XOM, AMZN and GOOG type options , but not having a big enough account to buy just regular Calls and Puts, this lead me to Vertical Spreads ( Bull Call and Bear Put spreads )
Since I base my entries for my trades on high timeframe charts ( weekly and Monthly ) where each candle on the chart represents 1 weeks worth of trading and 1 month of trading , it can take any where from 2 - 5 weeks for the trade to finally play out.
So given that, I need to have time on my side ( by having 2-3 months till expiration on my option trades ).
The problem there is, since you don't make anywhere near the max profit on a vertical spread until it gets close to expiration, if my trade exceeds the call or put that I sold and I still have 2 months till expirtation, I won't be up hardly any profit on the trade or close to my Breakeven price on the trade, in order then to buy back the option that I sold
My main purpose in trading vertical spreads is, that as soon as I hit my BreakEven price on the trade , I want to buy back the strike that I sold and leave on a runner , to capture the majority of the move . So I need to base the spread that I buy , on one that requires the stock to move at a max of 2% to get me to the BreakEven price and then as soon as it's reached, I'll buy back the option that I sold and have my Runner on, in order to capture the majority of the move
By buying a near term spread vs a 2-3 month out ( even though I need that amount of time for my trades to play out , more times than not), I have time going against me and the trade ( Net Debit ) will cost me more, vs just buying the current month, and getting in for cheaper, and alsmost just be willing to lose $50 - $100 as a " Gamble " in a sense, if my trade doesn't hit my Breakeven price right away
Hope what I'm looking to do, isn't to confusing.
I'm just trying to narrow it all down, to a method that I can implement, trade after trade ( systematically ), that will get me to a Breakeven on the trade as quick as possible ( reaching that breakeven with a max move in the stock of 2% ) and as soon as the Breakeven is reached, buying to close the option I sold and having the option I bought be my Runner ( to capture the majority of the expected move )
Thanks much everyone, I really appreciate it
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