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Strategy Based Options

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Last Post: 2/20/2013 10:11:52 AM - Followers: 2 - Board type: Premium - Posts Today: 0

This board's purpose is to utilize back-tested data in order to drive higher success rate in future options trading.  We believe that stock trading is as much psychological as it is analytical.


1. Cash flow is the most important metric.  A cash flow positive business still has open doors.  Slow accrual of cash is progress.
2. You must stick to your strategy.  Before a foreign trade enters your account, it must be fully vetted.
3. Patience is, by far, the most important aspect of any trade.
4. Manage your stop losses.  A good trader need only be right 50% of the time to be extremely profitable with options.  A good options trade can net you 50% gain, a bad options trade should max out at 25% loss.  This allows us to be right 50% of the time and STILL profit greatly.
5. You must always have a plan when entering a trade.  Picture a deer in headlights... does it have a plan?  What if the deer vetted out their "incoming car strategy" in advance? 

6. Keep a diary with your trades and feelings.   This is an emotional business.  Learn to control your emotions.
7. Profit taking is essential.   All good traders have this baked into their strategy.  While no set amount works for a given trade, you must chart out resistance/support and realize that indicators (such as RSI) can be influential to short term price movement and will cause you to change your sell price on-the-fly.
8. You must develop your 'gut instinct'.  Strategy can only get you so far.  You must be able to know when to take your money off the table.  Someone with a better "gut instinct" may profit 1-5% more on a trade which adds up significantly in the long run.  
9. Be careful of the company you keep.   This is especially true on the internet!  While the options trading worls isn't as ripe with fraudsters (as is the penny stock world), we must all keep our "BS Goggles" on when someone is touting a fantastic options trade.  Is this person trustworthy?  Has this person demonstrated a history of success?
10. Helping other individuals leads to the development of one's inner-self.   If folks have demonstrated their willingness to learn and be cooperative with fellow SBO members - please take the time to respond to their questions.  You were once a noob.  You will feel a sense of self worth and appreciation.
11. Losing is unavoidable.   You will lose, and you will lose consistently.  The Bulls never went 82-0, every superbowl champion has lost at least one game, a great MLB season is one in which you win 60% of your games.  
12. Winning should be met with humbleness.   Thank your creator for the opportunity to progress to a more successful place than you were at yesterday, and realize that without consistency all your winning will be in vain.  To cite a previous example: "a great MLB season is one in which you win 60% of your games" - replace "MLB Season" with "options strategy" and you hit the nail on the head.
13. There is always progress to be made.   Staying hungry is the long-term key to success, complacency is a death sentence.
14. We are the Casino, not the gambler.   You are a broker for favorable trades.  You are the casino in which you let patrons (in this case, stock price) come to your establishment (trade criteria).  You realize that if a patron does not enter your casino it is not the end of the world... there are many more patrons (stock prices) who are willing to adhere to your casino rules (strategy) -- which so happen to be tilted in your favor :)
15. The result of a trade is of no fault but your own. YOU put the money on the table.  YOU executed the trade.


Stockfetcher.com membership.   I use Stockfetcher in order to alert me on filters.  It also has a great backtesting area in order to test your ideas over the years,
Stockcharts.com membership.   I use Stockcharts.com in order to chart my stocks.  Many people believe they can correctly analyze intra-day trends with the free version, however, I feel there is no replacing their real-time 1, 2, 5, 10, 15, 30, 60-minute charts (especially if you are trading intra-day movements).  
Knowledge on how to trade basic calls & puts.   You are only helping yourself out by knowing these.  I personally do not trade other options types because that is not my expertise.
Knowledge on how to chart both short & long-term trends.   If patience is a virtue, charting is your key to getting started.  A good chart with support, resistance lines + periods of heavy volume is a great start.  Imagine if you could say: "8 of the last 10 times the price action hit $10 the stock experienced a surge in volume and reversed"... This then allows you to buy large at support knowing that if support is broken you can exit for a 5% loss!
A mobile device to alert you on price action.   No one can be at their computers 8x5 while the markets are open.  You MUST have a serviceable smartphone with a good alert app (or just keep a close eye on your trades).
You must have a decent understanding of Microsoft Excel.  You need to be able to crunch data and analyze the statistical significance of our key indicators.  You must develop YOUR OWN method.  You will also need to track performance on your old trades!


"Every day may not be good, but there's something good in every day."

"The greatest prayer is patience" - Buddha

"Patience is not passive; on the contrary, it is active; it is concentrated strength." - Edward G. Bulwer-Lytton

"It is better to take many small steps in the right direction than to make a great leap forward only to stumble backwards." -unknown

"Patience is passion tamed." - Lyman Abbott

"If you are patient in one moment of anger, you will escape one hundred days of sorrow." - unknown 

"Your mind will answer most questions if you learn to relax and wait for the answer." - William Burroughs

"Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment." 


Options basics - http://www.investopedia.com/articles/optioninvestor/11/how-to-be-a-successful-options-trader.asp
Getting to know the greeks - http://www.investopedia.com/articles/optioninvestor/02/120602.asp



Is my purchase based on strategy?
Was I patient in entering this trade?  Do I feel confident? 

What is my exit strategy?



We like to keep it simple.  This isn't to say that other indicators are useless, in fact, these ones may not be the most useful.  However, we must have a common set of indicators to base our trades off of.


Chaikin Money Flow
Accumulation & Distribution

SBO Current Filters & Strategies
Strategies are living, breathing organisms which require constant attention and feeding.  In order to embrace the constant change required to support such a complex creature, we have given names to them based on both their need for attention and volatility.

"Black Widow" -  SPY Intra-day anomolies.  Affectionately named after the SPYder index (S&P 500) and its ability to change on a whim and "bite" you for not taking profits quick enough!  Black Widow is so important because it helps us keep an overall pulse on the market whilst trading its many components.
Whole number pivot -  Play reversals on whole number increments (145, 146, 147) when there is a history of price action and/or favorable RSI & CMF.
Known supprt/resistance points -  Ideally you would have favorable CMF/RSI conditions, however, this is not necessary.
Channel breaks -  When you have a distinct channel (3 points on one side, 2 points on another) creating a channel use a break to either direction as a time to buy/sell.  These channels need to be verified on the 5, 10 or 15 min SPY Chart.  Channel breaks on the 1/2-min SPY chart are reliable short term indicators, but since most of us aren't playing with thousands per trade, commission fees can easily eat up these profits!  So verify that you have a strong candidate for movement by checking the 5/10/15 minute charts!

"Homer" - Channel surfing trades in the stocklist.  Named after Homer, the ultimate "channel surfer."  Requires distinct charting ability and confirmation of the SBO's indicators: RSI(14), CMF, A/D, & MACD.  Depending on the timeframe, options will be purchased with an expiration at least 2x average length from peak to trough.  Therefore, downside risk should be extremely low with Homer.  In addition, Homer offers the options to play "channel breakouts" in where one can pick up weekly options to take advantage of short-term spikes.  Homer allows us to  becoming extremely intimate with a small set of stocks and get to know their everyday moves.  Also, Homer can be used to buy basic calls/puts off of key stock support and resistance!  Lastly, you can utilize favorable candlestick patterns to forecast key reversals after channel breaks! This is no secret... Homer is a time consuming strategy and should be the very first strategy played by any SBO trader!  It is EXTREMELY versatile and should give you more than enough plays. Watchlist: MSFT, VZ, T, F, GOOG, MMM, QCOM, JPM, WMT, XOM, AMZN, BA, BAC, NFLX, UPS
Overall Performance: 1 for 2
% Gain (avg): 23.2% ($114)
% Loss (avg): 12.7% (-$62)
Total Gain/Loss: $52

"Mugsy" -  Mugsy is comprimsed of a short watchlist of highly-shorted stocks with the makings for an explosive move northwards.  One must keep an EXTREMELY close eye on these 5 stocks (which are on heavy watch) for explosive northward moves.  We look to see if either a) the price is "coiled", meaning it's been consolidating after major moves, or b) has had a heavy day range as of recently and been trading violently.  Watchlist: Anyone in the top ten in short % of float according to www.highshortinterest.com

Google Doc link to performance spreadsheet

SBO Board Rules and Posting Requirements
#60   $F right at 50MA this is a textbook pennypuptech 02/20/13 10:11:51 AM
#59   Tuesday Wrapup/Stats $$$DEEJ**$**MONEY$$$© 02/19/13 06:45:08 PM
#58   $F - wow what a steal. Trading pennypuptech 02/19/13 05:02:35 PM
#57   MHP got the original timing wrong but damn pennypuptech 02/19/13 02:40:12 PM
#56   EW - still holding. Got a coiling pennypuptech 02/14/13 01:15:03 PM
#55   AKAM also a monster - Everytime there's a pennypuptech 02/14/13 10:39:33 AM
#54   Ford like a boss. pennypuptech 02/14/13 10:21:57 AM
#53   $T, $VZ telecom/cell business been getting slammed... slammed pennypuptech 02/14/13 10:01:09 AM
#52   test pennypuptech 02/13/13 06:48:10 PM
#51   another breakdown 0 for 2 on NFLX today pennypuptech 02/13/13 12:32:55 PM
#50   NFLX giving you two confirmations of bullish trend... pennypuptech 02/13/13 12:22:27 PM
#49   F in play - Homer channel trading style. pennypuptech 02/13/13 11:49:37 AM
#48   Ford trading right @ 13 bounced three times pennypuptech 02/13/13 11:40:44 AM
#47   AKAM crazy - Just cashed out half at pennypuptech 02/13/13 11:38:21 AM
#46   with break of the 183/184 area I dumped pennypuptech 02/13/13 11:35:43 AM
#45   Only a couple things on watch as nothing pennypuptech 02/13/13 09:52:39 AM
#44   AKAM going wild... once again RSI shows that pennypuptech 02/12/13 11:50:06 AM
#43   OPEN POSITIONS pennypuptech 02/11/13 10:40:40 AM
#42   Manufacturing data due out in about 18 minutes pennypuptech 02/04/13 09:43:01 AM
#41   HOMER strikes again! pennypuptech 01/30/13 04:17:43 PM
#40   "Growth in economic activity paused in recent months, pennypuptech 01/30/13 03:24:49 PM
#39   Fed: Economic activity has paused in recent months. pennypuptech 01/30/13 03:09:21 PM
#38   Look for SPY to give us a shot pennypuptech 01/30/13 10:26:25 AM
#37   Nothing definitive in the market today... in all pennypuptech 01/30/13 10:02:55 AM
#36   Great day today - I admittedly got faked pennypuptech 01/29/13 03:58:06 PM
#35   ON WATCH FOR TODAY - pennypuptech 01/29/13 09:34:04 AM
#34   SPY - "WAIT FOR IT!" pennypuptech 01/28/13 10:18:41 AM
#33   SPY (as usual) on watch - wait for pennypuptech 01/28/13 09:39:23 AM
#32   Thursday Wrapup/STATS~~$500 Challenge!! $$$DEEJ**$**MONEY$$$© 01/24/13 05:09:33 PM
#31   test pennypuptech 01/24/13 05:03:15 PM
#30   SPY pullback to first fib line... puts are pennypuptech 01/23/13 11:11:35 AM
#29   SPY - upward movement seems to be met pennypuptech 01/23/13 10:49:09 AM
#28   Crazy action in the markets today. pennypuptech 01/23/13 10:24:29 AM
#27   SPY 2 min chart looks to have broke pennypuptech 01/23/13 09:57:40 AM
#26   SPY puts look to be in play so pennypuptech 01/23/13 09:55:54 AM
#25   HOMER - MSFT pennypuptech 01/22/13 05:20:22 PM
#24   rough day today - overthought myself! pennypuptech 01/22/13 04:31:45 PM
#23   SPY - she wants to print 149 badly pennypuptech 01/22/13 02:53:00 PM
#22   SPY next stop 148.60 pennypuptech 01/22/13 02:01:18 PM
#21   Confirm the reversal with a RSI break of pennypuptech 01/22/13 01:40:51 PM
#20   SPY just forfeited it's short term trend pennypuptech 01/22/13 01:34:42 PM
#19   JCP - also trading above it's channel for pennypuptech 01/22/13 01:24:19 PM
#18   SPY - not a "healthy" pullback yet today. pennypuptech 01/22/13 01:22:54 PM
#17   SPY taking me to the woodshed right now. pennypuptech 01/22/13 12:53:49 PM
#16   Thanks for stopping by! Changes will continue pennypuptech 01/22/13 12:52:12 PM
#15   nice thread....marked ;-) THUMBS 01/22/13 12:51:00 PM
#14   SPY looking really overbought right now with heavy pennypuptech 01/22/13 12:21:36 PM
#13   Due to the failure of the SPY to pennypuptech 01/22/13 11:43:27 AM
#12   Even though the trade was missed we can pennypuptech 01/22/13 10:54:18 AM
#11   Black Widow Missed this one by a penny! pennypuptech 01/22/13 10:51:01 AM
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