ETF SWING & DAY TRADING

[Duma]

Still following Option Genius, but there are some issues with his strategy. The benefit of doing iron condors is that by playing both sides of the market, the funds required are only half since only one side can lose money. The down side is that one side of the iron condor is usually in trouble unless the market is very calm. As an example, if a vertical spread is opened that is 10% away from the market and the market moves to say within 5%, the current value of the position will be a big loss. If one holds the position to expiration, all that loss will be erased and the original credit from putting on the position will be the profit. However if the market keeps moving (which it has been doing), the losses will just keep growing. At some point, protection from a really big loss is necessary.

On 1/19 OG started a Feb trade on OIH just as that market was starting a major move down. I exited before OG, but still had a loss. My gains/losses are smaller than OG's not just because I am a better trader, but because I did not usually invest to the same level.

His play on the Feb SPX was the real kicker. The vertical call spread was 1105/1115. The close of the market on Thur 2/18 was 1106.75. So he was 1.75 above the 1105 strike for a $350 loss for his 2 options. The settling price for the month was the open on Fri 2/19. Some bit of bad news came out that morning, so the market opened below 1105, so he made his full profit of $240. The close of the day was 1109.17, which would have been a $1834 loss if that had been the open. Trading with luck is not my style, his potential for disaster was unbelievable. I was not willing to play this game, so I exited several days earlier with a small loss. Below are the actual returns. OG trading is based on $10k in available funds.

               OG     ME 
 Jan Options  $557   $194 
 Feb Options  -152   -176 
  
 Feb OIH      -408   -184 
 Feb SPX       240    -30 
 Feb RUT        16     24 
 Feb MNX         0     14

For my own option trading I have been doing vertical spreads on the side of the market that it appears to be moving away from. I love playing AAPL. On 1/13 I got a good signal that AAPL was topping out. I opened a Feb 230/240 call spread for 1.35 credit. The market dropped so on 2/9 I bought back the 230/240 spread for .08 and opened a 210/220 spread for .28. AAPL closed just under 202 having come from 215 and I made $155 for the month.

Then after getting a reverse signal on 2/12, I opened up a Mar180/175p vertical spread on 2/16 for .80. I closed that spread on 3/4 for .05 and opened a Mar190/185 spread for .24. AAPL is now at 220 so I feel pretty comfortable that I will net the full $99. Time to start thinking about what I will do for April options.

I think what I am doing with AAPL is a much better strategy than iron condors. If I had been doing condors on AAPL I would have lost money. Iron condors require the markets to be pretty stable, but my AAPL strategy doesn't. I will be adding more stocks/indexes to this strategy. I may want to start doing some options at the money to capture any large market moves, but that is for later.

All in all, the OG trading was a really good cheap education. I am really good now at setting up vertical spreads for trading and watching the market makers try to play me. I just wait them out. They usually cave after 5-10 minutes or the market bounces my way. IB has got to love me. I have spent a lot of money trading options this year.
Jon