This is probably more than you wanted to hear, but i had put this together to describe my results and techniques.
Using TMG signal for options….I thought I would pass this along for anyone interested. This is simply a fairy tale and anyone who believes this to be investment advice, needs to seek professional help.
After doing some back testing of the 2006 signals that have been reported (see message #302 on this board), I have been trading puts and calls based on the TMG signal, making 4 round trip trades so far. I use it on 3 accounts. Taking all 3 together, I’ve managed a 74% gain on the 4 round trips, 40%, 49%, and 81%, individually. The differences are the result of varying entry/exit prices as I must log-off/log-on to the different accounts, as I execute the trades, and to some extent the amount of profit that gets eaten by the commissions.
I also trade the etf’s, QLD/QID, in a couple retirement accounts, typically market orders. They are up 6% for 3 round trips.
On the several trades that I opened or closed a position in anticipation of the signal change, before the close when the signal is received, or just because I felt I had milked the position as much as I could, I ended up leaving some profit on the table compared to if I had waited to initiate trades NDO after receiving the signal. Would probably be close to doubling my money by now if I had stuck with a NDO practice.
I have been trading options that are 2-3 months out, to minimize the time decay aspects. Typically, I choose the closest in-the-money option. This puts the price of each option in the 1.20 to 2.00 range. Also, stop loss orders generally are only accepted at 10 cents below the bid, which is a much smaller percentage of the position than if I had been trading near term options in the 50 to 75 cent range.
Pre-trade preparation….
Before the opening I try to get a feel for which way things will go based on the extended hours and pre-opening trading. Using Schwab’s advanced option price calculator, with implied volatility of 17-18%, I’ll determine expected option prices for a series of qqqq prices and write these down. The calculator is pretty good, typically giving prices within a nickel of what is actually happening out there. I’ll watch the opening for 5 to 10 minutes before I pull the trigger on closing the previous position (if I hadn’t done that the day before). Use 5 min charts, and real time quotes of the option prices. Depending on my profit level and how quick I want out of the position, I’ll set my limit order on either the bid or ask, or split the difference if there happens to be a 10 cent spread. Again, I’m jumping between 3 accounts to do this, so if things are moving, I will end up with varying exit prices.
For the purchases to open the new position, pre-opening, I’ll make a little matrix that indicates how many options may be purchased for several price levels and the anticipated level of funds available after closing the previous position. This minimizes the time to enter an order, as I have the number of contracts at each price in front of me as I jump from account to account. (Different matrix for each account)
After entering each closing order, I begin rotating between accounts to see which sale has been made, or if I need to change the limit price. When the closing order is filled, I enter the new opening limit order and move on to the next account. Again, the time lag between accounts can create varying entry prices. The whole process involves about 30 minutes of pre-opening prep and 30 minutes or so of pretty intense activity at the opening.
Another consideration, I’ve been turning as close to 100% of the proceeds from each position as I can. If this success rate continues and the accounts grow, option trade volume and open interest may become an influencing factor in the trades.
I don’t claim to be an option expert by any stretch of the imagination, and what has worked so far for me, may not be your cup of tea either. Any comments or suggestions are welcome.
Fast Eddie
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