How do you measure success or failure?

I often get feedback from other traders on the subject of trade results and how to measure them. Although the common approach is to utilize a Profit & Loss statement – gains & losses are certainly a key way to measure success in your trading – I would like to discuss how I measure success or failure in my overall Trading Process.

To illustrate this I will use a current trade in $JNPR (Earnings). Here is the trade:

  • I am long the April 25 weekly $26.5 Calls
  • I am short the April 25 weekly 27.5 Calls (2x)
  • This is a Call Ratio & was done for a $.08 debit prior to Earnings

Price has subsequently gone down and the Calls are trading at pennies. So is this trade a success or failure?

Let’s highlight some elements of the trade to see:

1) I kept the cost of the trade low

2) Price went in the other direction from my bias but I did not lose any additional $ on the trade

3) It is often said to “keep your losses small and your winners big”. I think I did that in this trade

So based on the above, did my Trading Process for this trade succeed or fail?

 

Earnings Trades – new this week

It’s only Tuesday at noon but I wanted to provide a brief summary of new Earnings trades for this week:

  • $NFLX I am left with short April 25 weekly $382.50 Calls
  • $ITW I am short the May 85/80 Strangle ($3.15 credit)
  • $CP I am short the May 150/145 Strangle ($6.56 credit) with a long stock hedge at $152.50

The $ITW & $CP trades have an exception to my 1st week rule (1st week after monthly Options expiration – I only want to do trades with Weekly options. I don’t want to hold for an entire month to next expiration).

 

How to manage a short stock trade starring Intercept Pharma

I have been short $ICPT in my 50/50 Basket since early March (stock selection comes from the 50/50 scan). Along with the short stock piece I have a May 02w 210/220 Bear Collar. So what does this mean? Let’s break down the entire trade:

  • I am short stock at 433.12 from 03/05
  • I am long the May 02 weekly $220 Calls
  • I am short the May 02 weekly $210 Puts
  • These last 2 pieces make up a Bear Collar

So let’s see how things stand now by looking at a Daily chart. First, a chart I posted last week:

ICPT_BCNow let’s take a look at a Daily chart from today:

ICPTIt does look like this Horizontal Support line has held nicely – avoiding the Gap Fill area for now. The MACD looks interested in crossing up. A nice shout out to the RSI Buyers, well done.

So how is the Bear Collar helping out? Let’s see how the Options are pricing right now:

  • The May 02 weekly $210 Puts have a bid/ask of $0.00/$4.90 (last traded at $5.90)
  • The May 02 weekly $220 Calls have a bid/ask of $60.1/$64

You can view more info on the Blog here for the 50/50 Basket

 

An Earnings trade in Netflix

Since $NFLX is a highly anticipated Earnings report each quarter, I like to make an effort to initiate a trade for the report. Here is the trade I did this morning:

NFLX_earnings_trade

Here is a break down of the trade:

  • I am long the April 25 weekly $340 Calls
  • I am short (2x) the April 25 weekly $380 Calls
  • I am short the April 25 weekly $300 Puts
  • This trade takes margin

In after hours trading, price is currently hanging out at the $370 level. If price holds to the normal market hours session on Tuesday the long Calls will be well ITM and the 2 short pieces (380 Calls, 300 Puts) will be nicely OTM. A good trade result so far.

I have a small gain on an after hours stock hedge of $.44 so this lowered the initial cost of the trade somewhat.

A Trade Review in Whole Foods

I have owned a position in the Long-Term account since 12/17/2013 in $WFM and thought I would share some thoughts on where the position stands now – and what I may do going forward.

Here are the details:

  • I am long stock at $56 since 12/17/2013
  • I own an April 25 weekly 50/52 Collar (short $50 Calls, long $52 Puts)
  • I have an Options Net of $4.13
  • I have a stock-based loss of -$2.39 as of the close Friday (several stock trades along the way around the core position)

Since I had taken a longer term view when I started the position, let’s take a look at the Weekly chart:

WFM_WeeklyHere is what I see in the chart:

  1. Price has fallen down thru this Rising Trend-line
  2. The MACD has made a new low
  3. RSI is probing for a new low
  4. Price has given up the October 2012 Breakout level
  5. Price is fast approaching the #1 Volume at Price (VaP) bar
  6. Price gave up the 50 SMA convincingly in March 2014
  7. Volume has been consistently Bearish for 4 weeks

So now what? Let’s break down the Collar to see how it is helping the long stock piece:

  • The Short $50 Calls are OTM (out of the money) so no chance of being exercised unless price recovers that level
  • The Long $52 Puts are almost $4 ITM (in the money) so the long stock piece is protected

Potential course of action this week (since the Collar is to expire next Friday):

1) close the trade Friday & look for a better opportunity elsewhere

2) adjust the Collar to a future expiration (the common step I have been taking as of late)

3) Too late to switch to a Bearish stance now given the $17 down move since the October 2013 peak?

 

Position Updates – 04/19/2014

This was a usually busy week for Options expiration. There was a little more difficulty to it in that it was a holiday shortened week so I had to spend more time each day tending to my Options Expiration plan.

Newly added this week that survived:

I had a higher number of exits than normal (especially in the Swing account) this week – not sure what that means, if anything:

  • $ALK I had owned a May 95/100/85 Risk Reversal CS that hit a Stop on 04/14
  • $CSH A long stock position (was new for this week)
  • $CRR I had owned an April Risk Reversal CS since 03/26 that had morphed into a Short CS & Puts trade (covered by a long stock hedge)
  • $GDP A long stock position (was new for this week)
  • $TKMR A short stock position (was new for this week)
  • $XONE A position in the Long-Term account that had taken on many faces since initially opened on 09/06/2013
  • $AKS I had owned an April 7/8/6 Risk Reversal CS in the IRA
  • $EFII A long stock position in the IRA that I elected not to hold into Earnings (was a good call). I had owned since 10/28/2013
  • $HIMX One of my “sleepers” for 2014 had a good run but the market has soured on it as of late. I end up with an overall gain of $3.05
  • $MPC (Fab 5)
  • $FAST (Earnings)
  • $GIII (Earnings)
  • $GOOG (Earnings)
  • $KMX (Earnings)
  • $LLTC (Earnings)
  • $MON (Earnings)
  • $NES (Earnings)
  • $PVH (Earnings)
  • $RH (Earnings)
  • $STZ (Earnings)
  • $URI (Earnings)

Submarine Basket:

  • $DDD I am long an April 25 weekly 47/45 Put Spread
  • $FNSR long stock
  • $FSLR long stock with an April 25 weekly 67/67/61 Collar PS
  • $JBHT long stock with a May 75/75/65 Collar PS
  • $KING long a May 18/19 CS
  • $KR long stock
  • $PBR long stock with a May 02 weekly 14/13.5/12.5 Collar PS
  • $PG long stock
  • $V long stock with an April 25 weekly 210 Collar

Earnings:

  • $KBH long stock with short Calls (covered calls)
  • $NKE long stock with a Short April 25 weekly $73 Strangle (covered Calls, naked Puts)
  • $SNDK long stock with an Apr 25w Collar

Here is the Summary:

Positions_04192014

 

The Fab 5 update – 04/18/2014

I have a full stable of 5 players & a 6th man. The only material change is the exit on the left-over Option pieces for the $MPC position.

$NEE led the way into the 3-day weekend with the best close at $96.59 with $APH on its heels. I have given the $HON position a time-rule exception but feel it may be time to look at other candidates now that Earnings are past (owned for 9 weeks now).

The Basket is up $11.38 on the stock pieces and there is an Options Net of $15.54 as well.

Here is the Summary:

04192014Fab 5 candidates:

Breakout

One of the most common trading setups is the Breakout. The idea is that a stock is hitting Resistance but has indication of strength as it approaches. There are a variety of indicators that will be used by traders to trigger a breakout. Here are just a few that traders pay attention to:

  • Volume. Is it rising or not
  • RSI. Is it climbing, flat, or falling
  • MACD. Curling up is really a nice boost
  • Moving Averages. What is the nearest one. Is it rising or falling
  • Pattern leading up to the Resistance line. Is the range tightening

Here is a Daily chart of $DY that looks to be setting up for a Breakout soon:

DYWhat do you think?

Some additional criteria that is important to me – to my Trading Process – is Options. What has me pause at considering a trade here is the lack of Option trading (15 contracts total in the May expiration in Open Interest) as well as lack of strike selection.

Does this hold you back?

The 50/50 Basket update – 04/13/2014

For those not familiar with this Basket of stocks here is a brief review behind the picking of stocks for this basket:

1) I look for stocks that achieve a move that is 50% above the 50 SMA. In my view these are extended and are due for profit taking, getting parabolic, etc. This is NOT a fundamental call, I don’t use any moving averages or other indicators. I enter at any sign of a Topping Tail. Only $BIOF has hit this scan this week (a rarity to be so thin but a nice tell on the market)

2) I typically short the stock (so this takes margin) but sometimes will just buy Puts if good liquidity in the Option chain(s)

3) The basket approach helps to smooth out the daily whipsaw in some of these stocks individually

4) The original plan was to hold up to 10 but March provided a LOT of high flyers. The list reached 20 but I have closed 4 positions recently so I am down to 16

5) I added Bear Collars this week on 2 positions that look like they are seeing some stakes in the ground now from the Bulls

Now on to the Table for the Basket:

04132014