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).

 

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.

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

 

Positions Update – 04/12/2014

Given the market jitters I elected to trade less and just manage the existing positions I have. Some of the activity this week:

  • $ALK I had exited the existing Call Spread on 04/07 but wanted to revisit a new trade. I initiated a May Risk Reversal CS on 04/09
  • $AMBA I lowered the Stop on the stock piece to $25.01 (has a Collar but that doesn’t mean you get complacent)
  • $AVGO I will need to monitor the $57.5 level for the stock piece (bottom of PS protection is at that strike)
  • $CRR I exercised the long April $125 Calls & sold the stock. I then StO the April $140 Calls to make a short 135/140 CS. The short $120 Puts remain
  • $FRX A new position this week that has an April Collar
  • $IYR I had initiated a Risk Reversal for April but exited on 04/11 for a small loss
  • $PLUG I adjusted the April weekly Bear Collar to April 25 weekly
  • $SQQQ This portfolio hedge is capped so I will need to deal with that before Friday (april expiration)
  • $AIG I adjusted the April weekly Calls to the April 25 weekly expiration (short calls against stock in LT acct)
  • $XONE The Stop hit on the April $35 Puts on 04/07 so I am left with long $30 April Puts
  • $WFM I adjusted the April weekly Collar to the April 25 weekly expiration (50/52 Collar). That adjustment added $3.91 to the Options Net
  • $STKL I sold the April Calls and added a May 10/12.5 CS
  • $STZ I am short the April 85/77.5 Strangle (Earnings). There is a sell short stop set at $77
  • $FAST I am long the Apr/May 50/45 1×2 Diag Put Ratio Calendar (Earnings)

Submarine Basket (see Blog, just did a post earlier on that)

Earnings:

Here is the Summary:

Positions_04122014

 

Position mid-week update

Newly added this week that remain:

  • $FRX long stock at $86.40 with an Apr 90/87.5 Collar
  • $IYR Long the April 69/67 Risk Reversal (takes margin)
  • $GIMO long stock at 17.45 (1/3 size, a starter position). I will likely sell a Strangle as the next step
  • $STZ short the April 85/77.5 Strangle (Earnings). Options Net is: $2.34
  • $SNP long stock at $90 for the Fab 5 (6th man)
  • $ADM long stock at $43.87 with a May 02w 44.5/43.5 Collar (clients)
  • $EPD long stock at 71.73 with a May 72.5 Collar (clients)
  • $NRG long stock 32.64 with a May 33/32 Collar (clients)
  • $PEP long stock at 83.82 with a May 85/82.5 Collar (clients)
  • $SYY long stock at 36.04 with a May 09w 37/36 Collar (clients)

I had exited the Call Spread for $ALK earlier in the week but had noted I wanted to revisit it. I added a May 95/100/85 Risk Reversal CS (last piece was today).

 

Earnings Trades update – 04/05/2014

I receive questions each week on my Earnings trades so I try to post my Trading Journal view from time to time as an update and/or reference point:

April_2014The above trades are specifically initiated for the Earnings catalyst and include trades for personal accounts as well as for clients. A few things to note:

1) Hedging with stock is an element to each trade – regardless of the bias or design – when using Options. This could include a basic Long Call Spread position where there is concern that price may fade before the next normal market hours session. Hedging with stock helps to “lock in” profit

2) Selling Option premium “naked” takes margin so I am very selective when I do this. With that in mind, the point to have a Basket approach is that I can amass a substantial cushion to work with

3) As you can see in the graphic above, I utilize a variety of strategies to extract $ from the market in the Earnings event:

  • I sell Strangles
  • I use Risk Reversals
  • I use Calendars (Call or Put – or sometimes both)
  • I use Ratios
  • I use Spreads (Call or Put – or sometimes both)
  • I use normal stock, sometimes with a Collar (this is usually after the event)

Each situation is unique and sometimes I just don’t have a real bias so I design a trade where that doesn’t matter.

Position Updates – 04/05/2014

A busy week in the Swing account as I was up to 12 positions at one point. The 4 swing trades that did not survive to the weekend:

  • $INSM I owned an April 17.5/20 CS that hit a Stop on 04/04
  • $KING I was bottom fishing in this new IPO with long stock. The position hit a Stop on 04/02
  • $MNKD I had a trade on from the FDA Panel event
  • $NUS This was a short stock trade from 03/24 that I let get called due to expiring Options that were ITM

Other notable elements to existing positions (including LT & IRA accounts):

  • $ALK CS is not capped anymore and will need to keep an eye on it to ensure I get some good value for it
  • $AMBA The Stop on the stock remains at $25.75 (has a Collar PS with a lower PS strike at $24) and I will likely lower the stock Stop next week
  • $APC The stock saw a huge move up over the $100 level on some legal settlement news. I adjusted the April long Puts way up to the $95 level for a very small debit. Now need to work on the Call side (likely move up to May soon as it is quite capped)
  • $AVGO The stock is still capped by short Calls. I added a PS this week to protect it
  • $CRR I adjusted the top of the CS up to the $135 strike
  • $SQQQ This portfolio hedge remains. I adjusted the long Put piece down to $54 on 04/03: SQQQ
  • $PLUG The April 11 Weekly $6 Bear Collar will need to be dealt with this week (Calls are ITM, protecting the short stock piece well)
  • $EWW This LT position continues to rebound well. I adjusted the short April $60 Strangle to May 02 Weekly $63 on 04/04
  • $AKS This April 7/8/6 Risk Reversal CS is working well as steel gets a bid
  • $SLCA I adjusted the Puts up to the $37 strike for the April Collar on 04/02

Earnings Trades:

$GIII
$KBH
$KMX
$MON
$NES
$NKE
$PVH
$RH

There is an Options Net/Cushion of $29.585 on the Earnings Trades Basket. There is one position with a stock hedge and that is $PVH. Exits this week in Earnings trades:

Submarine Basket:

Here is the Summary:

Positions_04052014

Position Updates (mid-week) – 04/02/2014

Mid-week update on what is newly added:

  • $MNKD I have an Apr 4 weekly/11 weekly 5/3 Strangle Swap (initiated on 3/31 for the FDA panel vote). In addition I have a gain of $1.28 from a stock short on 4/1 in after hours
  • $ALNY I have an April 65/70/60 Risk Reversal Call Spread (submarine basket)
  • $APOL Long April 4 weekly 35/37.5/40 1×2 Split Call Ratio with Short 31 Puts (Earnings)
  • $JBHT I am long stock with an April 75/70/65 Collar PS (submarine basket)
  • $MON I am Long the April 4 weekly/Apr 112/110 Diagonal Put Calendar (Earnings)
  • $APH I am Long stock and Long the April $95 Puts (Fab 5, clients)
  • $CAT I am Long stock and Long the April 11 weekly/25 weekly 102/101 2×1 Diagonal Put Calendar (clients)

 

an Earnings trade review in Monsanto

Here is the trade that I initiated for Earnings in $MON:

  • Long the April 4 weekly $112 Puts
  • Short the April $110 Puts
  • This is a Diagonal Put Calendar
  • This was done for a .10 debit on 04/01 and takes margin

Let’s take a look at the Daily chart to see what happened post-Earnings:

MON_post_earningsPrice has worked within a range of just below $112 to $116 since the Earnings report this morning. My trade had only a Bearish bias to it so let’s take a look at some scenarios to see how it can play out:

1) Price stays near the $115 level. The Long weekly Puts will go poof Friday leaving me Short the monthly $110 Puts

2) Price falls down to $112 on Friday. I would get a little value for the Long weekly $112 Puts and would use that to protect the Short monthly Puts. I could also decide to just unwind the whole trade

3) Price miraculously craters to $110 on Friday. I would unwind this Diagonal Put Calendar