A pretty decent comeback by the markets today. After an early drop of 1% on modest volume the buyers stepped up and picked up the pieces. Breadth was weak all day but improved as the session went along. We saw good opportunities in tech and financials at midday, and struck with some trades. We picked up GS late yesterday and added MORE early on as the stock made its low. Results below. We also picked up a ‘one day’ trade on BIDU that we feel could move strongly following the jobs report. We may have some more ideas out on Friday – SO BE ALERT!
- Long GS 95 weekly calls at 1.22 (from yesterday) – sold at 1.14 (8% loss)
- Long GS 95 weekly calls at .43-.52 (from today) – sold at 1.14 (148% winner)
- Long BIDU weekly 120 call at 3.3 (currently open)
Just a quick word about playing options and the style for which I operate. Trading options offers no guarantee of success, and with the double issue of finding direction within a certain time frame, it can present problems. The odds are against you when you buy premium – you will lose more often than you win (statistically true).
So, I ask…what is the ‘dream trade?’ Naturally, one that goes up right after you enter, hits your goal right away and you can escape like a thief in the night. Think about your trading – how often does that happen exactly that way? I would guess no more than 5% of the time.
Sometimes we buy options that have little or no intrinsic value, because we look at the charts/technicals and make assumptions about how quickly the price can rise past an objective. There are many factors involved, of course – but the main point is using the leverage of options to make a big score.
Every 100 trades you might get the ideal situation 5 times. So, we have to make adjustments, and our time frame (holding time) may change. It’s possible we might have to hold longer than we hoped or expected to – maybe up to the bitter end. Now, I know that bothers some people.
Makes them nervous, concerned the trade may flame out. After all, we’re not in this game to play chicken against the clock. Because once that expiration occurs, it’s permanent death for that option. Holding a wasting asset? Not the most desired position. My thinking however, is as long as that trade is good – it’s LIVE.
Late last year we had trades that moved to big wins (200% or more) in get this – the LAST 5-10 minutes on a Friday! Some of you know of the FAZ trades in September.
So, what I’m saying here is this: follow the option trades with the charts/technicals and not the price, move with the rhythm of the markets and don’t panic – for that is where you will find yourself losing every single time. Why not stay longer to see how the trade plays out? If you buy the time, might as well use the time.
The hardest thing is to hang on until the end – but if that is where your payoff lies, then why not hang around for it?