My Options Trading Unlocked – Newsletter 07 Oct 23

Newsletter – My Options Trading Unlocked : Insights for Tomorrow’s Profits

07 Oct 2023

90% of option traders risk to ultimately fail due to their mindset

Read on, maybe I can help you to be in the 10% part …

My goal is to share my journey and help you profit from options trading. I write about my thoughts on options trading and finance in general. I provide information about my trading and my insights, that could be helpful to you in options trading, especially focusing on applying strategies and what I anticipate in the stock market for the upcoming week. Every week I report on the status of my trading accounts.

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1. Options Talk – Thoughts and Opinions

“90% of option traders risk to ultimately fail due to their mindset”

I plan to post the following tweet later this week :

My thoughts

Nearly every trader makes the same beginner mistake when they first begin trading: they neglect to establish the habit of creating a clear trade management and exit plan right at the start of every new trade. Be honest when evaluating yourself about this.

You might’ve heard this over and over, but trust me, based on extensive research and my own experience, it is crucial to integrate this habit into your trading workflow for achieving high and long term profitability. I am dead honest with you when talking about this trading mistake. I’ve made it too, believe me. Just like many of you, after learning the basics about options, I’ve dived head-first into option trading, and all I did was thinking about opening good new option positions. It took me some time, and some decent losers, to realise that there are other important steps of the trade to prepare as well.

The lack of a trading plan among traders often stems from a mix of several factors: lack of time, lack of experience, but sometimes plain laziness or procrastination:

• Many overconfident traders think they can rely on intuition or gut feeling, underestimating the value of a well-structured trading plan. They believe their market sense is good enough to navigate trades, which can and does often backfire.
• Crafting a detailed trading plan requires time and focus. Some traders might find it too complex or intimidating, too much of a hassle, and thus opt for impulsive decisions instead.
• Beginner option traders may not understand the real benefits of a sound trading plan. Many think it’s as simple as selling options high and buying low (or vice versa), without considering factors like decent risk management and proper market analysis.
• Traders often intend to create a trading plan but keep putting it off. When an enticing trade opportunity arises, they jump in without a thoroughly considered plan, convinced that they’ll ‘figure it out along the way‘ or ‘they have the trading plan figured out in their head’.
• This is all fine and ok when things go their way. But during volatile market conditions, traders usually abandon their initial “figured out” plans, due to panic, or even worse, they never had a plan to begin with. Fear and greed often interfere with rational decision-making which can result in big losses or at best in a lower profitability.

So do I need to repeat that I believe every new position needs a trading plan ?

By sticking to a well-defined set of rules in my options trading strategy, I can effectively eliminate basic trading errors, it improves my profitability and it does avoid emotional decision-making from my trading process. Making a trading plan, doesn’t take long if you systemise it efficiently, and make it part of your trading analysis routine.

I’d love to hear what you think? Leave your thoughts in the comments below!

2. Overall Market Overview

When I prepare for trading or following the market and my positions, I focus on two aspects : the general trend of the market with the indexes, mainly the SPX and the volatility of the stocks with the VIX. The reason why is clear: the general trend of the market and stock volatility are essential for options traders because they directly impact options pricing, influence trading strategies, and offer opportunities for risk management and profit generation in the dynamic world of options trading.

And then again, I don’t want to over-analyse too: but basically the SPX trend and VIX levels are not far away.

The SPX index closed up 20 points this week from 4288 to 4308.

When we only look at the numbers, you might say “nothing happened”. The graphs tell a different story.

We had the job report in the US on Friday (watch the green candle). The strong job report indicated that jobs almost doubled in the US. The consensus amongst economist is that a strong job report normally suggests a robust (fast-growing) economy, which could lead to inflation. To combat inflation, central banks often raise interest rates, making borrowing more expensive and bonds more appealing. This shift can result in money leaving the stock market, thereby causing share prices to decline.

However, it’s important to remember that markets never behave that simple and can be influenced by various other factors as well. On Friday the markets opened red, but the red opening turned into un unexpected green rally. Confirming the saying : “Nobody knows anything”. Imagine you knew the job report beforehand and acted on it, you would have lost money!

SPX Chart – SPX 4308 $

Market outlook for next week : One could expect the market to follow through a bit more upwards and bounce around a bit and hoover a bit around this spot 🙂 Nobody knows anything so I am not trading direction.

VIX Chart – VIX USD 17.45

The VIX spiked on Wednesday (around 20.70), came back below 18 on Friday, but finally ended at 17.45, 0.07 lower than last week’s close (17.52).

A rising VIX inflates the options prices and results in a negative P/L for open positions for options sellers. Every beginning option seller will experience this inflation impact in his results as a bit scary. Most importantly, we must understand that raising volatility raises the extrinsic value alone, that can be recaptured as time will pass. As long as your positions intrinsically remain in tact, we will have to remain calm and see through this temporary loss in Net Liq. Understanding why things happen is in my opinion the basis of success.

A higher VIX also means higher options prices and gives us option sellers the possibility to have a bigger returns, except of course for the positions already open. The 21- and 50-day trend lines start moving up, maybe an indication that the downtrend, or the period with extreme low vix may be ending? Who knows?

3. TOCF Portfolio Weekly Recap & Trading Plan

a. My actions last week (02 Oct – 06 Oct 23):

Closing Positions :

• Closing $AAPL – 02 Oct 23
  • Closing $AAPL for a 34 day 60% return : BTC 1 STR for $2,42 resulting in a net P/L of $171,00 with a ROC of 5,7% and an Ann ROC 60%
  • Closing at 18d DTE – taking the profit at 42% of Max Profit

• Closing $ORCL – 06 Oct 23
  • Closing $ORCL for a 24 day 151% return : BTC 1 STR for $1,56 resulting in a net P/L of $131,00 with a ROC of 10,08% and an Ann ROC 151%
  • Closing at 47% of Max Profit

• Closing $KO – 06 Oct 23
  • Closing $KO for an intraday 1293% return : BTC 1 Put for $0,52 resulting in a net P/L of $30,00 with a ROC of 3,59% and an Ann ROC 1293%
  • Closing at 35% of Max Profit

• Closing $SMCI – 06 Oct 23
  • Closing $SMCI for a 21 day 100% return : BTC 1 IC for $2,48 resulting in a net P/L of $41,00 with a ROC of 5,84% and an Ann ROC 100%
  • I could have had a higher profit on this IC if I would have closed this one earlier…. a bit too greedy here and kept this one a bit too long but still happy with the result.

Opening & Adjusting Positions :

• Opening $XLU – 02 Oct 23
  • STO 1 Short strangle 53P/59C, ExpDate 17/11/23, BP $836, IVR 51,8, SpyB_Delta 0,17 with PoP 64% for a net credit of $1,49
  • Plan : aiming for Volatility to drop in the coming weeks and get out with a profit of 25 % Max profit.

• Adjustment $IWM – 02 Oct 23
  • Rolling my $IWM Short Strangle 175P/185C position out to 17 Nov and widen the strikes to 167P/180C for a 0,90 net credit, credit received now at $5.32
  • Rolling my $IWM Short Strangle 180P/180C position out to 17 Nov and widen the strikes to 170P/178C for a 1,50 debit, credit received now at $3.67
  • Plan : adjusting deltas mechanically, not let the trade run away and close for a small winner

• Adjustment $UNH – 03 Oct 23
  • Rolling my $UNH IC 450/460 510/520 position:
  • Rolled up the put spread to 485/490 for $0.55 credit, total credit received now at $3.79
  • Plan : keep this on until expiration or close as soon as a smaller winner.

• Opening $KO – 06 Oct 23
  • Opening a new position in $KO: STO 1 Naked short put 50, ExpDate 17/11/23, BP $835, IVR 75, SpyB_Delta 2,26 with PoP 73% for a net credit of $0,86
  • Plan : Manage at 50% max profit + this stock is a wheel candidate because of its high dividend

• Adjustment $UNH – 06 Oct 23
  • Rolled Put spread up to 500/505 for 0.48 credit; this IC turns out to go wrong; another 14d for the share to land between 505 and 510;
  • Plan: I will sit out this undefined risk till expiration or until a green scratch.

• Opening $SMCI – 06 Oct 23
  • STO 1 IC 220/230 350/360, ExpDate 17/11/23, BP $700, IVR 70, SpyB_Delta 0 with PoP 0,58% for a net credit of $3,70; Adding $5 theta to portfolio
  • Plan : manage early at 25-50% max profit

b. Results week (02 Oct – 06 Oct 23) & currently open positions:

Here is an overview for all accounts of the results of last week:

The October profit target is $1350. This week I could close three positions for $373 profit, you can see the distribution above. The profits (or losses) are always the sum of the results of the closed positions during that given period.

d. My Trading Plan for upcoming week:

At portfolio level :

• The MX account is in euro en the TT accounts in USD. Sum of the values of the 3 accounts = $70102.00 USD (or 66,225.00 Euro)
• I have been working on reaching and keeping a descent delta/theta ratio. The sum of the SPY Beta Weighted Deltas of my three accounts is –17,72 (meaning if the SPY goes up $1, my portfolio value will down up $17 and vice versa)
• I am aiming for a 1:2 ratio (or lower) with neutral delta/theta. My positions have made a nice recovery and after adjusting some positions where required, the delta/theta ratio is at -0,21 at the moment. Exactly in the range I am looking for.

Most of my open positions are still in the red : the unrealised P/L is down to $(2887).

At individual stock level :

• I am looking for $PYPL to make a bounce so the recovery can start
• I will continue selling cc and lowering the cost basis on AMD, LYFT and PYPL (as good as covered).
• I have rolled and adjusted the $IWM positions to Nov. And I expect to make a profit on both.
• The only real problem child at the moment is the IC $UNH who breached the call side. I have 14 days to end between 505 and 510

4. Weekly Watchlist

My special attention remains for the coming week to my 17 held positions in 12 different stock: AAPL, SOFI, AMD, MARA, LYFT, ORCL, UNH, SMCI, FSR, PYPL, IWM, MSFT, GOOGL

Currently no special attention for a specific stock that I want to take a position in.

5. Other stuff – info & links

As a reminder:

• the Trade Results Page a historic graph of my trading results of the last 3 years, is updated for Sep 23
• A permanent project is to improve the page My Approach to a methodic Options Trading Strategy and Profit Goals. I am really hoping to exchange some thoughts with you all on this topic, so leave me your thoughts in the comments of that page!
• I aim systematically reviewing and re-reading about options topics. To deepen my understanding of all the greeks I have decided to capture all relevant aspects of every greek in some sort of guide – page, that I can share. I have started with delta and you can read it here : Delta Explained – What is it and how can options traders use it
• Coming very soon : my 7 steps trading plan template (see my thoughts at start of this newsletter)

Whenever you’re ready, here are 3 ways I can help you to improve your option trading:

1. For the option traders still looking for a Trading Options Spreadsheet to track their results and improve their trading, check out the EASY “All In Trading Options Journal Spreadsheet”: the ONLY option trading journal designed to focus on parameter-based options trading and account management, as probabilistic-minded options traders like me like it. Checkout this article about the spreasdsheet, the multiple tutorials about the spreadsheet on my Youtube or read about the spreadsheet directly available in our webshop

2. If you are not a Free member of our discord yet : In our discord channels, we team-up with other like-minded option traders, with the aim to support each other and share valuable insights and ideas. I provide live comments, trade alerts, educational info and tools via our discord room. Join anytime ! here: http://discord.gg/cGW6xH4RNT
3. In case you haven’t found me on social media: I suggest to follow me on X @L2TradeOptions and on Youtube @TradingOptionsCashflow to pick up my latest content.

I hope that providing some insights in my trading and my thoughts, will trigger some thoughts and maybe ideas that will help you with your trading and helps to become an even more profitable options trader. Don’t hesitate to contact me to talk options.

Thanks for reading the TOCF Newsletter, a great weekend and happy trading!

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Let’s generate cash flow together !

P&K

Please do leave your thoughts below in the comments.