My Options Trading Unlocked – Newsletter 21 Oct 23

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

21 Oct 2023

Hope is not a strategy !

Read on, maybe I can inspire you to better plan your trades for the upcoming week

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. Hope is not a strategy – Thoughts and Opinions

“Anatomy of an Iron Condor trade gone bad”

Today I will be reviewing a trade gone bad and sharing the experience with you all, hoping this can be a beneficial process for both the myself and the option trading community, as we continually seek to enhance our skills through constant learning.

When reviewing and sharing a bad trade, I will be honest, transparent, and detailed about the trade setup, decision-making process, and outcome. I am convinced this will provide the most value to us all. By sharing a review with you all, I also hope to get some objective feedback and insights that might have been overlooked. So don’t hesitate to contribute from your experience and provide valuable perspectives that can help improve future trades for us all.

I am a fan of the Tastytrade live shows. I basically watch and follow a couple of the shows daily and it happens I pick up a trade idea from one of the shows.

This was also the case for the Iron Condor (IC) in United Health ($UNH). The iron condor trade is a directionally neutral, defined risk strategy that profits from the underlying trading in a range, through the expiration of the options contract.

Exactly what I was aiming for here.

Trading steps:

• I had opened in $UNH on 15 Sep 23 the IC 450/460 510/520 with expiration at 20 Oct 23 for a net credit of $3.24.
• At opening the parameters were 35 DTE, IVR=20, SPY B delta = -2,32 and PoP of 60%.
• The initial plan was to take profit as from 25% of max profit and if possible even more … but $UNH decided otherwise, look at the graph.
• On 3 Oct 23, when the short call strike was breached, I decided to roll the put spread up to 485/495 for a credit of $0.55
• Three days later, on 6 Oct 23 (at 14 DTE), the stock surged to $522 and I decide to roll for 2nd time up to 500/505 for another credit of $0.48, totalling the credit received at $427.
• Iron condors are defined risk trades where the maximum loss and profit potential are capped. My max loss was capped at the width of the spread minus the credit received, being $573, after rolling.
• I kept the iron condor and finally closed the position on 19 Oct 23, with the stock on $532 for $9.93, resulting in a -$574.00 loss on this trade.

Analysis looking back on the trade:

• According to TastyLive tactics, I collected 1/3 of the width of the spread, which is statistically ok
• When I look back to the position in the overview in my newsletter of 30 Sep 23, I see that I had on 29 Sep 23, at 21 DTE, a net loss of -$127.00 on the initial position.
• My biggest mistake with this IC not to include into my trade plan that I would manage it at 21 days (close or roll).
• So I did what, in hindsight, is a rookie mistake: that is I sort of closed my eyes, crossed my fingers and hoped that the position would come back into a break-even or a scratch profit. Sometimes this works, but hope is not really a strategy.
• The IC trade is a trade with a max loss defined from the start. Some option traders prefer to let the trade just run even it the strikes are breached. This is probably something that I had in my mind during the whole time of the trade.
• I opened the position with IVR equal to 20. The IVR only went up during the time I held the position.

Conclusions and lessons learned

I will be 100% honest with myself in this analysis, the only way to learn and improve.

Here are some of my key reflexions looking back on what happened:

1. Lack of Research: Failing to conduct thorough research and analysis before entering a trade. I didn’t knew UNH until I opened the trade, which is a mistake to avoid, especially to make better estimate of share price fluctuations. Follow trade ideas of other traders is not necessarily wrong as long as you do your own homework.

2. No Trading Plan: Entering a trade without a clear plan, including entry and exit points, stop loss levels, and profit targets. I only had a profit target set. I should have carved into the trading plan to manage at 21 DTE.

3. Emotional Trading: Allowing emotions to drive trading decisions, such as greed, or hope, rather than relying on a systematic approach. I was hoping that the share price was going to return. Even greedy thinking that a max profit was possible when the share price would return between the strikes.

4. Risk Management could have been better:
   • Although with an Iron Condor you control what that risk is on trade entry, I feel I didn’t manage this one very well.
   • Failing to manage risk appropriately:
     • I could have rolled to November and adjusted the strikes, managing the risk in a better way.
     • Another way was to roll out the tested side to November and close the untested side.
     • Another option was to roll to an Iron Fly, but the credit received was so low I didn’t bother (imagine the stock would drop 6 % all of a sudden…)

5. Ignoring Market Conditions:
   • UNH had earnings on 13 Oct 23 which is not ideal to say the least. Not taking into account relevant news events that could impact the trade is to be avoided.
   • Looking back it is obvious that the IVR of 20 is a bit low especially when to expect the volatility to rise towards earnings, which will have a negative effect on the P/L and the possibility to close with a profit early. You could actually state that the iron condor is built for higher IV situations.

6. Lack of Discipline: Failing to draft a complete trading plan from start & follow the trading plan.

Two biggest take-aways for me :

• Manage at 21 DTE to keep your options open
• “Hope is not a strategy”, and neither is fear. Stay educated, have a plan, and execute with confidence.

And finally, I must have peace with the fact that not every trade will be a winner.

When a trade goes bad, it’s important to review what happened, identify any mistakes that were made, and learn from them to improve future trading decisions. Reviewing a bad trade can help identify where things went wrong and what could have been done differently. This reflective process is essential for personal growth and development as a trader.

Let me know if this overview of my thoughts on a trade gone bad is useful to you. Or if you want to add a comment. Please do so in the comments and the end of this post.

2. Overall Market Overview (Week 15 -20 Oct 23)

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 down 103 points (!) this week from 4327 to 4224.

SPX Chart – SPX 4224 $

Market outlook for next week : It is hard to say. Chartists may argue we are at a resistance line and we could expect a bounce. Others will say we could expect the market to follow through a bit more downwards. Truth is nobody knows anything so that will be my basic assumption and I am not trading direction.

VIX Chart – VIX USD 21.71

The VIX spiked to 21.71 this week on Friday, almost 2.39 points up last week (19.32). We haven’t seen these levels since 6 months.

3. TOCF Portfolio Weekly Recap & Trading Plan

a. My actions last week (15 Oct – 20 Oct 23):

Closing Positions : No positions closed this week

• Closing $UNH – 19 Oct 23:
  • Closing $UNH Iron Condor 500/505 510/520 for a 34 day -2654% return : BTC 1 IC for $9,93 resulting in a net P/L of $-574,00 with a ROC of -250,66% and an Ann ROC -2654%
  • My 4th losing close this year (analysis and thoughts in the first part of this newsletter).

Opening & Adjusting Positions :

• Opening $ADBE – 19 Oct 23:
  • Opening a new position in $ADBE : STO 1 IC 485/495 635/645, ExpDate 15/12/23, BP $680, IVR 31, SpyB_Delta -0,1 with PoP 62% for a net credit of $3,20
  • Adding $3.70 theta to portfolio

• Adjustment $IWM – 20 Oct 23
  • Rolling my $IWM Short Strangle 170P/178C position:
    • Rolled 178 C down to 175 C for $0,80 credit, total credit received now at $4,47
  • Rolling my $IWM Short Strangle 167P/180C position:
    • Rolled 180 C down to 175 C for $0,97 credit, total credit received now at $6.29
  • Both exp 17/11, I am aiming to close both for a profit or a scratch at 21 DTE (next week)

• Opening $GLD – 20 Oct 23
  • Opening a new position in $GLD: STO 1 CS 187/190, ExpDate 15/12/23, BP $195, IVR 72, SpyB_Delta -0,58 with PoP 61% for a net credit of $1,03

• Opening $U – 20 Oct 23
  • Anticipating closing positions next week and to profit from the Vol spike
  • Opening a new position in $U: STO 1 Short Strangle 24P/25C, ExpDate 15/12/23, BP $1048, IVR 41,2, SpyB_Delta 1,39 with PoP 65% for a net credit of $1,99

• Opening $FSR – 20 Oct 23
  • Preparing positions for December – Opening a new position in $FSR: STO 1 Naked Short Put 6, ExpDate 15/12/23, BP $2400, IVR 41,7, SpyB_Delta 41,7 with PoP 57% for a net credit of $1,18

• Adjustment $SMCI – 20 Oct 23
  • Rolling the untested side of my $SMCI IC 220/230 350/360 position: Rolled Call spread down to 310/320 for $0,84 credit; total credit received $4,54

In general this week was an ugly week for my positions. Nothing I can do than watching my deltas and managing when required to keep them in check with an eye on the account delta/theta ratio.

b. Results week (15 Oct – 20 Oct 23) & currently open positions:

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

It has been a while I had to take close a losing trade. The UNH Iron Condor was closed for a net loss of $574.

The October profit target is $1350. It will be obviously very hard to reach this target but we will see where we arrive. You can see the distribution of my positions 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 = $68370.00 USD (or 65,007.00 Euro)
• I have been keeping a descent delta/theta ratio. The sum of the SPY Beta Weighted Deltas of my three accounts is 23.9 (meaning if the SPY goes up $1, my portfolio value will down up $23 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 0,19 at the moment. Exactly in the range I am looking for.

Most of my open positions are in the red. This hasn’t improved this week, as for most other investors, overall positions are down : the unrealised P/L is down to $(3707).

At individual stock level :

• It looks $PYPL and $LYFT aren’t in for a quick recovery, so I will expect the battle to take longer than anticipated.
• I am looking to close the CC on AMD next Friday, and opening a new CC lowering the cost basis, now at $97.4, further.
• I have rolled and adjusted the $IWM positions, by rolling down the untested side keeping my deltas in range. And I expect to make a profit on both.

4. Weekly Watchlist

I will keep my attention to the open positions and I don’t intent to add any more given my current, relatively high allocation : AAPL, SOFI, AMD, MARA, LYFT, ORCL, UNH, SMCI, FSR, PYPL, IWM, MSFT, GOOGL

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
• Still working on and coming 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.