Quote:
Originally Posted by mrbaseball
Nice run, you know you don't have to risk it all
Without getting into specifics, what is your trigger? Technical, fundamental, news, order flow??????
Are you trading mostly/only stuff expiring in the current week? Are you only buying options or do you short as well? If only buying and going against you do you try to salvage or just let it go?
You seem to stick with the high volume, high volatility stuff which is what you need when going for big inter day moves. Are those the only few you look at? DO you trade in, at or out of the money?
So here's my way TMI post that will answer your above questions. I also received a few PMs that asked similar type inquiries, so this TMI post should just about cover all of the currently outstanding questions:
Background: First off, I've been trading for about six years. I have my JD, but have spent probably 2-3x the amount of time studying, back testing, reading and analyzing the stock market than I ever did in law school. My first three years in the market, I was mostly a swing trader. The fourth year I started day trading equities. Last year I got into day trading options. I've had pretty decent returns every single year, except for my first year, where I lost about $2k (from an initial "buy in" of about $10k). It's all "self taught" (no formal finance education, just the BS (political science/business) and a JD).
I have a separate poker cash bankroll specifically allocated for poker. I have a 401k from 5 years that I spent at a law firm out of law school (been on my own for the last few years). I'm late 30s and have zero debt (student loans paid off, etc.). My income now comes from day trading, poker and contract legal work (if I want the work--I've got some former clients that still like me to do some work for them). Thus, the $8k I allocated for day trading options on May 8 was not money I needed for rent, bills, or even poker. It was specifically a high variance, high risk play.
Triggers: All of the above. I use four computer monitors. I have one screen that shows multiple level 2 orders and volume flow and corresponding charts based thereon. I have one screen that sets different technical indicators and charting tools. I have a third screen for news and alerts. My fourth screen is my brokerage for trading.
Prior to trading, I spend a couple of hours the night before and about an hour before the open planning the 5-8 stocks I'm watching and the moves I'm thinking may happen, based on all of the above info. These can obviously change intra-day, but I set my screens for these particular symbols based on my previous analysis of the moves I'm watching.
Expirations/ITM/OTM: I usually trade the first or second weeklies. Within the first or second weekly, whether I trade "In the Money" or "Out of the Money" (and how deep either way) depends on a multitude of factors at that moment in time. I will say, however, that here is one of my personal biggest tips for trading options (which again may not mean s#$t):
Prior to the market open, I pre-calculate the Decay and the Delta of various levels of ITM and OTM for the options I'm looking at for the day, based on a $2,500 open (my opens are usually $2-3k). This is my Delta/Decay cheat sheet and I keep it next to me. Thus, when I'm thinking of entering a position, I can quickly look to see what the actual decay and delta is of a $2,500 open based on the current price. Sure, I could quickly calculate it prior to opening the position, but the 30 seconds it would take to make that calculation when trading in real time, could be the difference between getting the price I'm looking for and missing it. Thus, I look at options a little differently than a normal security. I don't think, "I'm risking $2500 with this AMZN open," or "I'm risking $2500 that AMZN will go up," or even that "I'm buying $2,500 of AMZN options." Instead, I think, "I'm risking 'x' amount of decay for 'y' amount of delta with this AMZN option." So when I see a position that I'm highly confident in and the markets are moving, I'm willing to risk a little more decay for a little more delta. If the market is a little flat or I'm not as confident in a position (but many of my triggers are still hitting), then I hedge down the amount of decay I'm willing to risk. Thus, my entry (and how far ITM or OTM) is strictly based on how much decay v. delta I'm willing to risk at that moment in time.
I tried doing quick decay/delta calculations when trading "live," but it was just too difficult to do it on the fly while in the middle of day trading. So, every single morning, I spend 15-20 minutes developing my decay/delta cheat sheet for 5-6 levels for the 5-8 stocks I'm watching that morning. Then, when entering a position, I simply look at my cheat sheet to find the decay level I'm comfortable risking at that moment based on a $2500 open.
(If someone's got a better solution (or thinks my cheat sheet is just plain dumb, because "insert why it's dumb") then please let me know.)
Finally, I'm also willing to "average down" should the need arise. I realize that only "losers average losers," but with the volatility of options, I sometimes need to average down, which increases the size of my open positions. But after averaging once or twice, it's likely the case that I am simply wrong and need to get out of the trade.
Symbols traded: I mainly stick with high cap, S&P 500 stocks (to and including the S&P itself via the SPY). The S&P 500 is pretty much my "watch list" and then the night before I develop my refined intra-day watch list of about 5-8 stocks.
What I read: Everything. I read earnings, CNBC, and anything else that may be relevant. I even read any and all court filings if a lawsuit is filed. For example, when AAPL filed suit against QCOM (and QCOM then filed its counterclaim against AAPL) a few months ago, I read the complaint and have continued to read any and all filings in the attendant lawsuit (PACER is a legal filing system for federal court that attorneys/legal personnel need in order to file pleadings. However, anyone can get a PACER account, and with it, you can read every filing in every lawsuit around the entire country for 10 cents a page). So I read every legal filing if it involves a publicly traded company. 95% of the time it's just junk with no value, but every now and then you'll find a gold nugget and can base investments on it. You can also make a judgment as to how valid you think the actual lawsuit is (the likelihood of success or failure or settlement), and again, make a play based on such analysis.
Really, there's no shortcuts in the market. Much like poker, it takes a lot of studying, analyzing, replaying hands, discussion, etc. (and then still no guarantee you'll be profitable). Like I said, I lost 20% my first year swing trading. But I kept grinding and studying and analyzing and I then slowly developed a profitable system that has given me a progressively increasing return percentage over the last five years, culminating in this recent run. And in all reality, the $70,000 I made over the last 6 weeks was probably 95% luck and 5% skill. The only "saving grace" is that I've made about 200 completed trades (in my own personal "phraseology," I refer to an open and then a subsequent close as one "completed" trade) during that j6 week time frame and I think I'm about 196 profitable (winning trades) versus 4 unprofitable (losing trades). Granted, one misplayed losing trade can wipe out your buyin (whatever that amount may be).
So that's my TMI post. Oh, and I'm also such a ballar, that it's Friday night and I'm sitting at home writing a dissertation on an internet forum.
Last edited by Sportsfanx1; 06-17-2017 at 12:42 AM.