OPNewsletter April (Open) +9.8%, May (Open) +2.6%
Published on April 2, 2010
Published on April 2, 2010
Though we shifted our option trading strategy in way so that more trading alerts can be sent during “pre and post market hours” vs during market hours to allow even working professionals to benefit, OPNewsletter is still not about “make money” in 5min per day. It still requires one to think and act vs let robots do it for them (at least to begin with). There are no short cuts for making money, consistently. Making money is a hard work and requires one to be patient and to learn and continuously sharpen the craft. OPNewsletter April portfolios are up +9.8% while May portfolios are up +2.6% (both are still opened). If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the wait list as OPNewsletter subscription is open via invitation only.
Let me use an analogy on why I say making money requires discipline and hard work especially for new traders-
Before one get to a earn say $5-$7k/month; an engineer need to go through 4 years of professional education including one or two summer projects before he is allowed to be even called an Engineer Trainee. Medical professional is required even much more rigorous training before one is allowed to even touch knives for first surgery. Then why do people think trading is any different if it were to give you $5-7k/month to start? It’s because the “barriers to entry” are almost nothing; give a call to a broker, he can do the paper work for you, set you up with an electronic trading account, help you personally to transfer funds and all set and most novice traders can enticed by the marketing sales pitch that you sign-up for blah/blah and you can make money in 5mins/day. It doesn’t take long before one starts to realize that trading is not easy as it seems on the surface (sadly after either account is wiped out or suffered a major loss) . Making big % may be fine for small capital account, but when it comes to large capital accounts, it is a completely different game. (How large are the investments via OPNewsletter Portfolio?)
Let me ask a question, assume you make $10k/month; assume a good job with perfect work life balance; assume you work for 40hrs/week, 4 wk/month, that’s 160hrs/month, and this your monthly profit before tax. Have you spent 160hrs before investing $10K in that “idea/hot tip”? If not, why do you expect results to be different assuming you are not a professional trader/investor and are not equipped with “investment/trading” training?
More on this later. Let me comeback to OPNewsletter performance.
One of the ways I manage OPNewsletter is through capital allocation. I use US$10 K as the model portfolio (I invest my real money in those portfolios, and then in some more) which I then allocate across multiple portfolios, multiple option trading strategies to diversify the risk.
We invested a maximum of 88.15% of $10k this month; and April portfolio is up +9.8% as of Thursday close. I use maximum capital employed as a base for calculating results even though the cash is available through closure of some portfolio; thus my results are conservative. As of Thursday close, we have 28.93% cash from April portfolio; and 95% of this (~27.6% of 10K) is invested for May portfolio which is also up +2.6%; Net, we have 1.26% cash available from $10K and have both April as well as May income portfolios both of which are up as of Thursday close. Option Trading strategies used were Double Diagonal, Iron Condor, Iron Fly, Butterfly Spreads, Credit spreads, Calendar spreads, Vertical spreads and some more.
We closed some April portfolios and then reinvested the cash into other portfolios for the same month or for the next month thus effectively multiplying returns on our money. To share an example, we opened FDX income portfolio with 9.5% of $10K capital; the portfolio was closed for +27% gains, part of the cash thus generated was redeployed for opening an Iron Condor for Russell 2000 (RUT) for May 2010.
We had earlier opened Iron Fly of Nike (NKE), ATM butterfly on Pepsi (PEP) which resulted into +24% gains and +62.3% gains respectively and the cash thus generated was used for placing a hedge for our April NDX Iron Condor. The Hedge was placed on Thursday before market close to protect our portfolio against any sharp move might result from unemployment report. Thus by effectively managing the hedge, we are fine (short term) regardless how much NDX moves on Monday.
To put things into a different perspective, if you were to go for a seminar/workshop to just learn how to trade Iron condor (and some other strategies we use) and how to protect those (theoretically), that learning itself is worth several month’s (if not years) OPN subscription fee.
Portfolio insurance (aka Hedging) costs money (reduces returns) but that’s always in the hindsight. Just like insurance, you do it to safeguard against any disaster. You spend this money for the things you don’t want to happen.
Our first hedge was against any sharp downward move that were to happen due to Health care bill being either approved or disapproved. Markets didn’t react thus we lost some money on that, but then we converted into a bullish spread and reduced the hedging expense. We could have still kept it till April expiration and completely eliminate the expense, but I chose to close it to redeploy the capital to open other portfolios for a better risk/reward ratio.
Our 2nd hedge was against our Nike (NKE) income Iron Fly. This hedge cost us about 19% of the NKE income portfolio; but we still netted with a +24% return on portfolio. Excluding the hedge, the returns would have been above +42%. The portfolio still had potential to double the gains, but I decided to take it off before the unemployment report; when trading is a business, operating discipline is important and one needs to follow a plan to make money consistently. Speculation is fine but that has a separate place and completely different game.
Not all the portfolios are winners. There are losing ones as well and the returns are net of winner and losers. In order to make money consistently one has to keep in mind that Profit Volume (=Winning Occurrence X $$ profit) should be greater than Losing Volume (=Losing Occurrence X $$ loss).
I don’t count speculative trade’s returns into monthly returns. Even though we had >75% winners and sometimes fairly large returns than losers, the result probabilities before placing the trade don’t favor investing large amount of capital (more spec updates here)
So far for the month of April, we have 100% success rate on speculative trades. Our BIDU bearish trade resulted into +17.6% gains for two days holding, SLGN (shared it for free) resulted into +26.9% gains for two days holding and we just opened a straddle on WMB.
Profitable Trading, OP