ST Trading - Options
High risk, high reward. Small (missable) risk capital, as I discussed earlier - less than $10K, usually in the $1K to $2K range. Buying in, I usually have a target price in mind to make money - basically, expecting the option to be worth about double (intrinsically - no time premium) the purchase price sometime before expiration.
For example, I expect today's news to drop AMAT to or below the 47.5 range sometime before COB Friday; possibly down to 45. I have GTC orders set accordingly.
My basic exit method is fairly subjective:
a) If ahead with uncertainty, sell enough to recover risked capital - usually 1/2 to 2/3 of the holdings. Remainder becomes at worst a wash, at best pure profit.
b) If WAY ahead (100%+), consider bailing 2/3 to all, taking profit and sighing in relief.
c) If any residual of a position remains after either of the above, ride out until something indicates a turn (FA, TA, AMAT-specific news, or macro news), then bail.
Last month, I jumped too early (though profitably). Potentially, the calls I sold off could have generated a 3x return had I held them. I also bought some puts as a what-if hedge; they expired worthless. Not counting the current open positions, I'm at about +38% YTD doing this. Doing the math to post the trade results here keeps me honest. <g>
I still hold my opinion that the next major dip will be the last one. I'm leaning towards it being in the next few days.
- Mitch
PS - In 1987, I went to the Kentucky Derby and picked the finishers 1-2-3; every bet I made on that race paid off, including one $5 perfecta at 80-to-1. I bought steaks for the Army guys I was with, and haven't bet on a horse since.
I've developed an appreciation for hunches, while knowing they're often more luck than skill. If they work, I don't argue with the result. "A man's got to know his limitations." <g> |
