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Strategies & Market Trends : Calls and Puts for Income

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To: dealmakr who wrote (4825)	2/20/2011 9:12:17 PM
From: Robohogs	Read Replies (2) of 5891

Thanks Deal, How is Ameritrade vs Etrade in terms of special mtce requirements? I missed a good trade last month due to a stock being a 50 percent of strike/mkt value requirement when stock has had moderate vol and high IV. And because I run margin tight esp at end of cycle, I had to pass. How careful are you on margin? How do you determine position sizing? I ask because I had one position last cycle which was notional equal to 1/3 of equity with 10 percent cushions both directions. A 45 percent spike had me down 7% of account value which was only that good due to repairs (stock at that point was 25% above all-time highs on over-hyped earnings and a fake buyout story). I used another play (a 35% margin requirement near the upper strike but with 90 percent of profits made) to clean up margin and then the super-losing position spiked down 15 percent. I got to down 5% YTD at one point and it looked like first losing month since April. The down spike recouped 5-6% of account value, a few good new trades (although I skipped two great trades in old faves which would have added 1-2% overall), and theta then brought me back to PLUS 7 percent for the year. So even without the down spike I would have been back to flat for month and slightly up for year. And I knew it would be close even when I was down 5% YTD given the expected worthless inventory in my account. But nice recoveries in MMI (to upside) and in MMR and MIPS (both to downside) added a few percent. Of course after holding for whole period, I closed MIPS mid-afternoon Friday and MMR late morning at reasonable profits only to see both spike down causing me to miss a few grand of profits. I can never get these close-outs right. I almost closed out the short put side of a short MMI $30 straddle but did not as it was unclear which side of strike MMI would close and it did spike late to $30.03, but funnily enough more of the short puts (which was half the size of the short calls) exercised against me than short calls. Add in 0.5% of "fun" lottery plays on expiry Friday which went worthless (should have known GOOG would pin as it does every big option expiry - always pins to noonish price which is almost always a strike). I go into so much depth on a few to warn others what can go wrong and to seek response. This position size was not unusual for me, just wrong timing and too much volatility for a position that big. And when I did repair strategies, I probably could have gotten out of a bad trade down 1 percent of account value (after being down 2-3% on the open on the day the trade went awry) but tried to go for profit. Of course some of my biggest gains have come from keeping the risk and even adding depending on conviction levels. Some of the recent trades have been a new strategy meant to target higher vol plays, and I am concluding I need to halve risk size now given how lucky I just got. Jon

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