Notes for week ending 1/11/08

Well, overall I was happy with my performance this past week. I was able to close down trading before 10:30 am once this week, and by 8:30 am twice! I made some changes to the list of blue chips that I track daily for option trading. I decided to remove GOOG from my list. I still believe that GOOG is going to be key to my future trading. Once you get that stocks rhythm down, it makes huge intraday swings, and should be a money maker. However, I had to reconcile recognizing its potential with the reality of my ability to trade it. My last 6 GOOG trades have been loses, and that's wrong way enough times that I removed it from my list.

I saw a posting of a 1 year RIG chart, and saw an easy channel to follow over the past year. I have added that to my list.

Last, I decided to switch the solar that I watch. I was not attached to the stock, I never really found it's rhythm, and many times when the other sector stocks would take off, SPWR would move sideways. I decided to replace it with FSLR. It has bigger intraday moves, since the price is higher. I haven't traded it yet, and probably wont until at least after option expiration next Friday, unless the trade appears to me completely zipless.

Technical issues abound for me this week. Ameritrade is in the process of changing their system for updating option prices. 4 days this week I was not getting option price updates. Thank goodness for my friends on the Options Wonderland board at IHub. I would post a message asking for current buy / ask on my particular option, and was getting responses within just a few minutes. I don't talk about it much, but I really couldn't be doing this without the support of so very many people. There are the people in my life that know me that support me, my friends, my family, but there is this whole extended network of friends in cyberspace that help and support me as well.

Anyway, this made me realize that if this is going to be my business, I am going to have to come up with a back up plan for getting real time option prices. If anyone has any ideas or suggestions, feel free to leave a comment on this post. Currently, I am considering opening a second account with optionshouse.

Next week is option expiration. The Friday of January option expiration week is historically down with big losses 8 of the last 9 years. I may try to find a put play for that day, if I am still trading at the end of the week.

My goal for the week is $2500, which again is a $500 gain per day average. Any day that I make trades over $500, I quit trading for the day. I quit trading for the week after I have made a $2500 gain.

The bears have a pretty strong hold on the market right now. This does not just mean that the market is going down, it means that the market is highly unpredictable, and there is a lot of sideways movement. The downward movements come swiftly, crashing 150-200 points in a matter of what, a half hour? Just a glance at this chart shows at least 3 time in the last 10 days that there has been a crash in that range, closer inspection may find more.



You can see the market whipsawing all over the place in that graph. Playing this market in my style right now, is akin to trying to jump on a moving train that you can see the direction of, but don't know where it turns around at. First, you have to make sure you don't hurt yourself trying to jump on (overpay for an option). Then you have to make sure you jump back off before it reverses.

In fact, here is a copy of a post I made on Ihub regarding what daytrading options means to me in more explicit terms.

I have a spread sheet that I fill out each night. I like to option trade blue chips. I have a list of stocks from various sectors that I follow, that have a history of making good size intraday moves. I pick stocks from different sectors, current list is

DRYS
PCU
POT
RIMM
FSLR (just replaced SPWR)
FWLT
GS
RIG (just added)

On my spread sheet each night I put the last price of the day, the $ up or down, two levels of support (from stock consultant)and two levels of resistance. I look for stocks that are near one of these levels, and those are the ones that I pay particular close attention to each day. Stock consultant is nice, because they have the channel drawn there for you, so you can also see at a glance where in the trading channel the stock ended the day. Also, by watching a few stocks every day, you will find your own rhythm. PCU was trading between 100 to 110 for quite a while fairly predictably. It broke out of that channel, and now seems to be trading from 95 to 100, but it hasn't quite been in that channel long enough for me to feel I can count on it.

Next I check for new news on the stock, and sometimes if I am not totally wiped out for the day, I'll pull up a candlestick chart on each one, and see if I can see any patterns developing (I'm new to candlestick charting, so I'm not great at this).

This will usually give me a few general ideas to watch for the next day. I will pick out some calls or puts, and add them to my watch list under the stock. One of my rules is not to trade options before 10am market time (7am here in Cali). Option prices tend to be inflated the first half hour of the day.

So, now it is past 10am, the market is either up or down, and the stocks I'm watching are either moving or they aren't. Once I notice a stock start to move, if it is moving away from a support or resistance, I buy the appropriate put or call. I immediately set a target sell, which can always be changed. I then watch the stock. If it bounces off a resistance point a couple of times, and I am in the green, I will sell all or some of my contracts.

My goal is to make at least $500 a day. With the intraday mood swings in this volatile market, I prefer to take a .20 to .50 gain within an hour, than hope I get a couple of bucks by the end of the day. I never worry about money I left on the table, there is always more to find tomorrow. Therefore, I make the best quick trade that I think I can. I don't limit the trade to $500, but if it ends up over that mark, I quit for the day. If it is under that mark, I keep watching, and look for another trade. This last week, I quit trading before the market closed 3 times.

I really need to close this post out, but here are a couple of more things that I picked up this week. First of all, you actually can watch level two activity on options themselves. I haven't been watching the depth on the bid ask. I think th is is going to give me a huge advantage, and help me to stop chasing asks when I do my buys. Secondly, I am going to add CNBC to my background noise next week. The last couple of months I have been involved in learning the mechanics of trading options, setting up tracking systems, and in general trying to learn my business. While trading, my attention is focused as much as possible just on that. Distractions were costly from time to time. This week, however, while I was going back to refresh my trading platform home page to see if there was any news, and then checking out at Ihub, I realized that in this news driven market it, real time news is just as important to me as real time quotes. Starting Monday morning, I am going to have CNBC going in the background while I'm trading.

Making these simple realizations is very grounding for me, and makes me start to understand how far it is that I have to go.

Always perform your own due diligence before making any investment.