Breakdown of 1 year option trading – trade small

Almost a year ago, I got really into option trading. After reading a lot of content on different sites, I felt ready for my first trade. The first 6 month, I only tipped my feet in the water. I had the luck to experience a nice market correction in Aug 2015. It learned me a lot about rolling a loosing trade. Probably the best lesson when you do not want to get a signed the stock.

The core of my option strategy is to earn extra income. Not to get assigned the stock or to be called away. I am prepared and ready for that moment when it happens. I will do everything possible to avoid this.

I hold a logbook of all my trades. This has some valuable lessons already in there. One of these lessons is to be diversified in puts and calls. That way, I can make a small profit no matter what. I also learned that uncorrelated assets work very well. I will post on that later.

On a lazy Sunday afternoon, I stated to play with my travelog and came up with some nice facts and figures about my trading.

The first one is about the profit per trade. I first let you look at the graph. What would be your thoughts?

image-8

 

To me the following stands out:

  1. Most of my trade generate between 15 and 30 profit. It might not be a lot. Remember that I trade small and I trade often. (As learned on Tastytrade). My option portfolio is part of my playmoney and does not allow me to trade a lot of contracts at once if I want to stay diversified in the underlying ETFs I trade.
  2. My losses are very limited. I actually have only 2 loosing trades. The amounts are quite big compared to my normal win. Only 2 losses?!? Am I a genius? NO WAY. When a trade goes against me, I prefer to fix the trade by rolling myself out of it, no matter what time or capital this might take. I just hate loosing. Going forward, this is clearly an attention point for me.I do belief this approach has limits to make me grow further.
  3. There a few “big” wins on the chart as well. This is where I bended the rules of how much downside protection I wanted. Basically none… These trades were in the gold and silver space. I am very bullish and that reflects in my trades. Not insight, just “gambling”.

 

What does your profit histogram looks like?

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12 thoughts on “Breakdown of 1 year option trading – trade small

  1. Ciao ATL,
    Very interesting, it seems that we are targeting the same “demographic” of income, only difference is that I have just started 1 month ago and you already have 1 year under the belt… I had to roll a loosing trade already, actually my first trade ever, but in the end I came out on a positive note adding the two of them… Still learning though, still a long way to go… Interested in getting to know about that uncorrupted assets story….

    ciao caio
    Stal

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    1. Starting slow was good for me. It allowed me to get used to the risk and to have only 3 puts in the money in Aug 2015.
      Uncorrupted assets is a typo! It is uncorrelated assets. Fixed now 🤓

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  2. I see, uncorrelated assets then, but still I guess I need an explanation there… 🙂 How many trades did you execute last year in total? Small amounts is also a way to go for me, although there are cases where i go for bigger premiums, especially on stocks that I want to own through options.

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    1. My first months, I did 3 trades per month. And when I had to roll, I did no extra trade. I aimed at about 15k of open positions. ( Sum of all strikes). I am higher now.
      On occasion,i also do almost at the money puts.

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  3. ATL – you and I are SO much alike. I, too, “roll my losers”. The problem is, they begin to accumulate unless the stock moves in your favor, and you ultimately do have to deal with them. Great article. I like the idea of a histogram, tho I tend to annualize my results and track each trade as an annualized % earned. Keep up the good work!

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  4. Very informative. This is also evidence that option trading, if done right, is not that risky (as you and others have already pointed out elsewhere). It can be less risky that stocks, even an income generating strategy!
    Good luck!

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  5. I try to avoid rolling options and trading too often. Trading costs in Canada are high and will eat up most of my profits. It costs me $13.70 to sell 3 options and only $16.20 to sell 5 which is my min. I would rather have my stock called away then rolling options forward. I have lost more money rolling forward only to find that the stock price falls back to the original price. I am also careful not to sell calls on a dividend stock after its ex-dividend date or after it reports earnings.

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  6. hey ATL,

    very informative.
    There is one difference between us. I only roll if there is no other possibility.
    I trade options on stocks I want to own anyway, so buying the shares is no bad thing for me.

    thanks for sharing!
    best regards
    Chri

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  7. How much do you pay in trading commissions? Just curious because my platform charges about $10 + $1 per contract, which seems pretty normal but at a profit of only $15-30 per trade, that’s coming out to a hefty percentage.

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