Cape Cod Doug's Stock and Option Trading Strategies

Threading the needle

The first month of trading with my new options strategy ended with modest success, as I managed to “thread the needle,” and have the SPY stay within 2 points of itself from last Friday to this Friday:

All in all, I added $450 to the bank as the weekly SPY 131 option spreads I sold last week for $2.23 each decayed to $0.73 today, for a profit of $150 per contract pair.

I turned around and sold more SPY weekly options for the next expiration on February 3rd: Three 131 calls, brought in $1.42, and three 131 puts brought in $0.90, for a total credit of $2.32 each, or $696 total.

Unfortunately, with the “grind up” market we have been seeing lately, premium prices are very small, so some more threading of the old needle will be needed to continue to book profits on this program.

Market rises, Doug falls back a bit

The market’s rise to about 1310 this week meant that I absorbed a small loss on my short term SPY spreads; I sold three January 128 spreads for $2.29 last Friday, and bought them back for $3.08 today, all told a loss of $237.00.

I put the position back on with weekly SPY options for next Friday, selling three SPY 130 puts and calls for a net credit of $2.33 each.

On the long term side, I sold my three April 128 calls for $6.77 each, a profit of 0.99 cents on each contract, and replaced them with three April 130 calls bought at $4.79 each. So now I have a credit spread going on the long side, holding April 130 calls against April 128 puts.

We’ll see how this pans out by next Friday!

So far, so good . . .

In the first week of 2012, my new options hedging strategy has produced a raw (not adjusted for commissions) profit of $468, with only 10 minutes spent at the keyboard.

The S&P 500 was at 1280 last Friday when I sold three 128 weekly option spreads for $2.28 net each. This Friday the index had only risen to 1284, causing the weeklies to decay to $0.72 each — leading to a good profit.

And there wasn’t much erosion in the April spread I bought to hedge.

So, all in all, a successful start. We will see how this holds up in more tumultuous markets that we all know are coming sooner or later.

I put the same trade on again for next week, selling three 128 spreads on the January contract for a credit of $2.29 each. Volatility is low!

A new year calls for a new strategy

A very Happy New Year to anyone who follows Cape Cod Doug, and I hope it will be a good one for you! Obviously, I haven’t been posting here much recently, as my work has overwhelmed me for much of the autumn of 2011, and my trading therefore ground to a halt.

A preliminary review of 2011 shows a trading profit of around 31%, which doesn’t match up to the 69% of 2010, but which certainly isn’t bad in a year where the S&P 500 was essentially flat. I will post a fully updated year end report in the trading log shortly, one that will account for commissions accrued.

With added work responsibilities this year, I am going to have to face facts and devise a new trading strategy that meshes with my availability and schedule. It’s going to be market neutral, and hopefully involve just one or two days where trades get placed each week, and which can be left a little more on auto pilot in the meantime.

So here goes — what we are doing is SELLING at-the money spreads on the WEEKLY S&P500 options market, and then rooting for them to decay over the course of the week (hoping for a flat market, in other words). To hedge this exposure, I am also simultaneously BUYING an equal amount of S&P spreads set to expire about four months out. The idea is that these, theoretically, will not decay as fast.

So, by way of example, with the market at 1280, today I sold three S&P Jan 13th 128 calls for $1.18 and sold three Jan 13th S&P 128 puts for $1.10 — a total credit to my account of $684, not counting commissions. Next Friday, I will buy these back, hopefully with them close to worthless.

As my longer term hedge, I also bought three S&P April 128 calls for $5.55 and three S&P April 128 puts for $596; a total outlay of $3,453 for the protection, again not factoring in commissions for the time being. The idea with these is to buy them in as the market moves, and try to minimize any decay.

This strategy is never going to produce a 100% profit in a year like I managed in the first year of this blog, but I’m hoping its less time consuming, and that it ultimately might produce a profit in the range of $1,000 a month over time.

I’ll keep my fingers crossed, and keep you posted!

The denouement for plastic shoes?

The CROX trend looks cooked after earnings this week:

My kids still love ‘em, though.

Anniversary of 1987 stock market crash

The market crash of 1987 was twenty-four years ago today. Remember? I was studying for my law school entrance exams, not trading. But I can recall it was big news, dominating every television broadcast.

“Older” people then could remember the Depression, but no one else had experienced a true “panic” in their lifetimes. It was also astounding to people how fast the market recovered, and how the country did not automatically go belly-up completely.

Anyone else remember the crash of ’87?

Wicker wipeout — CPWM

Not a good market lately for frilly consumer goods, as consumer confidence plunges into hibernation. Old friend Cost Plus tells the grim story:

Glad I dumped this one when I did!

Somebody’s got money to spend on fun — CCL

Recession? Double Dip? Don’t tell that to the folks who are spending discretionary dollars on cruises — if they keep it up, Carnival looks to break out of that seven month downtrend:

Supervalu up from the bottom again — SVU

This company — which we spotted languishing on the 52 day low list last winter, ain’t down for good and just keeps popping back up:

Supervalu operates supermarket chains in many states. If it can break that downtrend marked by the purple line, look for it to eventually rally back up and test the $11 level.

Checking out the Florida Everglades for a week

Looks like I’ll be leaving for vacation tomorrow with two positions open – both negative bets on VIX options.

I’ll be spending a week decompressing in the Florida Everglades – no phones, no ‘net, no trades, so I’ll just have to see how things turn out when I return on August 30th.

Enjoy the rest of the summer, folks!

Cape Cod Doug's Stock and Option Trading Strategies

Trading profits after one year were 112%:

Cape Cod Doug’s Outstanding Performance in 2010:

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