Here’s what I see:

CERN
Underlying: $60.80
Support: $56.50
Risk: $4.30

Sept 65 Call Option
Ask: $2.50
Delta: .57
Option Risk $4.30x.57 = $2.45

Acct Value:$2825.00
Risk = 10%

Since my account value is so small right now for a trading account, this is an acceptible risk for me. Ideally the risk is kept at 1-2%. For smaller accounts $10,000 or less, 5% is acceptable. For $3k, I’m OK with risking 10%…after all, this is my original money from nearly 2 years ago that I am still trading (infrequently).

So I just placed the order, and it was filled at $2.35

Now I’m going fishing!

I’m breaking my own rules a bit with the risk involved in terms of the percentage of my account to risk with any one trade, but my trading account is really small right now, so my risks will be a bit bigger than I like. I’ve justified this by telling myself I’m going to be depositing more money into my trading account soon, so my ‘real’ risk is a little lower.

Here are the details of this option:

GOOG (Google) underlying $418
Support $402 (Recent Low)
Risk $16
Option: Sept 09 Call 430 Strike @ 16.10 Delta .44
Option Risk:  $7
Acct Value: $~4000
Risk Percentage =  17%  (OUCH!! Don’t do this at home kids! That’s just for one contract $7×100)

I probably shouldn’t even be playing in google at all with this account size, but hey, what can I say. I’m in a slightly better financial position now than 2 years ago when I started. Even though my trading account size is small, if I lost it all, I have some cash in savings that is set aside for investing and investing education so that’s my justification.

Resistance $448 (Recent high)

I began making my current watchlist 3 days ago, and surprisingly, 1 or 2 came in with nice setups.

Today I purchased a long call on NFLX 42.5 September Option at $3.60.  The underlying was at about 41.00 at the time. I see support at 37.50, for a risk of $3.50 on the underlying. Since the option’s delta is currently at .5, that’s a risk of $1.71 on the option.  Since my trading rules tell me to sell if the option falls to half price, I’m well protected in any case.

Below is the 6 month chart. The two moving averages are 30 day and 7 day simple. Yesterday the stock closed above it’s 7 day moving average with volume after a pullback.  There are a few red flags in this trade which I will note for my own future reference in the event that this goes south.  Impatience is a major flaw in trading that I have to work out The flags are the lack of a consistent uptrend in the 30 day MA. It uptrended for a bit, and is now downtrending. In addition, Investools shows that it’s Industry group is out of favor, but Investors.com (Investors Business Daily) shows it’s industry group as an A+.

I had previously set a sell stop below the last support, but now, to lock in profits, I’ll move this to a training stop.  The other option is just to sell at open, but I don’t like that idea.  I’m putting a training stop at probably .10-25 cents  below.  I may miss a big upside if it’s volatile tomorrow, but I’ll lock in some profits.

So I made this purchase just now:

FST (Forest Oil Corp)

July 70 Call @ 2.50

Underlying stock was at 66.68, with support at 63.90, for a potential risk of about $2.70 on the underlying stock.  The delta of my call is .40, which equals about $1.08 potential risk on the option, or $108 dollars for one contract (100 options).

My current account balane stants at $4400, making $108  less than 1/4 of a percentage point risk on my total account.

I put in a stop limit order on the underlying at $62.10, or about 3% below the support to allow for some wiggle room.

Position sizing like this allows me to continue trading for a long time even IF they are all losing trades (they won’t be!).  Keeping your potential risk below 1% of your account value if your account is between $5000 & $10,000, even less if you have more money.

Stay tuned!

Last night I was browsing my watch lists getting itchy trading fingers, and I placed a limit order on SID for an April 40 Call at 1.80.  By close of today I was up 15% on the option, which has had me in a good mood all afternoon.

My plan is to place a trailing stop on this to protect my profits. If I’m lucky, it will continue to rise (with the price of gas !) and I’ll simply build my account. But at worst, I’ll have my options trading account back and can get back to the business that I started out intending to practice.

I am pleased with the market, however, I’ve gained about $100-$150 per day in the past four days. I’m STILL down a few hundred dollars, and my capital and margin is tied up in this stock.  I’m OK to sit on it for a little while, but it’s really cramping my option trading style.

I’m ready to get rid of my day job, so I need to get this options thing figured out!

Here is the weekly chart for the past year.  Looking at it from this perspective, I really hope this is not a head and shoulders pattern forming.  In any case, I exercised my options at a strike price of 80, which is where the left shoulder sits.  I would be thrilled ot sell at 80 and get my investment back.  Perhaps at that point I”ll put in a stop limit order for 80 to limit potential losses.  That of course is assuming it gets back up to 80…

How is your trading going?

In December, I was holding two oil stock options, figuring that they could only go up in value at the beginning of the winter.  Naturally with this recent market, I was wrong.  Both options steadily declined in value and eventually I just decided to let them both expire worthless.

NOTE: This is NOT part of my trading strategy.  I even have it in writing to dump any option that loses 50% of its value.  But I got lazy and kept “wishing” that the market would turn around.

When I got back around to looking at the market thinking I’d try to make a trade, I noticed my cash balance at negative $3000!  I thought perhaps I’d made  a mistake in making a trade, perhaps purchased 10 or 100 contracts instead of just 1 contract.  I carefully looked through my transactions and did not see any accidental purchases.

The I looked again and noticed that I owned 100 Shares of STOCK in Murphy Oil Corporation.  How the hell did that happen?  I had let the option expire worthless, and did not exercise it!

So I got onto live chat with my broker’s support line, and was told that any option whcih expires at least 5 cents in the money is automatically exercised! Now I am the proud owner of 100 shares of stock, bought on margin.

My carefully learned, planned, written option trading stragtegy with some “fun money” was totally blown because I did not fully understand one of the fundamental rules of the Chicago Board of Options Exchage.

Live and learn.  This completely ruins my trading account strategy since all of my money is tied up in this equity…the whole reason I’m trading optoins and not stocks…the equity is far less liquid.

Now I’m waiting.  It’s still a good company with good fundamentals and it’s an OIL stock after all.  it HAS to go back up.

I hope this has helped you learn something about what do to on options friday!