Fund D Update @ 21-Feb-09 after Expiry Friday

Realized P&L of about -$21,908.
Unrealized P&L of about -$11,577.
Net Asset = $80,605.
Cash On-hand = $98,595.

BIG MISTAKE : failure to protect Unrealized profit as of last Fri +10,151 leading this week major Realized losses. Right strategy but Trader's mistake.

DETAILS :-

Final week of Feb-09 option month.
BAC and C dropped drastically over fear of "nationalization" of some major US banks. Market was trying to read into Bernanke's speech "we will keep the banks or return the banks to private sector.......". The phrase "return the banks" have been interpreted by market as possible nationalization of US major banks.

Option Expiry Friday today.
Expected short sellers have to cover their position in the afternoon after the past 4 days of heavy short sellings. Waited for the US traders to be back from lunch to cover their short positions but have to cut loss at around 1:00am as our losses have hit threshold level. After 1:30pm, all those fat traders came back from lunch, BAC and C moved up sharply as expected to happen on typical Friday option expiry day as they have to cover their short positions. Sigh.

Fund D unrealized profit was +$10K as of last Friday. Goal was for it to hit at least 80% ($12K) of target maximum profit ($15K). Should not have left the +$10K unrealized profit on the table for a potential profit of only incremental $2K only..... the risk/reward ratio have shifted so much already. BIG mistake and we closed out this week with an overall realized negative profit of -$22K.

Made several very bad mistakes of typical newbie option trader (sigh, a $10K+$22K lesson). Maybe should fire the Trader... guessed he will definitely remember this well going forward).

Major Mistakes
1. Too much focus on 80% profit target of maximum potential profit.
2. Failure to protect already in-the-money "unrealized profit". This is as good as CASH !
3. Removed auto stop-loss and get into manual mode. Stop-loss could have been at -$15K but turned into -$22K instead.

Very expensive but valuable lessons learnt today. Need to revisit "Protect the in-money unrealized profit" and "Stop-Loss" strategy.

Notes : Gold price cross $1,000 today. Dow crossed below the lowest low since 1997.
Washington spokesman said more details will be provided next week regarding the possibility of nationalization of bank.

Fund C Update @ 14-Feb-09

Unrealized P&L of about +$162.
Net Asset = $24,185.
Cash On-hand = $22,187.

Net Asset increased from last week $23.1K to $24.2K.
1 more week to Expiry Friday 20-Feb.

Fund D Update @ 14-Feb-09

Unrealized P&L of about +$10,151.
Net Asset = $122,453.
Cash On-hand = $123,112.

Net Asset increased from last week $113.7K to $122.4K.

1 more week to Expiry Friday 20-Feb.

C share price fairly stable and above $3.00 most of the time. Volatility decayed to 135% and time decay kicked in very rapidly this week (and next week too) as it is last 2 weeks before option expiry Friday 20-Feb.

BAC share price swing up-and-down and dropped to $5.58.
We want BAC to stay above $6.00 so as to keep 100% profit. Breakeven point for the closest defense line option is at $4.75. Probability of winning for the BAC option chain is still high.

Fund C Update @ 7-Feb-09

Unrealized P&L of about -$926.
Net Asset = $23,058.
Cash On-hand = $20,928.

On 5-Feb after opening during first 20 minutes BAC showed extremely skewed number of Sellers vs Buyers. Best time for momentum trades. Fund C managed to increase from $19.8K to $23.1K this week.

Fund C now 15.0% gain and ahead of Fund D performance of 13.7%.

Fund D Update @ 7-Feb-09

Unrealized P&L of about +$2,106.
Net Asset = $113,725.
Cash On-hand = $120,178.

2 more weeks to Expiry Friday 20-Feb.

C doing well. BAC dropped significantly & continuously for several days, heart-wrenching problem period early this week. Towards the end of the week BAC started to stabilize, a good sign. Only worry is not sure whether it is due to short-sellers covering their positions or BAC finally stabilizing.

Funds C & D Update

In January Fund D increased by about 13.2% from $100K to $113.2K but Fund C decreased by about -0.1% from $20K to $19.8K.

Fund C investor questioning why Fund D was very active and making money while Fund C was not highlighted much and was losing money. That's true, in January most of the effort was put on Fund D which is a larger fund of $100K.

OK. Will Blog less and put more time and focus on Fund C. Will cut-down Blog to only once a week or on some unique trades only.

Will try Momentum Trading using Level II Quotes for Fund C to catch up. This strategy is a lot of hard work as one has to monitor and hunt for the opportunity. Very intense and focus short-term momentum trading which can result in minimum 5% to 10% gain within 2 to 10 minutes.

This is how it works. Search for stocks that have significant skew in the number of Buyers vs Sellers (demand vs supply). A ratio of more than 3x preferred. But the window of opportunity can be very short. If it is 10x or more, chances of winning is greater than 90%.

This is done through monitoring and hunting using Level-II Quotes.

If Buyers are significantly more than Sellers, then follow the Buyers momentum and BTO at-the-money or in-the-money CALL options.
If Seller is more than Buyers, then BTO similar kind of PUT options.

Track closely and STC the opened positions once 5% or 10% target is met or when the Level-II ratio starts to reduce significantly (do not get caught by this). This usually can be achieved within 2 to 5 minutes and will normally be less than 10 minutes.

Things to watch out. Some of the market-makers use computer to generate dummy Orders in system that may trick you. E.g. BAC is at $5.00. You may see a single 10,000 order waiting to buy BAC at $5.50. When BAC price increase to $5.30, the 10,000x $5.50 order disappeared and a new order of 10,000x appear at queue price of $5.80. And when BAC price increases further e.g. to $5.55, you can see that huge order move up again and away from the current price. That is automatic computer trading by the market-maker and you can get trick into believing that those reflect the market.

This strategy is a lot of hardwork, very intense and can be stressful. Those with heart problem should not attempt this.

Fund D Update for 30-Jan

Unrealized P&L of about +$4,489.
Net Asset = $113,196.
Cash On-hand = $118,165.

No new trades.

3 more weeks to Expiry Friday 20-Feb.

Fund C Update for 30-Jan

Unrealized P&L of about -$1,602.
Net Asset = $19,783.
Cash On-hand = $19,020.

Fund C trading strategy followed closely to Fund D. Has also been trying a few new strategy along the way.

Fund D Update for 29-Jan

Unrealized P&L of about +$4,364.
Net Asset = $113,071.
Cash On-hand = $118,165.

No new trades.

Volatility decay and Time decay are to our advantage.

Fund D Update for 28-Jan

Unrealized P&L of about +$3,520.
Net Asset = $112,227.
Cash On-hand = $118,165.

No new trades.

Government finalizing "Bad Bank" and "Good Bank" plan. Most financial share price gone up, except LM which announced earnings below market expectation.

Fund D Update for 27-Jan

Unrealized P&L of about +$1306.
Net Asset = $110,013.
Cash On-hand = $118,165.

(Will try continue posting daily account update for about 1 month, per request by friend John. He wanted to see both -ve and +ve P&L, instead of just +ve P&L which seems to him to be too good to be true).

Need the price of BAC & C to stabilize, to rise or to drop slightly by Expiry Friday 20-Feb and we will get to keep the Option premium ($14,260) collected upfront. Continue to put Stop Loss protection along the way.

Day to day there are other small simple straight trades when opportunity arises which are not posted. Focusing mainly on Bank/Financial companies and CreditCard issuers. Wanted to trade on Sea Shipping companies but do not have time to do research on it yet.

Fund D Update for 26-Jan

Unrealized P&L of about -$1089.
Net Asset = $107,617.
Cash On-hand = $118,038.

Chinese New Year Day yesterday. Checked the market for position management and no significant transactions.

Fund D Update for 22-Jan

Unrealized loss of about -$3K.
Net Asset = $105,150.
Cash On-hand = $119,551.

My friend John K asked how come all or most of the trades are profits only. Don't you make losses ? Answer is yes, we do make losses from time to time, both Realized and Unrelized Losses (paperlosses). So will try to spend 5 minutes a day to post a short note on Net-Asset position for a week or two dedicated to Mr.K.

Fund D Update for 22-Jan on NOK

NOK announced earnings tumbled 69%. Share price dropped.
(Buy PUT and/or Sell CALL-SPREAD).

STO
10x NOK-Feb-$14/$15-BEAR-CALL-SPREAD at $0.35

BTO
10x NOK-Feb-$13-PUT at $0.70
10x NOK-Feb-$12-PUT at $0.35

STC
10x NOK-Feb-$13-PUT at $1.250 profited $550 (78.6%)
10x NOK-Feb-$12-PUT at $0.725 profited $375 (107.1%)

Position still open
10x NOK-Feb-$14/$15-BEAR-CALL-SPREAD at $0.35 (most likely to keep 100% potential max profit $350 by Expiry Friday 20-Feb).

Remarks :
STO = Sell-To-Open
BTO = Buy-To-Open
STC = Sell-To_Close
BTC = Buy-To-Close

Fund D Update for 21-Jan

Dow gone up across the board.
Unrealized loss of -$10,425 reversed into a small positive gain of $921 within a day.

UnRealized gain about +$921.
Net Asset = $107,698.
Cash On-hand = $117,577.

Fund D Update for 20-Jan

UnRealized loss about -$10K
Net Asset = $97,616
Cash on hand = $117,889

POSITIONS MANAGEMENT
Price of C and BAC continue to drop and several of the Options were getting closer to the Stop Loss trigger points. No stop loss was triggered.

Implied Volatility is still very high with both C and BAC above 210%. We have entered the trades a bit early. If waited for 1 to 2 days before entering these positions, the potential profit could have been 50% more ! Margin has crossed my 50% buffer, so did not open more trades.

Total UnRealized loss is -$10,425. Quite a big sum. Many questions came up in the mind ..... should I move in ahead of the Stop Loss and close the positions ? Should I move out the Stop Loss further by 10% to 20% ? Obama already sworned into office. His team will start working on the financial crisis... so expect the market to stabilize very soon over the next 1 to 2 days (price need not increase, just need to stabilize and we will still win at Expiry Friday!).

It's the Darkest before Dawn... thinking of whether to move the Stop Loss out by another 10% to 20% but decided to keep the Stop Loss position as it is. If C and BAC continue to drop another 5% to 10%, likely at least half of the positions will be triggered by the Stop Loss Protection and close out.

Fund D Update - New positions setup for Feb

Very volatile day as it was Option Expiry Friday 16-Jan.

Implied Volatility for BAC and C are around 170% and 190%. STO some PUT positions for Feb.
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BAC support level at $7.00 and C support level at $3.50.

Look at the Stochastic chart to time entry point for the STO of PUT option when it is close to the over-sold area (optional).




STO the followings :-
60x BAC-Feb-$5-PUT at $0.52 (share price at $7.15)
1x BAC-Feb-$6-PUT at $0.76 (1 contract only to test out a new strategy later)
50x C-Feb-$3-PUT at $0.51 (share price at $3.75)
25x C-Mar-$2.50-PUT at $0.40 (share price at $3.75)

Did not use vertical spread today, trying to save cost on the "Buy" leg. Put in far out Stop-Loss protection instead.

BTO this 1 position :-
10x BAC-Feb-$7.50-CALL at $1.45 (to test out a new strategy)

Target max profit for these positions is around $6,746 which is within plan of $5K to $10K per month (3,120 + 76 + 2,550 + 1,000). If at 80% it is still around $5K.

Remarks :
Very volatile day as it is Option Expiry Friday. Market opened on down trend and stabilized/reversed after lunch time.
At 3pm several share prices moving nicely upwards, could be due to Short sellers trying to cover thier positions before the long weekend starts (next Monday is holiday in US ?). Massive swing downwards at around 3:30pm, definitely a lot of big players out there manipulating the shares prices trying to "kill" each others.... to see who blink first before the Option Expiry Friday.
Citi incurred $8.3B loss last quarter. Planning to split company into two. One with all the toxic waste and the other with the healthy business (sounds familiar ???). Someone commented on CNBC that C is worth only $1. I think all the US banks share are also worth $1 each right now. There are so many "skeletons" in the closets and we do not clearly know how many there are and in who's closet. But the government will definitely continue to bail them out and it's a right thing to do. Just hope the government do not become bankrupt instead of the banks.

MER incurred $3.9B loss in Q3 and $16.4B in Q4 !

BAC gets $20B funding from TARP (or spell as TRAP? Need to check).

Fund D Update - after expiry Friday 16-Jan

Both vertical spreads for MS & COF and one BAC naked PUT (with Stop-Loss protection) all expired worhtless. Kept profit of $4,008, $2,222 and $350.

Total profit for the Jan Option month is $13K, exceeded the fund objective of between $5 to $10k per month. Key profits for the month :-
MS = $4,008
C = $2,240 + $130
BAC = $4,136 + $350
COF = $$2,222

Could have been a bit higher if we did not close out C-PUT-Jan position yesterday as we do not want to keep open positions during earning announcement due to unpredictable market response.

Market very volatile due to Option Expiry Friday. Saw some good opportunities and setup some new positions for Feb.

Old Net Value = $92,062 (as of 6-Jan)
Current Net Value =$106,701 (as of end 16-Jan)
Current Cash Value = $110,854

January option month contributed a value of about $14K from base of $92K i.e. about 15.2% for this month (or in 10 days). Average time spent per day in Jan was high at about 45 minutes (a typical month average was 20 to 30 minutes e.g. for last quarter).

Fund D Update - before expiry Friday 16-Jan

Just about to went to bed last night and heard from CNBC news that Citi brought forward their earning announcement from 22-Jan to 16-Jan (before market open) i.e. on option Expiry FRIDAY !! That sucks...... what a timing.
As we do not trade through earning period, quickly close (BTO) all Jan-C-PUT positions. Collected $130 profit instead of $1,040 planned. And can sleep well not having to worry about Citi earning announcement next day (was prepared to take small losses and get out if needed).

Fund D Update

MS and COF still on downward trend. No action needed. Likely to achieved max potential profit of $4,008 and $2,222 respectively by expiry Friday 16-Jan (positions started on 5-Jan through STO).

All major banking stocks on downward trend today due to news on C and BAC. Implied Volatility of C and BAC went above 200%. Couldn't resist to try to collect $1K or $2K with high probability of winning e.g. selling far out PUT option for Jan expiry Friday which is only 1 day away.

STO (Sell-To-Open) 130x Jan-$2.5-PUT-C at $0.08. C price was at $3.90. To lose money C has to drop from $3.90 to $2.42 which means it must drop 37.9% within next 1 day. Target profit of $1,040 within a day.

STO 20x Jan-$5-PUT-BAC at $0.175. BAC price was at $8.00. To lose money BAC has to drop from $8 to $4.83 i.e. it must drop 39.6% within a day. Target profit of $350 within a day.

Fund D Update

Bear-CALL-Spread Positions Management
C share price dropped to $5.01 and profit of the Bear-CALL-spread hits target 80% of max potential profit. Contract is 20-Feb and has 35 more days to go, not worth to wait that long for another 20%. And C is announcing earnings on 22-Jan and we do not want hold open position through earning announcement due to unpredictable outcome. So BTC (Buy-To-Close) all 100 C contracts at $0.055 and returned $550 back to the market and keep profit of $2,240.

COF share price dropped to around $26. Profit is more than 80% of max potential profit. Price is $9 (34.6%) away from defense line of $35 and 2 more days to expiry as this is 15-Jan contract. Likely to keep 100% of max potential profit of $2,222. No action needed.

MS price dropped to $17.25 and retracing back upwards. Very volatile and this is our highest risk position. Potentially may lose money if held for 2 more days as price is only $1.75 (10.1%) away from our defense line of $19.00. Profit crossed $2,000 today at 50% of max potential profit. Should have closed it out and locked in $2K profit but was hesitant.
Today MS dropped and pierce through its $18 support level. So it is likely that $18 will become its new resistant level which mean it will likely stays below $18 and we may collect full 100% profit at expiry Friday. Max potential loss is about $8,000. Potential max profit is $4,000.
Summary sheet.

Fund A CLOSED - target met

Fund A Closed. Target met. Net value increaed from $50,000 (1-Sep-08) to $100,470 (9-Jan-09) in about 4 months (target was 12 months). Congrates.

Kept 20% commission (i.e. $10K) on the $50K profit made. Returned $90K to investors. All investors requested to continue to stay invested. So will open a new Fund D with an initial investment of $100,000 (starting 10-Jan-09).

This is an Absolute Target Fund which has very specific target by Profit Amount and/or Time. This fund will be closed once the targeted Profit or Time has been reached.
Targeted fund to close within 12 months or upon achieving 100% profit whichever occur first.

Fund A Status after closing for Fri 9-Jan-09

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Banking and credit card issuer Stocks price came down nicely as projected over the past 5 days. BAC met target of 80% of max profit potential.
So went ahead and closed it. Collected profit $4,136 within 5 days (upfront premium value collected $5,136. closed position & returned $1,000 back to the market), not too bad.
If held for another 5 trading days until Expiry Friday 16-Jan-09, can keep this $1,000 as well. Probability is still very high, but decided to close out and can have a good night sleep).

As of 5-Jan when BAC position was opened, the potential max risk vs reward is 2.89x (i.e. $14,864 potential lost assumed held till expiry at max loss vs $5,136 potential profit).

As of 9-Jan, the profit on-hand was already $4,136 and the additional potential profit to make was $1,000. The risk vs reward is 4.14x (i.e. losing the $4,136 already in the money vs additional reward of $1,000).

In worst case scenario, if unfortunately "gapping" occurs over the next 5 days before Expiry Friday (though it is very very unlikely), the max potential lost will be this "profit on-hand" of $4,136 and $14,864, a potential "lost" of $18,990 vs additional potential profit of $1,000 only. This risk vs reward is 19.00x !

Very high probability of keeping this additional $1,000 profit because current BAC share price is at $13.19, i.e. about $1.81 (13.7%) away from our nearest Strike Price of $15.00. This is a judgement call that we as the Traders has to decide. Our decision is to close the position, keep the profit and have a Good Friday night sleep. Cheers......

GREED vs FEAR ....... always.

Fund A Status for Monday 5-Jan-09

Have not been trading for sometime.
The market has been on the up trend in the first few days of the new year 2009. Believe that the market will be range bound or slightly on the downside over the next few weeks. Some of the financial stocks and credit card issuers still having relatively high implied volatility. So decided to setup vertical spread (Bear CALL spread) on some of those stocks. If my decision is wrong and these stocks price continue to go upward, will need to cut lost at break-even point or with some loses.

Choosing spreads where the potential gain vs potential lost is at a ratio of 1:5 (or 1:4) minimum. E.g. for BAC the amount collected from selling the vertical spread is $0.30. The distance between the strike prices BAC-CALL-Jan-15 and BAC-CALL-Jan-16 is $1.00. Max potential profit is the $0.30 premium collected upfront. Max potential lost is $0.70 (i.e. $1.00 minus $0.30). The reward/risk ratio is 42.8% (i.e. $0.30 divided by $0.70) which is consider very good. Any reward/risk ratio of 20% (or 25%) and above is consider good.
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Setup (Sell-To-Open) Bear CALL spreads for MS, C, BAC and COF.

Fund A net value is $92,062.
Cash on hand is $103,220.

The entire setup currently at a lost of -$3,030.

100% target profit will be achieved for these vertical spreads if at the expiry Friday, the Stock price do not cross over the nearest CALL option strike price of the vertical spreads.

POSITION MANAGEMENT STRATEGY
Stop Lost : to close position if the lost is equal to OR the lost at Expiry Friday will be greater than the premium collected upfront.
Collect Profit : to close position when the profit is at 80% or more of the max potential profit (i.e. the premium collected upfront).

OPEN POSITIONS