The Call Girl Trades Stock Options

Twelve closed trades (mostly short puts) with ten profitable trades totalling $1879 and two losers totalling $527. Net profit of $1352. These are all single trades with commissions factored into the net profit/loss. Trading multiples would have netted not only larger gains but larger % gains due to lower commission structure for multiple contracts.

Call girl currently holding:

An open SLV short July 16 put – profitable but hoping for larger gains.

An open short GLD Sep 95 put also profitable but hoping for further gains. 

A LEAP - GLD Jan ’12 130 long call also profitable but will be optioning agains this over time for more profits.

Baby steps, grasshopper, baby steps.

For the past few days the DJIA chart shows the previous support line is now acting as a line of resistance after a break down out of a upward trending channel. ADX is above 20 which indicates it is trending although it appears it may drop below this benchmark. Looking at SPX (S&P 500 Index) it shows similar pattern of support now serving as resistance. Since I don’t have a strong overall trend now, I don’t want to try to buy/sell positions yet. Hold tight.

Brace yourself for another exciting week of trading. With futures pointed higher early Monday morning, this week could bring higher numbers for stocks with it. Or – if some traders are to be believed – a key resistance level could smash share prices back down this week, leaving them in a flaming heap on Wall Street. So, which is it?

The traders are right to be less than bullish right now. The 50-day moving average is acting as a potentially tough resistance level right now for the S&P 500 index – one that stocks could have trouble surmounting given the mixed economic fundamentals of 2010. If we can breach the 50-day, however, the market could be ready for another rally leg.

Today is going to be the biggest tell given that the market is threatening to open right on the 50-day. Pay attention to where trading ends at 4:00 p.m. today; that’s the best indicator of how to play things.

POT and GLD continue their ascent. My sold POT puts are making money and waiting for 124/126 sell signal. The bought GLD calls also making money and waiting for any sell signal as GLD broke upward from a channel so no resistance obvious.

Met with financial consultant today to learn about the new international trading platform that they just debuted. Eight currencies (including the Kroner!!) and twelve countries. Now I can really exit the $ with lower commissions. Although the foreign stocks are not yet optionable, they should be in 2010 through this broker. Only 42% of the value of all equities is represented by U.S. stocks so this is a very key part of my trading strategy.

Gold, silver and potash are all moving strongly higher today. A bull engulfing pattern formed on the 11th which signaled an upward movement in Potash. POT has been moving in an upward channel for about a year. After bouncing off the trendline of support, the most expected move for POT is upward to approximately 126. My March put and my June put both of which were sold, are both profiting nicely. The GLD LEAP (which I purchased) is also doing well. I will continue to watch these and take profits closer to 126 for POT. GLD will continue to run for a much longer time as I write covered calls against it over the next couple years to offset premium and generate derivative income.

Trendline of support from early August through late January shows a medium-term uptrend. This trendline was broken on all major market indices around January 22nd. Moreover, a long-term upward trendline from March of 2009 through January 2010 was also broken through to the downside on February 4th. MACD indicator shows inconclusive so waiting for stronger sign but I am expecting the overall market to begin a double dip.

Closed the NEM March 45 puts today for $102 net profit. Market is going sideways and prefer to take advantage of a down day with a known profit in the event the market turns up. Gold has been trading along the trendline in a narrowing triangle and could break out up or down so want to take money off the table rather than gamble. Too much uncertainty with sovereign debt to feel confident of market direction today.

A little of something is better than a whole lot of nothing, as my friend Tim would say.

Just before the market closed yesterday, I bought two NEM March 10 $44 puts and two NEM March 10 $45 puts on a hunch that gold, potash, silver, and other commidities had further to fall. I paid $166/each for the first two and $220/each for the second two. Within the first few hours of market open today, it was apparent that gold was going down and NEM, Newmont Mining, is a gold miner. I am going to close out the $44 puts and take a quick $211 profit after commissions and  let the $45 puts stay in play. Yea!

I also am closing half of the straddle opened on February 1st.  GLD broke out downward and I bought to close the put for a loss of $296. The call has gained about $150 so offsets this somewhat but hopefully further downward movement will increase that gain for a net profit.

Okay, I’m getting really smart now! I am reading Option Trading In Your Spare Time by Wendy Kirkland and Virginia McCullough.  This pink book is aimed at women and does a great job of explaining many concepts with very easy-to-understand analogies. The authors jump right in without underestimating their audience which is fabulous.

I am beginning to realize that $2000/week trading options may be an aggressive goal but until I gather enough information to completely discourage that, I will keep moving toward that goal. To achieve that goal I realize that I will either have to swing-trade which means making trades over shorter time periods (a couple days to a couple weeks) or buy multiple contracts on an underlying stock which will add more risk to each trade. I could also trade many options simultaneously but I feel that I might lose some of the control due to watching too many stocks and too many indicators.  Or not. We’ll soon find out!

Today marks my first combination strategy. A straddle is the simultaneous purchase and sale of the same number of calls and puts with identical striking prices and expiration dates.

Using GLD, I am going to sell a call (this is covered as I own 100 shares with a basis of 92.5 in my trading account) and sell a put, both with high time value. Selling the June 19 2010 call at 109 provides $600 in income and selling the June 19 2010 put also at 109 provides $650 in income. If the stock goes up, my shares will be called away at 109, if the stock goes down, I can buy more at 109. $650 + $600 provides about 12 points per share in reduced basis (before commissions) so this looks like a fair gamble. The stock is currently trading at 108.35 so the put is in-the-money and I must watch closely if I want to avoid exercise. I would do this by rolling down which will subtract from the $1250 premiums already received.