A Beautiful Saturday

Today is 6 February 2021. For a small account like mine (buying power limit : USD5K, utilised YTD: USD3K), I managed to achieve the following YTD result. Nothing great, but something I need to continue to work hard. Nevertheless, it is a small achievement.

Considering I started trading options back in April 2020, I have since made more than 100 closing trades. I am happy to say that I did not suffer any major loss. I actually made money on gross return but on net (due to commissions / transaction fees), it could be a break-even of sort. I would love to believe that it was due to the nature of my small account (it was increased gradually from USD1K to USD5K in 2020), I did not manage to secure significant gain back in 2020 as (i) i traded defined risk positions only; and (ii) smaller size positions. With an opening capital of USD5K for 2021, I target to optimise / maximise my returns. Eventually I hope to achieve an account value of USD20K via future deposits / internal gains.

Yesterday, it was a happy day because I managed to get out from my losing iron condor position in NFLX at a loss that is within my expected risk limit. Initially, I entered into selling an iron condor position by a selling put (410/415) and call (570/575) on 13 January 2021. Earnings came and NFLX beat analysts’ estimates. NFLX spiked and breached my short call position. As my short call was breached, I took adjustments to move my untested side (i.e Put) closer and closer to my short call and eventually moved to 570 to form an ‘iron fly’. I closed off the trade even though there is 14 DTE left, at a loss of less 3% of my portfolio value.

Lessons learnt:

  • Beware of earnings trade and anticipate there would be directional spike (even though there could be reversion in volatility);
  • If there is a spike and you have more than 21DTE, one may wait and see how things pan out first before doing any adjustment;
  • Sometimes you may have to leave your trade for the probability to play out. Don’t adjust too narrow / forming an iron fly as it will lower your chance of getting the ‘scratch’ or at least achieve a profitable trade.

This is currently my biggest outstanding loss position – bear credit call spread on PERI (17.5 / 20):

There was a run-up in the share price of PERI (way above the Keltner channel) prior to its earnings announcement scheduled on 9 February 2021. Since DTE is 42 day, I have some room / time to see how things will play out. Will monitor the situation and may roll-forward on 21 DTE or close off the position to minimise further loss. Hoping post earnings announcement will reduce the IV for PERI (current IV is 110% for 19 Mar 2021 options date).

Moving forward, since the VIX is currently below 30, I will try to cap the balance of my available BP option to be not less than USD2K (40% of total portfolio). I will continue to consider a balanced strategy of selling selective high IV rank options and long micro / small cap stocks and debit spreads. Since the current valuation of the market appears frothy, one may need to manage / cap trade size.

DISCLAIMER: THIS IS NOT AN INVESTMENT / TRADING ADVICE OR RECOMMENDATION. PLEASE REFER TO THE GENERAL DISCLAIMER OF THIS BLOG. IF IN DOUBT, PLEASE CONSULT WITH YOUR LICENSED FINANCIAL PLANNER / ADVISER.

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