My Options Trading Unlocked – Newsletter 09 Mar 2024

Newsletter – Insights for Tomorrow’s Profits

09 March 2024

Options Trading : what’s working for me in 2024

Read on and learn more about my current positions

My goal is to share my options trading journey and to help you learn and profit from options trading. I write about my thoughts on options trading and finance in general. I provide information about my trading and my insights, that could be helpful to you in options trading, especially focusing on applying strategies and what I anticipate in the stock market for the upcoming weeks.

As we continuously strive to provide the most insightful and impactful content, I have decided to transition my update newsletter from a weekly to a monthly format. This decision is largely influenced by the significant time commitment required to produce a weekly newsletter. Crafting each edition involves preparation, analysis, and thoughtful reflection on relevant topics about options trading and market trends, a process that is both time-intensive and demanding.

By moving to a monthly schedule, it will allow me to dedicate more time to each newsletter, ensuring that every edition is more aligned with what I believe is interesting for option traders of all levels. This change also provides me with the opportunity to delve deeper into complex strategies and market insights, ultimately offering you more robust and comprehensive content.

Remember, for those eager to follow my real-time trades as I make them or all the results of my closing trades, our Discord channel remains active for immediate trade updates of my portfolio and options discussions. I am excited about this new approach and confident that this change will enhance our journey in options trading together. So as from now, every month I will report on the status of my trading accounts.

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1. Introduction

Two months into 2024, my journey through the fantastic world of options trading has been both enlightening and challenging. Despite applying robust strategies and careful planning, I’ve encountered setbacks, particularly from a few single positions that largely and negatively impacted my overall results.

This experience has been a sobering reminder of the volatile nature of options trading and the importance of continuous learning and adaptation.

However, I remain undeterred and committed to refining my approach.

My resolve to improve and succeed in this dynamic market environment is stronger than ever. Embracing both the triumphs and errors, I am dedicated to enhancing my strategies, managing risks more effectively, and ultimately achieving sustainable and improved success in my options trading endeavours.

Happy trading to you all!

2. Overall Market Overview (Week from 02 Feb – 08 Mar 24)

When I prepare for trading or following the market and my positions, I focus on two aspects : the general trend of the market with the indexes, mainly the SPX and the volatility of the stocks with the VIX. The reason why is clear: the general trend of the market and stock volatility are essential for options traders because they directly impact options pricing, influence trading strategies, and offer opportunities for risk management and profit generation in the dynamic world of options trading.

And then again, I don’t want to over-analyse too: but basically the SPX trend and VIX levels are not far away.

The market decided to keep going higher during February 2024 and it continued its move up from 4958 at the end of January 2024. After two weeks in February, the market gave the impression to come to a halt and maybe to a reversal but it kept going higher and ended this Friday 9 March 2024 at 5123.

I can only repeat that the market looks pretty overbought in specific stock (semis), but clearly the market doesn’t believe this. The SPX remained strong throughout February. We will have to see what next week will bring.

SPX Chart – SPX 5123 $

Market outlook for next week : I must agree with the saying nobody knows anything. Although the graph doesn’t show any signs of weakness, I prefer to be not too much directional.

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VIX Chart – VIX USD $ 14.74

Over the 4 weeks of February, the VIX went up and down between 13 and 15 with one spike to 18, ending last Friday at 14.74

It’s hard to imagine the VIX staying at this low level all 2024 … but again who really knows. I will be a very careful posture when adding new positions for now applying strict risk management rules.

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2. TOCF Portfolio Monthly Recap & Trading Plan – February 2024

a. Results February 2024 (01 Feb – 29 Feb 24) & currently open positions:

Here is an overview for all accounts of the positions and results of last month :

Results – Monthly performance

I’ll grade the performance of my trade plans as follows:

• ✅ I could closed the position according to the trading plan
• 🔶 Position did not go according to the trading plan, but after management I am satisfied with the results (positive or negative).
• ❌ Position that was mainly mismanaged – I need to learn and avoid these positions.

12 positions were closed last month. Details about all the trades are posted in the discord channels:

• ✅ 03 Feb 24 – Closing $SOFI CC resulting in a net P/L of $116,00
• ✅ 06 Feb 24 – Closing $PLTR Put for a 40 day 137% return, resulting in a net P/L of $125,00 with a ROC of 15,23%
• ✅ 06 Feb 24 – Closing $MSFT Put for a 33 day 30% return, resulting in a net P/L of $112,00 with a ROC of 2,78%
• 🔶 08 Feb 24 – Closing $PYPL rolled CC, resulting in a net P/L of $272,00 with a still 100 shares to wheel.
• ✅ 09 Feb 24 – Closing $TSLA for a 14 day 56% return, resulting in a net P/L of $147,00 with a ROC of 2,16%
• ✅ 13 Feb 24 – Closing $AI for a 46 day 216% return, resulting in a net P/L of $111,00 with a ROC of 27,61%
• ✅ 14 Feb 24 – Closing a long time position LYFT – close a 1 year battle (!) into a net P/L of $103 profit. Selling 100 shares at $15.94 and closing the strike $14 CC.

Our spreadsheet allows for every wheel strategy applied on a stock to track the cost basis of the shares and the present the results coming out of the journal in a clear overview. Below you can see the overview for the LYFT wheel strategy.

• ✅ 14 Feb 24 – Closing $ENPH for a 1 day 3705% return, resulting in a net P/L of $99,00 with a ROC of 10,29%
• ✅ 15 Feb 24 – Closing $TSLA for a 2 day 540% return, resulting in a net P/L of $117,00 with a ROC of 3,00% with 40% of max profit captured after 2 days.
• ❌ 17 Feb 24 – Closing $SAVE for a 51 day -824% return, resulting in a net P/L of $-108,00 with a ROC of -116,76%
• ✅ 29 Feb 24 – Closing $AI for a 16 day 501% return, resulting in a net P/L of $202,00 with a ROC of 22,25% and an Ann ROC 501%

3 positions were rolled.

Option Income – Feb 2024:

• 📈 Set Goal $1350 of option income : 🟩 🟩 🟩 🟩 🟩 🟩 🟩 🟨 ⬜️ ⬜️ – finished below the monthly target $ 991 / $1350 (= 73%) 🔴
• 🟢 Realised Net Profit/Loss : $ 991
• The profits (or losses) are always the sum of the results of the closed option positions during that given period (profit/loss of assignment not included)

Portfolio Net Liq Values – 09 Mar 2024:

• 🔴 Mexem : € 47930 (monthly change : € -807 or – 1,65 %)
• 🟢 TastyTrade TT : € 6409 (monthly change : € +200 or +3,2 %) or in dollars (influence exchange rate!) $7016
• 🟢 TastyTrade WH : € 3203 (monthly change : € +42 or + 1,3 %) or in dollars (influence exchange rate!) $3507

Total value for the 3 accounts :

• 🔴 in euros : € 57542 (monthly change : € – 565 or -0,97 %)
• 🟢 in dollars (influence exchange rate!) : $62992 (monthly change : $ +198 or +0,3%)

The open unrealised P/L is ($11753), a strong negative mainly due to the FSR performance, responsible for ($9200) unrealised loss.

Info – Interpretation of the exchange rate : I am from Europe and my base currency is euro. I am trading the US markets from a MEXEM account held in euros and from a Tastytrade account held in dollars. This means that I have and express my open positions and profits/losses of the US markets in dollars on both accounts. The Net Liq for me is only relevant in euros, taking into account the exchange rate (which sometimes is an advantage and sometimes not). This explains the difference in results between euros and dollars and for me the evolution of the Net Liq in euros is what matters ultimately.

Comments

The LYFT position and the final outcome learns that getting assigned in the options market should not always be seen not as a setback or a definite loss but on the positive side rather as an opportunity to implement the Wheel Strategy, a method designed to foster profitability over time.

While this approach may require patience, as it did with LYFT, sometimes it could take months to see substantial returns, perseverance is key. By steadily selling covered calls on the assigned stocks, traders can generate consistent income and lower the cost basis of the shares. This cyclical strategy rewards those who are diligent and patient, turning potential losses into opportunities for gain. Remember, the journey to profitability with the Wheel Strategy is a marathon, not a sprint, but with steadfast application, profitability is an achievable outcome.

In the case of FSR, selling CC won’t help me back to profitability. I have currently 2000 shares which continues to perform worse at this moment. I expect a battle for profitability, although I am still a believer in the great future for this stock.

c. My Trading Plan for upcoming week:

At portfolio level :

• The MX account is in euro en the TT accounts in USD (hence the difference of previous amounts).
• Theta level is still too low, so this is an action point for the coming weeks. I will look for opportunities to bring back up the portfolio theta, keeping in mind the low VIX
• I have been aiming to keep a descent delta/theta ratio. I have corrected the spreadsheet in a way that holding long stock is now also part of the calculation making the Spy B weighted delta correct for the whole of the positions. The sum of the SPY Beta Weighted Deltas of my three accounts is $40 (meaning if the SPY goes up $1, my portfolio value will up $40 and vice versa).
• I am aiming for a 1:2 ratio (or lower) with neutral delta/theta. My positions have made a nice recovery and after adjusting some positions where required, the delta/theta ratio is at 0,67 at the moment. I can certainly live with the small short ratio, but the theta is too low. But again, I need to keep the low VIX in mind.

Most of my open positions are in the red. I will have to continue battling to get the assigned stock back up to profitability by looking for opportunities for covered calls.

At individual stock level :

• I will continue wheeling on $PYPL which is close to profitability. I will keep selling CCs aggressively of these stocks to bring down the cost basis.
• $FSR is currently my biggest problem problem child. In $FSR I need a recovery move to $5. A few times good news or the absence of bad news will make the stock recover I hope.

General Trading improvements for the coming months:

In case you missed it my strategy document or you hadn’t had the time yet, here is the link again to “Developing my strategy and profit goals guide”.

I have learned that navigating the unpredictable waters of the stock market demands a solid risk management strategy, even though losses remain an inherent part of trading. Understanding that minimizing losses and their impact is the cornerstone to longevity in trading is crucial. I have experienced the impact of a few big losses on the overall result of the portfolio.

Therefor, with my strategy in mind, I will try to improve and apply even better the following risk management principles:

• Quality Over Quantity: Enduring losses with stocks destined for long-term portfolios feels substantially different from absorbing hits from less favorable stocks.

• Diversification Is Key : Monopolizing capital in a single entity spells risk. I will try to experiment more with diversifying my strategies not just across different stocks but also across various strike prices and expiration dates within the same stock, mitigating risk evenly. But still keeping in, mind the big tastytrade principles.

• Better Position Sizing : I aim to cap each trade to a fraction of my total options portfolio, thus preventing any single transaction from skewing my investment balance. However I also notice I easily break this rule. I need to improve this basic protection rule !

• Assessing Risk-Reward : I will implement a better risk-reward evaluation method, ensuring the potential gain justifies the risk, probably based on a minimum projected annualized return.

• Managing and adapting with Rolling Positions : Facing adverse moves, I opt to ‘roll’ positions, granting the trade breathing room for recovery, applicable primarily to quality stocks.

These rules are not just tactics but should be a philosophy, underpinning my trading journey with the resilience and wisdom to navigate market ebbs and flows while keeping my sights set on sustainable profitability.

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3. Weekly Watchlist

I will obviously keep my attention to the open positions I have : $FSR, $QCOM, $AMD, $SOFI, $PYPL, $PLTR, $NKE, $MRVL and $NIO.

Keeping a keen eye on interesting movements of the followong quality stocks :

$AAPL, $MSFT, $AI, $TSLA, $GOOGL, $AMZN,

4. Other stuff – info & links

• I have noticed that users often ask the same questions about the spreadsheets I provide via the webshop. Hence the reason why I have started a page with Frequently Asked Questions (FAQ) – And if you have any specific questions, please do take a look at the FAQ Page about the use of our spreadsheets.

• As a reminder, you can always follow my opening and closing trades via the discord channel. I’ve made the decision to refrain from duplicating content from the Discord channels here in my newsletter. This in order to optimize my time and focus and provide the most value to you, primarily on improving my trade management skills and sharing my experiences with you all. When there is a particular trade I feel warrants a comprehensive analysis, I will definitely include all pertinent details and figures in the newsletter.

• I have noticed that more traders are understood the importance of tracking your trades and showed interest in our spreadsheets. I have been receiving a couple of questions of users of the spreadsheet how to get the updated versions. Just to be clear, the normal updates of a spreadsheet are always free and the best way to get them is by making an account when buying and subscribing to the newsletter to get info about possible updates. This will allow you to always download the updates. Take a look at this article which explains how : https://www.tradingoptionscashflow.com/benefits-of-creating-a-tocf-shop-account/ . If you bought the earlier version on Etsy, drop me an email and I’ll give you a free download of the updated version at no extra cost.

• A permanent project is to improve the page My Approach to a methodic Options Trading Strategy and Profit Goals. I am really hoping to exchange some thoughts with you all on this topic, so leave me your thoughts in the comments of that page!
• Currently making minor but handy improvements on the All-In spreadsheet – news coming soon.

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I hope that providing some insights in my trading and my thoughts, will trigger some thoughts and maybe ideas that will help you with your trading and helps to become an even more profitable options trader. Don’t hesitate to contact me to talk options.

Thanks for reading the TOCF Newsletter, great and happy trading!

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Let’s generate cash flow together !

P&K

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Please do leave your thoughts below in the comments.