My Options Trading Unlocked – Newsletter 18 Nov 2023

Newsletter – Insights for Tomorrow’s Profits

18 Nov 2023

My day to day approach to managing my options positions

Read on and learn more about my fixed approach of the day to day management of my options portfolio.

My goal is to share my journey and help you 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 week. Every week I report on the status of my trading accounts.

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1. Thoughts and Opinions

“My day to day approach to managing my options positions”

Managing and analysing the open options positions in the portfolio effectively and regularly is crucial for success in options trading. That is why I monitor both the individual positions and the overall portfolio parameters on a regular basis. After years of managing an options portfolio, I have created some kind of a fixed routine on how I approach this day to day management.

This daily routine is fully in line with my overall approach to options trading which I have described in detail in My Approach to a methodic Options Trading Strategy and Profit Goals. It may be a good idea to take a look at it first to better understand my day to day management.

Here is my routine step by step :

First of all I track my positions in an options trading journal which is crucial for periodical review of executed trades. With the journal and the broker’s platform open together, I have following routine:

1. Evaluate individual positions:

• I will first take a look at the profit/loss since opening of each position.
• I asses the stock movement and trend and asses the impact on the position
  • Are there any strikes breached and I assess if I need to adjust my position?
  • Delta: I assess the delta of each option position and adjust whenever it is necessary
• I look at P/L and DTE and I decide whether there is a need to manage positions early, close losing positions early, or roll positions based on your strategy and market conditions:
  • P/L: I take a look at the profit or loss for each position since opening and see if I need to manage early
  • DTE at or below 21 DTE : I asses to roll or close, as managing early can offer clear benefits in terms of risk management and profitability

2. Analyze the portfolio parameters:

• Portfolio Delta and Theta goals : I analyse the overall delta and theta of my portfolio to understand market exposure and time decay at a broader level.
  • Check Portfolio Theta: I start by reviewing my portfolio’s theta. Theta measures the time decay of my options. I try to ensure it’s within my target range (defined in my journal account profile), aligning with my strategy and risk tolerance. If Theta is too high, it may indicate too much risk as expiration nears, while a low Theta might suggest underutilisation of the capital available.
  • Assess Portfolio Delta: next, I evaluate your portfolio’s Beta Weighted delta. This delta represents the rate of change of your option’s price based on the SPY movement. Keeping delta in range is crucial for maintaining a balanced portfolio and minimize the directional risk. If delta is too high, I may be overly exposed to market movements, while a low delta can imply insufficient market participation.
  • Portfolio Delta/Theta Ratio: I monitor this value and try to manage my position to keep it in the desired range. I am aiming for a 1:2 ratio (or lower) with neutral delta/theta.
• Buying Power and Margin Requirements goals: I make sure that my used buying power or used margin are in range with my targets. This involves checking if I have sufficient capital to maintain current positions and whether I have enough margin to open new trades or adjust existing ones.
• Portfolio Risk Analysis: I analyse the portfolio to understand the different risks of my positions and estimate the balance of overall risk and potential profit of the positions
• Diversification and Correlation: I also keep an eye on the diversification of my portfolio and the correlation between different positions.

While going through the day to day management, I update the fields ‘current parameters’ of the trading journal to get the updated current results and coloured warning signals of the spreadsheet (screenshots below or available on the spreadsheet page). Regularly revisiting both individual and portfolio-level parameters helps me in making informed decisions and adjusting strategies as market conditions change.

I hope this overview was helpful to you. If so, or if you have any questions, please let me know in the comments

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2. Overall Market Overview (Week from 03 Oct – 17 Nov 23)

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.

Over the last two weeks the SPX index closed 156 points up (3,6%) from 4358 to 4514. One can argue that the market looks pretty overbought, but also on the last day of this week the SPX remained strong and closed with a green candle. In the last two weeks we have had three gaps up and none was closed.

SPX Chart – SPX 4514 $

Market outlook for next week : It looks like their is some resistance showing at this level but I must agree with the saying nobody knows anything.

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VIX Chart – VIX USD 14.91

Over the last two weeks the VIX dropped from 14.91 down to 13.80, back below 14. The last couple of months the VIX always bounced back up from the 13 level so also now the candles give a pattern of bottoming out. With the rally of mid september to a VIX of 22, it may be very wise to be careful on adding new positions for now.

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3. TOCF Portfolio Weekly Recap & Trading Plan

a. Results week (03 Nov – 18 Nov 23) & currently open positions:

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

The November profit target is set at $1350. It will get difficult to reach it.

The portfolio’s performance over the past two weeks has been significantly overshadowed by the underwhelming results of Fisker Inc (FSR) stock, in which the portfolio is overly invested. I have currently 20 Puts open which continue to perform worse every week. I expect a battle for profitability after assignment with this stock, although I am still a believer in the great future for this stock.

Last two weeks I could however close 14 positions of which I had 13 winners, resulting in a realised Net result of $548.00 (from 1st Nov onwards)

The profits (or losses) are always the sum of the results of the closed positions during that given period. The open unrealised P/L is ($8473.00), a strong negative due to the FSR performance.

c. My Trading Plan for upcoming week:

At portfolio level :

• The MX account is in euro en the TT accounts in USD.
• Sum of the net liquidation values of the 3 accounts = $66322.00 USD (or 60,787.00 Euro with a -3759.00 euro or 5,8 % over the last two weeks)
• Theta level has fallen considerably by closing plenty of positions this week. So this is an action point for the coming week, 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 $6 (meaning if the SPY goes up $1, my portfolio value will down up $6 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 0,18 at the moment. I can certainly live with the ratio, but the theta is too low.

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 :

• It looks a bit that $PYPL and $LYFT have started their recovery. I will keep selling CCs aggressively of these stocks to bring down the cost basis.
• $FSR currently my to big position of the portfolio is still my biggest problem child at this moment. I need a recovery move to $5.

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4. Weekly Watchlist

I will keep my attention to the open positions and I don’t intent to add any more given my current, relatively high allocation : AAPL, SOFI, AMD, MARA, LYFT, ORCL, UNH, SMCI, FSR, PYPL, IWM, MSFT, GOOGL

5. Other stuff – info & links

• 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.
• Trading Options Wheel Strategy:
  • After the update of the Options Wheel Strategy Spreadsheet, also the strategy page was updated: https://www.tradingoptionscashflow.com/the-options-wheel-strategy-explained/ – Updated DEMO video is published also today : https://youtu.be/oPGIx11PGfA
  • If you bought the earlier version, 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!

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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, a great weekend and happy trading!

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P&K

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Please do leave your thoughts below in the comments.