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100+ option trades in 2020 from the Stock Market thread by a lazy investor (long)

5,162 Views | 28 Replies | Last: 3 yr ago by canagian
canagian
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AG
I posted a few weeks back on oa1's Stock Market thread that I would summarize some stats of my 2020 trades and am finally getting around to making good on my promise. I have never made a recommendation on that thread and probably won't in the future, so this is the best way I can try to help contribute to the wonderful people who keep that thread alive without derailing the daily chatter that goes on over there.

I have been dabbling in options for 3 years (mostly LEAPS) but only started following the SM thread early last year. I wanted to become a more active trader so I began piggy-backing on some of the SM trades starting back in late April 2020. I am not a charting guru; I don't do a bunch of Due Diligence (beyond checking trends on Cheddar)... basically I shamelessly ride the coattails of many of the contributors to the SM thread and jump in on what seem like popular trades. I don't always follow the exact trades being mentioned as I may go a little further out on expiry or pick a slightly different strike price, etc. I also stick to monthly expiration dates and avoid weeklies. No spreads or condors or butterflies, just simple calls mostly with an occasional put.

With that being said, I am committing to... post the results of 119 option trades I followed last year. But first a little bit of necessary context.

Once I open an option trade, I spreadsheet the daily high, low, and close prices and basically use a 50% trailing stop strategy based on the daily closing price(s) to decide when I SHOULD ultimately bail out of a trade. I do this manually, and set alerts (price drops below X) that I update nightly rather than actual stops. When the 50% trailing loss alert goes off, I discontinue the spreadsheet data collection and capture the peak % gain for the trade, regardless of whether I actually bail out of the trade at the stop price, keep holding, or have already bailed prematurely due to whatever circumstances. I have a series of target % gains for when I sell to close some portion of my contracts and take profits along the way, but that will be the subject of a future post... for now I want to focus on the peak gain data.

** edit to add: For big gainers (basically 4 baggers or better), I modify my trailing stop criteria from 50% to a max trailing loss of $1k, so that I avoid losing several $k on big winners that really take off before eventually dropping. I neglected to include this detail in my original posts, and will edit my responses to make this more clear.

I fully recognize that my peak gain data is entirely dependent on my entry point (as well as my trailing stop criteria), and I make no claims about whether I got in at a good price or not but I usually try to enter near the same price point as the majority on the SM thread that follow a trade. I present these peak gain statistics here in the hopes that some on this board might find the data useful:



A few things to note. I know most everyone has questions about when to take profits, and many of you follow the "net free" strategy to sell half when an option price doubles -- this data shows that for the 119 trades I opened, 42% reached that goal. Just over half (56%) peaked at a 50% gain or less. These observations have influenced how and when I choose to sell some portion of my contracts.

There are several bad trades in here -- almost 1 out of every 5 trades (19%) never got above a 10% gain before tanking. Many of those were pure earnings plays (gambles), which I have pretty much stopped doing. Some were SPY or SPX hedges or VIX plays that didn't pay off because apparently STONKS only go up, even during a pandemic and contested election.

On the other extreme there were some huge runners that can really make your day/week/month/year. I think it's a testament to the folks on the SM thread that almost 1 in 5 of the trades I piggybacked on (18%) ended up being a "4 bagger" or better. Keep in mind that some of those huge winners would never have been achieved if I had set a tighter trailing stop than my 50% threshold, given the inherent volatility in option prices. However, even among those high flyers, only 4 of the 119 options failed to trigger the 50% (or max $1k) trailing stop before their expiry date, so maybe STONKS only go down???

Using these data, I have developed a sort of "set-and-forget/autopilot" strategy on when to take profits on my options that works for me because I don't spend every waking moment trading (I will save those details for another post). At most I check in on the Stock Market thread 2-3 times a day to potentially make any moves. I am retired and living the good life on the beach, so when the sun is shining, I usually have better things to do than sit and trade all day.

I do not claim to be correct, or good, in what I do. I'm sure almost all of you work your entry and exit prices a lot harder and make more $$. The whole "teach a man to fish" concept is a great part of the Stock Market thread, but I'm personally happy with being given the odd fish and making a nice profit with minimal work (but not minimal risk). Note that I did cop to be a lazy investor in the thread title.

With those caveats, here are the ultimate results of those 119 trades over 36 weeks:
Average investment risked per option trade: $2070
Average holding period: 30 days
Average profit per trade: $520 (25%)

Just for sh*ts and giggles, I compared these results to what the outcome would have been if I'd just invested $30k in SPY back in late April. I used $30k as a basis cost because that's roughly what my original investment would have had to have been in order to be able to fund 3.3 trades per week at an average of $2070 per trade with an average 30-day holding period, if all of this was done in a stand-alone trading account. I can't easily track my original investment basis because my option trades are not in a stand-alone account, they are mixed in with many other investments, and they only make up a small fraction of my portfolio (which is currently >50% in cash).

Results: ($520/trade) X (119 trades) made an actual profit of $61,880, so basically tripled a ~$30k-ish investment in a little over 8 months. A SPY investment of $30k on the day of my first TexAgs option trade (4/20!) would have ended the year at $40,340 (including reinvested dividends), for a theoretical buy-and-hold-index profit of $10,340 or just shy of 35%. Quite the eye opener.

Happy to answer questions and explain myself more fully in follow-up posts, including why I chose a 50% trailing stop, and why and how I chose my target sell levels. I've basically used a frequency histogram based on the the spreadsheet data to compare the outcome of several different profit-taking strategies in order to land on something I am comfortable with. I'll even share the exact trades I entered into and their peak gains if there is any interest. But this post is already too long as it is
gunan01
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AG
This is amazing. Thanks for posting.

So maybe indexing isn't the way to go for everyone.
canagian
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To be honest, I was a buy and hold index investor for most of my life and did okay by it -- I just didn't have the time or energy to research and trade when I was working and still had kids at home. I only started playing individual stocks during my last few working years when we became empty nesters, and didn't touch options until I was retired almost a full year.

I'm actually a little envious of the folks trading on the SM thread who are doing it earlier in their careers. I wish I would have had something like that to open my eyes back when...
Decay
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AG
This is a great thread, thanks.

Yes, stocks are great instruments but derivatives are the real secret. I don't trust myself to manage that risk yet but I'm actively paper trading to try to find an approach that works for me.

LEAPS are a nice place to start and give you the basics without the stress of a looming expiry.
Agswinning
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What's the best site to use with "pretend" money?
Decay
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AG
TD ameritrade is one I hear a lot. I have Trade station and wouldn't recommend it as it doesn't seem to track your balance over time which I'd like to monitor and track my pretend work.
MavsAg
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You can use paper money on Think or Swim which is free with a TD Ameritrade account.
bmks270
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So how many hours a week would you estimate you invested in this? And did you have to actively monitor positions during market hours, or could they be managed by setting rules so they didn't need your attention?

I gave up on options trading a few years ago when i felt it was just becoming too time intensive to analyze and monitor positions each day. I spent a lot of time back testing some statistics based ideas and gave up on that after seeing how different the results would be depending on time period. It was clear the market can shift and what worked for one ten year period might not work for the next, and the risk of not catching such a change in its midst is high.

Bob Knights Paper Hands
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Great post! I have 2 questions and 2 observations.

Questions:
1) Do you keep track of the distribution of those max gain trades that happened before you hit the 50% stop? That would be interesting to see as well and to compare to your current table.
2) Since you have the daily H, L, and C prices for these trades it would be interesting to look at total returns and median % returns with varying stops. I realize this is a relatively small sample size and that it would not necessarily be indicative of future option behavior, but I'm a big dork and I like playing with spreadsheets.

Observations:
1) The OP's post identifies what may be the hardest part of trading - when to take gains or get out of trades that fail. Everyone wants to focus on what to buy and when to buy it, but when to sell is probably as important or more important when it comes to making a trader successful. I've heard this statement from at least 4 different traders that I've had discussions with over the years.

2) For everyone else reading this, keep in mind this happened during a generational bull run and appears to be all or primarily long investments. There are other market cycles and good traders can make money during all of them, but they trade them very differently. For those new to stock investments or those of us that have really increased our understanding of trading/charting during 2020, the obvious next step to keeping our gains and continue profiting is to learn how to trade in other market cycles.
SMM48
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Nice work!
canagian
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bmks270 said:

So how many hours a week would you estimate you invested in this? And did you have to actively monitor positions during market hours, or could they be managed by setting rules so they didn't need your attention?
At most a couple of hours during the day mainly to parse through the SM thread for any new hot plays, and a bit of time in the evening to update my spreadsheet on buys/sells and any stop levels I've set for alerts.

I don't actively monitor anything. I check premarket prices to look for any trends to see what might be popping or dropping that day, but I basically rely on GTC sell orders that I put in place at target prices immediately after I buy (open) an option trade.

Today was a good example, it was a balmy 60 degrees and sunny so I was gone for pretty much the entire day, but I had 4 of my active option trades hit their targets and trigger GTC sales on a portion of my contracts while I was gone. If I was online during the day, I would have set up another GTC sell order for each option at my next target price, but I just did that this evening once I got home. It's pretty rare for an option price to blow through two of my target sell prices in a single day, but it does happen occasionally.

Where I can sometimes get bit is when one of my trailing stop alerts triggers and I'm not in a position to immediately respond, but that's a risk I'm willing to take in being lazy and part time with this. What I've often found is that if I show a little patience when an option drops below my 50% trailing stop, instead of immediately selling to cut my losses, it often recovers and becomes profitable. I've got some stats on that I can dig out and post as well.
Bird Poo
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This post also confirms that the SM thread is a freaking gold mine.
canagian
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Bob Knights Liver said:

Questions:
1) Do you keep track of the distribution of those max gain trades that happened before you hit the 50% stop? That would be interesting to see as well and to compare to your current table.
I'm going to answer these separately in order to avoid a bunch of really long posts.

I'm not quite sure what you are asking here. By definition the peak gain comes before the 50% stop is hit. Do you mean "how many days between the peak gain and when the stop is triggered" for each trade? If so, no I haven't tabulated that but it would be simple enough to do.

The only thing I can tell you offhand is that for 10 of the 119 trades, the peak gain was 0%, meaning the closing option price never got above my buy price. I try to avoid those, but...
canagian
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Bob Knights Liver said:

Questions:
2) Since you have the daily H, L, and C prices for these trades it would be interesting to look at total returns and median % returns with varying stops. I realize this is a relatively small sample size and that it would not necessarily be indicative of future option behavior, but I'm a big dork and I like playing with spreadsheets.
I actually did this back in the summer, and what I found was that in order to take full advantage of the big winners (or more to the point, even moderate winners), you cannot set stops too tight or you will get prematurely stopped out due to the inherent daily volatility.

Unfortunately I have since deleted that tab on my spreadsheet so I can't post details. But I basically looked at trailing stops from 20% to 50% in 5% increments to see the effect on profits. At that time I only had full data on ~40 option trades, but even with that little amount of data it became obvious to me that with anything less than 50% you would be leaving massive amounts of $$ on the table.

Here's the most overt example from an early trade:
on Thur 4/30 I bought BJ 6/19 $30 calls for $0.46
on Mon 5/4 they closed at $0.76

If my trailing stop was a conservative 25%, it would have been set at $0.57, and it would have triggered the next day, Tues 5/5, when the low hit $0.55, which was also the low on Wed 5/6, confirming that maybe the trade was going the wrong way(?). The peak gain would have been 65%, not bad for 3 days.

With a 50% (or max $1k loss) trailing stop, the trade was not stopped out until Tues 5/26 at $6.43. I would have missed out on one of my 2 best trades to date. And it's not just the big winners either - from my data I found that setting conservative stops killed most trades within a few days. You may limit your losses with tight stops, but you are damn sure limiting your gains to a much bigger degree. Once I saw how obvious it was, I never revisited the decision to go with a 50% stop, which was as risky as I choose to get.
canagian
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Bob Knights Liver said:

Observations:
1) The OP's post identifies what may be the hardest part of trading - when to take gains or get out of trades that fail. Everyone wants to focus on what to buy and when to buy it, but when to sell is probably as important or more important when it comes to making a trader successful. I've heard this statement from at least 4 different traders that I've had discussions with over the years.
OK, I'll use this to launch into the next topic, when to sell. What I've done in my spreadsheet is calculate the outcome of a hypothetical $2000 investment, using my 50% trailing stop based on the daily close price, for various scenarios on when to take profits.

What I try to do in real life, and have assumed in the spreadsheet calculation, is buy options in multiples of 4, so that I can set up to 3 different target levels for when to take profits along the way, selling multiples of 1/4 along the way. I then assume in the spreadsheet that I let the rest ride as "lottos" and only sell once my trailing stop is triggered.

I use a frequency histogram of the outcomes of the 119 trades, similar to that shown in the OP but with much finer increments, to calculate what the theoretical profit would have been for several different strategies. These are all theoretical outcomes, and the key assumption is that you sell at EXACTLY the target prices, including the trailing stop value (50% or max $1k loss for big winners). Real life doesn't ever work out that way.

The outcomes are clearly dependent on the characteristics of the limited data set of the trades I chose to enter into, but the beauty of it is that as I make more trades and collect more data, my spreadsheet can be updated in seconds. In fact, what I'll show is a snapshot as of 12/31, these numbers have already changed slightly based on the trades that have stopped out in my spreadsheet since that time.

In ascending order of outcome (assuming $2000 investment):



Again, any sell level not listed means I've assumed the last contracts get sold once the 50% or max-$1k-loss trailing stop gets triggered. So the "sell 1/2 at 100% (gain)" line is the "net free" strategy if you sold half when the price doubled and then sold the rest when you hit the trailing stop.

I am in no way claiming this is the ultimate answer, but I found it useful in determining what strategy I was going to adopt.
canagian
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Bob Knights Liver said:

Observations:
2) For everyone else reading this, keep in mind this happened during a generational bull run and appears to be all or primarily long investments. There are other market cycles and good traders can make money during all of them, but they trade them very differently. For those new to stock investments or those of us that have really increased our understanding of trading/charting during 2020, the obvious next step to keeping our gains and continue profiting is to learn how to trade in other market cycles.
This is the one that I'm the most interested in. It will be VERY enlightening to see how things bear out (pun intended) if and when things go sideways or south.
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canagian
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third coast.. said:

So in this trade, what was the peak gain? Am I reading it right that it stopped out at $6.43 but that was after a 50% slide from its peak gain, meaning you left a whole ton of money on the table, even though your method actually made you a lot at the beginning of the trade?
Correct, but with one caveat. When I hit a really big winner, I change my stop critera from a 50% trailing loss to a maximum $1k loss, which is what I was willing to stomach in the first place in risking $2k. I do this precisely to avoid losing several $k on a really good trade eventually going bad. Of course by that time I would have sold most of my contracts to lock in some really good profits.

That's a detail I neglected to mention, apologies -- I've edited my OP plus responses to try to clarify.

The peak gain for that trad was close to 1750% before the $1k max loss was triggered
DallasAg2
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Where is the oa1's stock market thred? Thanks!
canagian
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It's the Stock Markets thread in the B&I forum, usually near the top. Several years of good posts in there, a person can learn a lot.
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canagian
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third coast.. said:

On trades that closed lower on subsequent dates I assume you would adjust your 50% alerts down daily as well?
Nope. A 50% trailing loss means you only adjust if the price goes up, so that you never drop below 50% of the highest closing price to date.

If you actually set a 50% trailing stop on a trade, it will use the maximum price during the day to set the 50% level. So if you buy at $1, and it goes up mid-day to $1.50, but then falls to $0.75 later in the day (or week), you will get stopped out.
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canagian
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third coast.. said:

Also curious, with your expanded roll, are you going to increase your number of trades or increase your dollar amount per trade?
I easily could, but I am typically in 20 option trades at any given time, and that's about my comfort limit for tracking. I also play a lot of the stock mentions by purchasing shares, and I'll go a lot higher than $2k on some of those, but have no plans to deviate from my $2k/trade target for options.

And my option trades in total are risking only a few % of my portfolio. I'm retired so I'm basically playing with my grandchildren's inheritance at this point in my life.
Bob Knights Paper Hands
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canagian said:

Bob Knights Liver said:

Observations:
1) The OP's post identifies what may be the hardest part of trading - when to take gains or get out of trades that fail. Everyone wants to focus on what to buy and when to buy it, but when to sell is probably as important or more important when it comes to making a trader successful. I've heard this statement from at least 4 different traders that I've had discussions with over the years.
OK, I'll use this to launch into the next topic, when to sell. What I've done in my spreadsheet is calculate the outcome of a hypothetical $2000 investment, using my 50% trailing stop based on the daily close price, for various scenarios on when to take profits.

What I try to do in real life, and have assumed in the spreadsheet calculation, is buy options in multiples of 4, so that I can set at least 3 different target levels for when to take profits along the way, selling multiples of 1/4 along the way. I then assume in the spreadsheet that I let the rest ride as "lottos" and only sell once my trailing stop is triggered.

I use a frequency histogram of the outcomes of the 119 trades, similar to that shown in the OP but with much finer increments, to calculate what the theoretical profit would have been for several different strategies. These are all theoretical outcomes, and the key assumption is that you sell at EXACTLY the target prices, including the 50% trailing stop value. Real life doesn't ever work out that way.

The outcomes are clearly dependent on the characteristics of the limited data set of the trades I chose to enter into, but the beauty of it is that as I make more trades and collect more data, my spreadsheet can be updated in seconds. In fact, what I'll show is a snapshot as of 12/31, these numbers have already changed slightly based on the trades that have stopped out in my spreadsheet since that time.

In ascending order of outcome (assuming $2000 investment):



Again, any sell level not listed means I've assumed the last contracts get sold once the 50% trailing stop gets triggered. So the "sell 1/2 at 100% (gain)" line is the "net free" strategy if you sold half when the price doubled and then sold the rest when you hit the 50% trailing stop.

I am in no way claiming this is the ultimate answer, but I found it useful in determining what strategy I was going to adopt.

Awesome approach to search for a good set-and-forget system!
OutlawAG04
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To the more experienced guys... Is anyone looking at CRBP?

Risk/reward looks nice
Options available
Cannabis play
Volume above 10 day average
2 day close above wedge

First time posting a twitter link... forgive me but it keeps saying the URL link is wrong when I try to insert it. See below. Possible MA?

canagian
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canagian said:


What I've often found is that if I show a little patience when an option drops below my 50% trailing stop, instead of immediately selling to cut my losses, it often recovers and becomes profitable. I've got some stats on that I can dig out and post as well.
So to follow up on this, and adding some data updates from closed out trades over the last 2 week, here's the story.

I now have 49 trades that never reached my 1st sell target of a 50% gain before they triggered my 50% trailing stop. The average net loss on a $2k investment in each would have been $921 had I sold at exactly the trailing stop alert level (or had I had an actual stop in place instead of an alert).

But because I have gotten into the (potentially poor) habit of trying to give these losers more time before actually bailing out, my average net loss on these 49 trades is only $287. So by not strictly sticking to my trailing stop target, I've actually "saved" over $30k in losses.

My biggest payout here was INMD Oct $40 calls, which triggered my 50% trailing stop alert in only 6 days and would have lost me $981 had I sold at the trigger. By holding on, I sold after 28 days for a net profit of just over $8k. That's what waiting can do for you sometimes. Of course the downside is that by waiting, it could have also gone to zero, which is in fact what happened in about a dozen of those 49 trades that I held onto for too long (a few of which were SPY hedges).

There is a lot of talk on the SM board about sticking to your plan and not becoming emotionally invested in your trades. Drop losers quickly and let winners run. Problem is, some of my best winners would have been losers if I had dropped them according to plan.

I prefer to rationalize it like this -- I initially was comfortable with a 50% trailing stop being my risk limit, but as I had some success and banked some profits, I got more comfortable with risking some bigger losses. By ignoring my 50% trailing stop alert on many trades, I was effectively bumping that up to something closer to a 75% trailing stop criteria without really doing the math or back-testing the potential impact with my spreadsheet data. I basically got lucky because I was doing this during a bull market, and it didn't seem to come back to bite me it the butt.

But it actually did bite me, in the form of my winners. I also have a bad habit of waiting too long after my 50% trailing stop alert is triggered on my winners, where I have already sold some portion of my contracts to lock in profits. Again, I figured I'd already made some $ so I can afford to take a little more risk with the contracts I still held.

If I'd have stuck strictly to my 50% trailing stop, the average profit on my winners would have been $1719 for each $2k investment. Because I held on longer, my average profit was actually only $1207, so I left $512 on the table in each trade, which cost me almost $35k in profits.

Overall cost to me of being emotional (or lazy or more risk tolerant) and not sticking strictly to my 50% trailing stop trigger was about $3k in lost profits. I suspect it could have been much larger had we not been in a bull market, because 70% of my trades made a profit. Had I been more careful about sticking to my stop threshold for only those winning trades, I would have made closer to $90k in profits vs. the ~$60k I banked.
ccatag
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Nice work. It's nice to see someone use a method with some rules to have greater control over their time.

Did you trade any of the stocks more than once? In other words, revisit a stock a second time after it had fallen back to a level you liked? I imagine you gain a sense of a company by studying it over time.

Thanks for posting.
canagian
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ccatag said:

Did you trade any of the stocks more than once? In other words, revisit a stock a second time after it had fallen back to a level you liked? I imagine you gain a sense of a company by studying it over time.
Sorry, just saw this reply. I'm guilty of trying to "catch a falling knife" by buying more options as the price dropped to lower my cost basis. It sometimes worked out but mostly didn't, so I've cut that out completely. I'll do that with a stock I intend to hold long term, but not with options.

I have entered multiple trades on the same stock, but usually with different strikes and expirations, and usually won't open a second trade until the first is closed. I think AAPL is the only one that I've held 2 different open positions at the same time.

No great science behind this, like I mentioned in my OP, I basically try to follow what seem to be popular plays on the Stock Markets thread (OA's picks are usually gold) and don't do a whole lot of due diligence. If I miss out on a hot play, I set an alert if the underlying stock price comes back down to previous levels and if it triggers I'll look at entering.

And it has worked so far. I've opened and closed an additional 14 trades since the beginning of the year. Average overall profit on a $2k trade is up to $620. That will probably reverse a bit in a couple of weeks because I've got some Feb expirations that will go to zero (thanks a lot, AMD).
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