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
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
