SteadyOptions Trading Blog

2015 marks our fourth year as a public service. We had a fantastic year. We closed 129 trades in 2015 which 117.3% non-compounded gain on the whole account based on 10% allocation or 200.6% compounded gain. The winning ratio was pretty consistent around 75%. We had only one losing month in 2015.

Many people say that our performance is too good to be true. If you had a nickel for every time you heard some investing “guru” cherry-pick advice, you wouldn’t need to invest because you would have a fortune.  SteadyOptions provides great options education, but is also striving to be one of the industry leaders in honesty and transparency.

This week we closed our December trades with gains of 6.7% on margin, and 5.1% return on 20k unit. This makes the 2105 year non-compounded return 46.7% on a whole account (including commissions). If we reported returns like most other services do (Compounded ROI before commissions), we would report 80.8% gain.

The option's delta is the rate of change of the price of the option with respect to its underlying price. The delta of an option ranges in value from 0 to 1 for calls (0 to -1 for puts) and reflects the increase or decrease in the price of the option in response to a 1 point movement of the underlying asset price. Far Out-of-The-Money options have delta values close to 0 while Deep-In-The-Money options have deltas that are close to 1.

Investopedia defines vega as: The measurement of an option's sensitivity to changes in the volatility of the underlying asset. Vega represents the amount that an option contract's price changes in reaction to a 1% change in the volatility of the underlying asset. Volatility measures the amount and speed at which price moves up and down, and is often based on changes in recent, historical prices in a trading instrument.

The options theta is a measurement of the option's time decay. The theta measures the rate at which options lose their value, specifically the time value, as the expiration date gets closer. Generally expressed as a negative number, the theta of an option reflects the amount by which the option's value will decrease every day.

In my previous article I described why we sell our earnings straddles before earnings. As a reminder: “There are many examples of extraordinary large earnings-related price spikes that are not reflected in pre-announcement prices. There is no reliable method for predicting such an event. The opposite case is much more common – pre-earnings option prices tend to exaggerate the risk by anticipating the largest possible spike.”

Our regular readers know that buying an a long straddle a few days before earnings is one of our favorite strategies. IV (Implied Volatility) usually increases sharply a few days before earnings, and the increase should compensate for the negative theta. If the stock moves before earnings, the position can be sold for a profit or rolled to new strikes. I'm asked many times why we sell those trades before earnings.

U.S. Market has seen a bullish run since 2009 after its tragic collapse in 2007-2008. It has been more than 5 years of partying on Wall Street and now it looks like the market needs correction and “introspection”. There are various economic indicators that rationalize our belief that the market is now headed for a correction.

The other day I was having a conversation with an options blogger and he asked me how I traded. When I told him that my primary trade is the Butterfly option spread, he was surprised and said I was one of the first people he met who regularly traded Butterflies. In a world where Iron Condors get all the love, it wasn't the first time I had that conversation.

August is finally behind us. It was a worst month in 3 years, with most major indexes down 6-8%. The Dow Jones Industrial Average ended August with the steepest monthly loss in more than five years. At some point the markets entered the correction territory, after declining more than 10%. What's ahead of us? Are the markets going to retest the August lows? Or we are going to see a rebound? Will it be another V-shaped recovery?

Experienced traders know that nothing teaches you more than losing trades. We all would like all our trades to be winners, but we know this is not possible. We know some of the trades will be losers (at least I know that, I hope you don't expect all your trades to be winners). And the bigger the loss, the more you learn. Today I would like to dissect our biggest loser in the last 2 years.