NG Update

Jan Natural Gas (NG) is close to 6, which makes the value of Jan 5.50 put worthless. Thus, I keep all the premium I wrote. The total profit of this trade is $3180 less commissions.

Since NG is rallying, I'm not able to do anything until NG drops somewhere around 5.5 again. If so, I'll sell 'Feb' NG put again.

Covered 1 Jan 170 put

Lumber rallied and my exit was filled at 0.9 (or $99 less commissions). My profit is 5.5 - 0.9 = 4.6 (or $506 less commissions). I'll sell 1 Mar 170 puts once I roll over my current position to the next expiration.

Natural Gas Update

NG Jan put I'm holding expires on Wed, 12/24/08. Currently, it's in the money, so I'll likely get assigned a long position from 5.5. I'll roll this over to Feb long on coming Fri or Mon. As soon as I roll it over, I'll try to sell Feb 6 Call for 310 creating a covered call. In order to do that, NG has to bounce close to 5.5 I think.

Futures puts are a bit different from stock options because they are skewed to long side as everybody knows NG won't be free, but can go high with unlimited.

The real question is if NG continues to drop, where do I want to scale-in. I'd like to sell a 4.5 Put, but I'm afraid I am not able to bring enough premium. 5.0 for $3000+ premium or 4.75 for $2000+ premium...

Remember the margin on NG is pretty high and things can move very quickly. I've seen where NG made $100K equivalent move.

Day trading back-log

Last week, I had a business trip to California for a week. One nice thing about that was I was able to day-trade open and close totalling 4 horus / day. I took 8 trades and the results are as follows (all before commissions):

Mon, 12/9:
#1: -$300
#2: $50

Tue, 12/10:
#3: $50
#4: $187.5
#5: $187.5

Wed, 12/11:
#6: $175

Thu, 12/12:
#7: $175

Fri, 12/13:
#8: $187.5

------------
Total: +$682.5 (less 21 round contracts of commissions)

All were traded on 2 or 3 lots at a time with ES only. I don't know if this is sign of something. I still need to gather more live trading data for sure at least for one solid month.

Sold 1 NG 550 Jan Put

I sold 1 NG 5.5 Put for 3.18 or $3180 (less commissions)

Sold 1 Jan Lumber 170 Put for 5.5 ($605)

This is another cost-avg for my lumber trade. This option expries the end of this month (Dec 2008) and if I do get assigned, I'll be holding 4 lots. Lumber is definitely a free fall, especially with housing markets. I'll continue to trade my plan. I'm prepared even if Lumber goes to zero (free lumber for everybody).

Lumber

Lumber is approaching to 170 pretty quickly. I don't think any of people I know trade Lumber. I'm down quite a bit on this Lumber trade. Things just do not look good. I feel like I'm a newbie who is holding the losing trades forever. If I remember that feeling correctly, I felt better once I just sucked it up and took the loss. (Then watched the trade go my way, of course.)

Markets are going to do exactly what they want to do. They will keep doing it until most of people puke and give up everything. I'm trying real hard to remain calm, but it is very hard.

When I first got involved with Lumber, I thought it wouldn't go below 200 although it could. I guess I didn't fully accept the risk. Now I'm considering the ultimate risk level. What if Lumber goes to zero and what the risk is going to be. I still plan on selling puts every 40 pts or so. So 130, 90, 50, and 10. At that time, I'll be holding 8 lots. If Lumber is at 10, my open drawdown will be -$122,100 (excluding commissions including premiums written) with the avg of 148.75. Yikes, I can't even begin to imagine when Lumber becomes free!

The guy who taught me this method said once he was in Coffee trade for 2 years. (I'm holding my lumber for about a year). During that time, he advised this trade to others, but many just couldn't have enough patience. Even if one guy waited for 2 years, he got out at break-even.

Sure enough, Coffee went way beyond the avg price and the guy who taught me got out with $20K profit per contract. He's also in Lumber trade. His avg price is a lot higher than mine, but he seems calm.

At the same time, Natural Gas and Crude Oil are getting very interesting. I'd like to go long any time, but I'm not quite sure if we'll really go through worse than Great Depression. I personally don't think so (or don't want to believe because of Lumber. Yeah I'm biased!). I think Gov will do whatever they can. They don't care if we see Oil at $10000 or not, and they just want to get the heck out of this mess.

I'm just talking loud myself to see what I should do. Sometimes it helps talk out loud, right? What I should do is to stay calm and take advantage of what I'm seeing. Cotton, OJ, Crude, and Natural Gas all look great. I've been sitting on cash and I think I'll move all of them into my position trading account. This doesn't mean I'm going to buy 10 Nat Gas. I'll still approach conservatively, and trade as if they'll go to zero (a mistake learned from Lumber).

Covered 1 Jan 40 CT at 0.48

Cotton is rallying today and my exit order was filled at 0.48. I sold it for 2.15 ($1075) and exited at 0.48, which gave me 1.7 or +$835 (before commissions). The good thing about wiring options is when markets start moving, time value evaporate quickly which boosts my profit.

Only 24 days till expiration, my max profit was $240, whereas risk was unlimted, so even if I'm willing to get assigned, I decided to exit. I'll sell a put if markets drop again.

Sold 1 Jan Cotton put for 2.15 ($1075)

I sold 1 Jan Cotton Put for 2.15 (or $1075 less commissions). The strategy I'll be using is exactly the same as my lumber trade. Either I'll get assigned or keep all the premium I wrote.

I traded Cotton in 2006 and at that time I bought futures contract outright around 55. This time, since I'm holding Lumber, I got a bit more conservative and waited patiently. My plan is to sell another put at 30 and 2 more at 20. If Cotton somehow keeps dropping and gets to 20, I'll be holding 4 lots with the avg of 27.5. At that time, the drawdown will be $25000 (yikes). The lowest Cotton price I've seen is around $50 and I think $40 is a really solid level evn if I do get assigned.

The Jan Cotton options expire on Dec 19, so I'll keep you posted or you can click here.

Still watching

Markets are down today. We've been in the range for quite some time. I don't plan on doing anything until we break above 1000 or below 825 on ES. I'll take either buy or sell a pullback to that level.

I placed two orders (sell puts): Natural Gas and Cotton. They both need to be beaten down a bit more until my puts get filled. I can hold them until they both go to zero. (Will it be possible?)

I honestly don't know where markets are going to go, but everybody seems very skeptical about economy. Most of people think it'll get worse. Everybody I know thinks markets will go one way, yet they are still holding their longs. I guess that's why markets don't go anywhere.

As for day trading, I'm still working on my strategy. I and Jack have been working together for a while and we think we have one solid setup. Just one setup. The problem really boils down to psychology and time. I just can't watch markets during the day because of the full time job, but I can't just quit just in case.

What I'll do is to use vacation days and trade a few days here and there. I'll also record my real time trades to show you why I get in, why I take profits and how I trail stops. I'll post the result here and you guys (if there's any) can tell me what I'm doing right or wrong.

Scare people away?

Markets are really trying hard to scare people away now. People, who have been holding, got some relief from the election rally. Yesterday and toady, we have been going down pretty hard. If I were those people who are hoping for more rally are very confused now, thinking 'If this thing goes below the recent low, it'll probably go way below. I will sell and buy at lower price.'

The question is markets have to convince people enough that this will go further down. I don't think it has happened yet.

I'm thinking about selling Jan CL 30 Puts. I never thought about this situation when oil was close to 150, but no one just never know!

I exited the remaining AAPL at 101 (from 93 entry) this morning. I was using $10 trail stop and got hit. I'll monitor AAPL and GS closely to get positioned in my Roth IRA. Other than this, I'm still watching NG, but every time I place an order, it just moves away. The Lumber had some dead cat bounce in the last 3 days, which was good, but today started diving again. This was a minimum of 2 year trade, but man, maybe longer than that.

Lumber roll over

I rolled over my lumber positions:

11/4/08
Sold 3 Nov Lumber at 193.10
Bought 3 Jan Lumber at 204.70

Note that I sold puts and got assigned, so I'm holding 3 lots total. My next level to add (in Jan contract) is if lumber gets to 170s.

Oct P/L

I updated my Oct P/L. Not a good month, but I think it could have been worse. I mainly have only one position, Lumber. While everybody was liquidating everything, Lumber was no exception. One big mistake I made was I didn't quite understand about inflation and deflation in terms of diversification. Lumber benefits from economy inflation and Soybean-meal spread (remember?) trade benefits from deflation. In other words, while losing money on Lumber , the bean spread would have offset it. I got positioned the bean spread while we were going through inflation, which was good, but I exited too early. Markets got deflated, and I didn't have any position to hedge Lumber deflation.

I'm overall about break-even year-to-date where most of my money is. I'm not sure if I should be happy about that result, but I guess I'm still surviving.

AAPL

I bought AAPL at 93.5 a few days ago and today I sold half of my position at 107.5. I traded off of Roth IRA, so even if it's about 14 pts, I didn't have many shares. Going into FOMC announcement, I thought I should sell and buy back if we get a pull back. Granted, if we can consolidate at this level for a week, we might see some up move.

Yesterday's action was really good for bulls. Engulfing pattern is one of powerful reversal patterns I've seen. But remember the trend is still down.

Other commodities are all rallying today. If or when we get out of this mess, I can see people complain again about inflation. At that time, oil should go to 200 and beans go to $20/b easily.As with other futures, natural gas completely moved away. This time, I really want to be prepared for that situation.

As for NG trade, I just don't have much luck with it or I'm just too conservative as it came close to my entry but moved away significantly.

Losing patience

I'm really losing my patience here. I still do think we're going to go down futher to 'really' scare people away.

I bought '25' shares of AAPL on my Roth IRA (4K account!). AAPL's earning is today. I do like the company and I mean I really like the 'value' of the company.I own a few apple products and they are great. I'll like to hold these for a while regardless of the earning's result. Besides, I just ordered a new aluminum macbook and I'm very excited. My wife will take over my old white macbook. :) (thanks, hon.)

Lumber is where I really lose my patience at. Another limit down today. Markets go through inflation and deflation, but what's funny about lumber is, it has been deflated for about 2 years and still deflating. I'm wondering if it can actually go to zero. Will lumber be free? At least, since I'll build a house in 4 months, hopefully I can benefit the low lumber price.

Did I tell you have a Realtor license? I just got it to know about home buying and selling. Guess what, it seems I'll be a licensed general contractor as well. Maybe I'm too cheap, but I don't think they should be paid for work they 'usually' do at least in my area. The realtor exam was not hard and it doesn't seem on the general contractor either (1 book, 4 hr long open book test).

Typically, if you become your own general contractor, you can save 'at least' 20% of builders' quote. If you build your own house, you don't have to be licensed, but the community I'm looking at requires to hire a licensed one. Besides, lenders don't really like doing construction loan unless I deal with a licensed one. Above all, I really like to know what's involved and I want to build it right!

I don't usually talk about other stuff than markets, but I just suddenly thought about it. Sorry, if you're not interested.

OK, looks like AAPL's earnings came out. I bought mine at 93.50 and it had a little pop, but came back to my entry although it was down quite a bit before the announcement.

Short covering

What a day. Cash nasdaq +168, dow +813 and s&p +92 right now. We were over-due for a bounce, but jeez.

As we're still in a down-trend, I don't think the worst is over yet. I want markets to go up and up so that econ is going and I can get out of my lumber trade, but you don't see many 'V' bottoms. Bottoms are usually rounded and happen after a long range-consolidation whereas tops usually have inverted V shape.

Think of this way. We went straight down for a few days in a row without any pullback. It was absolute panic selling. Pros, who still have a lot of money, are thinking if you missed the boat to short, what's the logical place to short. Pros seem to wait for pullback (especially in indexes).

I don't know if we'll make a new low or not, but I think we'll have another downside to make either a new low, or a higher low. What traders should look for is the move between a well established resistance to the Friday's low. 1060 level in ES seems like a good level to go short, should we get there.

Keep in mind that it's an options expiration week (10/17). People probably loaded with puts and scared money is in the puts side. Markets will try to make them as worthless as possible. This might conincide with a rally to 1060 level, so let's see.

Everybody is selling everything

I don't know if you can see it, but basically every futures contract I'm watching is selling off not to mention Crude oil is -8.73 or -10% and lumber -3.7 or -2%. You know what indexes are doing of course.


In current market environment, everybody wants cash. People get margin calls and need to liquidate their positions. I even see margin on ES or lumber increased quite a bit, so I had to deposit some more.

I'm looking to sell Nat gas and have orders in. This will be another long term trade, but unlike Lumber, NG is very volatile and I should be able to be in and out of options all the time.

I looked at the performance of the money club I was in. At the beginning of Aug it had about 4 million and guess how much it has now. 2.4 million. I'm losing money on that, but gladly I took 93% of my money before I got hit.

Preserving your cash is not a bad idea. Today's close could be very important. I'm expecting we rally up and have a strong close to force some short covering. But what I do know. I'm still trying to learn how to trade.

Wacky idea

Here's an extreme (but unrealistic) idea.

In the last few days, nasdaq went down -75 pts every day (roughly), s&p went down -40 pts and -400 pts on dow. Today I thought what if indexes keep dropping. For example, S&P is currently traded around 1000. With this pace, it takes only 25 days for S&P to go to zero from 1000. Have you ever thought that indexs go zero???

I know it's not possible because stocks get kicked out of s&p if they are not doing well. Many people got involved with stocks lately because they are cheap. I'm trying to tell them over and over again that stocks can go zero, but no one listens and keep buying LEH, FNM, FRE etc...

Opportunities

Everybody is in fear. People at work who usually talk about sports or politics are talking about stock markets. I'm in the same fear as well. I was going to start building a house in 2 months, but I told my wife that we better wait until Jan 09 or so.

My supervisor who's about 45 years old said he's -30% YTD in his retirement account. I would safely say that's about -$100K. At work, I don't talk about markets much because people don't understand what I do (as a side job?) anyway. I didn't even tell all of my retirement money is on cash since Dec 07.

As global markets go down including indexes and other leverage instrument, there are a few markets that started looking very attractive. I talked about this before, but they quickly bounced off and ran away. Now it's back. Sure, the lumber trading still gives me a lot of headache (today limit down, ouch), but I need to be objective.

1. Cotton. Look at monthly chart to see where we're. I'm thinking about selling 50 puts and slowly accumulate.

2. Orange juice. This is at an interesting level, but I think it needs to come down more just to be conservative.

3. Natural gas. I'll be very aggressively positioned. The current price of NG is 6.8ish. I'll sell 6 puts for $1500 or better. Then every 0.5, I'll sell more put for another $1500+. I have a good chunk of money sitting at the bank (which I was going to use to build a house) and I just requested a transfer and I'll send a check to my broker this week. I know this doesn't happen often, so I want to make sure I'm involved with it.

The point is when the public is in panic, there's always something one can take advantage of.

Just be careful in this market and make sure you do not overtrade.

Bloody September

I thought I was well diversified and I thought I was safe from the whole credit problem. My retirement has been staying out of stocks since Dec with +11% profit. I took 95% of my money out of my club (options) with +12% profit. They all are going through huge drawdowns and I protected my money well.

The big problem came from the Lumber. It's like a free fall and I'm getting killed. Lumber is well below the cost of production, but still falling. What's funny is I went to local lumber store to get some recommendation about framing companies. The store's manager said lumber price has stayed the same for the whole year? I was thinking, Whah? The futures went from 300 to 200 or -33%, but the lumber material is the same? Furthermore, he said the price of shingles are up because of the oil. Oil was at 150, but now below 100 and that should be -33% or so, but it stayed the same? Who takes all the money then? 

Last month, I had about $8-9K profit, and I lost all in Sept. I'm still +$4K for the year, but was up almost $20K at one point. Of course, there are tons of mutual funds that were shut down or going through -25% YTD, so I'm guessing I'm okay, but it sure tastes sour.

History

I like science and math, but I don't like history.

However, I truly believe that we're standing in the middle of history that hasn't happened for about 90-100 years.




Thanks for economy slow down. My lumber trading is going down to toilet. I might need 'p'lum(b)er. A bad joke?



Regardless of Lumber, I hate greedy wall st. companies, but unfortunately if they don't do well, our whole econ will struggle.

Other than holding the lumber, I'm trying to sell Nov Nat gas puts. By the way, the soybean spread trade, I indeed exit too early. That would have helped the lumber drawdowns. I'm still learning here, but tastes sour for sure.

9/26 -$400

Dagger. Friday afternoon. One hour till market close. I thought the setup was great but it just didn't work out. Because of the volatility I used 2 pt stop (normally 1.5 pt ES stop) and I took a full stop out on 4 lots. I looked the trade over and over again and I don't think there's anything wrong. Throughout my 4 months of simulation I have 83% of chance to hit target 1, but I still have 17% of chance I get full-stopped out and this was one of them I guess.

I'll take the same trade anytime any day. Besides, I need to be more aggressive on setups just like I did on sim.

9/24 +$600

After missing lots of good trades (came close or ticked at me), I finally was able to make two trades. The first trade was +475 (before commissions) and the second trade was +125. The second trade was very unfortunate because it ticked at target 3, but turned around and stopped me out (only 15 contracts were traded on ES). Furthermore, it went then thru target 3. The difference was +125 v.s. +325. Oh well, that's the trading. I have two more days of 'bootcamp' trading with my friend, Jack, in OH.

Sold 1 Nov 210 Put Lumber at 5.70 ($627)

Lumber kept on dropping, so I threw an order and got filled finally. This is for cost-averaging position. The expiration is 10/30 (or 10/31), so I'll hold until then. If I get assigned, great, my avg Lumber got lower. If I don't get assigned, I collected $627.

Why didn't feds lower the rate?

Yesterday, we saw a mega sell-off all over markets. The worst thing I've seen. The 9/11 move was more external problem, but yesterday we saw 150 year old hedge fund firm failed, a firm that survived through great depression was sold very cheap and the world's biggest insurance firm was desperately calling a distress signal. Thus, everybody was thinking the choice for the feds was clear! Oil is not at $150 any more, grains came 30% off of its top, so cut the rate!

What a surprise, the feds just announced to keep the rate steady. Remember early this year, when Bear Sterns failed, we saw emergency Sunday night cut, lots of billions of injection etc. Here's what I am thinking. Every 'normal' people I know we're in deep trouble. Yes, we still are and we will for a while, but I think the worst could be finally behind. (Remember, when everybody knows, markets will do the exact opposite? ) When the feds rescued bears and even rescued Fannie and Freddie, there clearly seemed to be more serious coming. And yesterday there it was. Normally, lowering rates mean more liquidity, so markets love them. But we're in a situation where lowering rates mean more trouble to come.

This morning, it looked like markets are going to die (ES at -25 pts-ish), but 45mins after the keeping the rate news, we're rallying +15 pts! I always think that someone somewhere knows about what's going on. Not necessary smart people but they somehow have information about what will happen and we're seeing exactly that.

In terms of technical perspective, ES has a long bottom-tail, which is one of powerful signs of exhaustion. When technical meets fundamental, we see a steady move to one side. In this case, to the upside.

Remember Goldman Sachs said oil will go to $200 by the end of summer? People got scared and putting lots of money onto oil funds or natural resources. Oil is currently around $90! GS said it's supply / demand. Emerging countries' demands are getting higher and higher. I said that was a complete BS. It was all speculations after all. You see all hedge funds are liquidating everything to get chase. I bet Lehman and Meryl sold a lot of grains and oils. (By the way, I still like GS after LEH and MER taken down badly. Goldman Empire from now on???)

Then again, thanks for bad housing markets. My lumbers are down a lot now. It consolidated for a while and took a few more dives in the last few days. I'm trying to sell 1 Nov 210P for $500 ish for cost averaging. Today the price came to 213, but my puts didn't get filled. If futures get so low, there's not much extrinsic value or no volume at all. Besides, Lumber is pit-traded contract, so god knows what pit traders do to screw people like me. I'll leave the order as it is for now.

I'm also trying to sell 70 CL puts. This extreme down move will end soon. If I get one more day of sell-off, I'll get filled, and when it bounces, I'll buy back. Now the problem is if I get one more day of selling or not.

As a 20/20 hindsight, I did exit the soybean-meal spread trade way early. The spread is now around $24K when I exited it was around $27K. An extra $6K (I was holding 2 spreads).... Ok, I'll go to corner and stay there for 10 mins as a punishment.

Sold all

I sold all of my Long (stocks) positions. Stocks (or indexes) were in a range for a long time and they broke down (ES' 1260) with a really big volume. I can tell a lot of big money flowing into the short side and this indeed seems to be a new leg down to test and break the 52-week low.

I have an order in Natural gas, but I don't think I'm gonna get filled unless it comes close to 6.7-ish. LB is doing nothing as usual. I might have to sell Nov puts since time decay is significant on Oct contract.

Lumber rollover

I sold 2 Sept Lumber at 255.50
I bought 2 Nov Lumber at 241.50

Today

What a surprise, today. Stocks gaped up and went on and on. I haven't checked yet, but I think the volume is probably not strong. Considering 3 day labor day weekend, many traders take advantage of this whole week. Usually, the summer slow trading is done by Labor day. This year's summer has been pretty volatile, but the last few weeks have been very slow and choppy just like any other summer trading. As a trader, I like to see some more volatility. Anyway, whenever volume doesn't confirm its move, the move is suspicious. I'm thinking today's rally is in the same manner.

I waited 4 hours to take one trade, but the setup was invalidated at the last minute. Bummer. All I need is 1 or 2 good setups per day. I'm very confident with things I've been doing on ES, but I need to be a bit more aggressive.

On to Natural Gas. Wow. It was +0.8 (or +10%) before the report, but after the report, wow, dropped to almost -0.8 (or -10%). In order for me to get involved with NG, it has to come down to low 7 level while it's still fluctuating around 8. I have to be very patient regardless. If we have a follow-thru to the downside a few more days, I should be able to sell 6.5 for $2K-ish as I said earlier.

4 ES long at 1272

Results:

+10 ticks or
+$125 (less commissions)

Long 4 ES at 1273

Result:
+20 ticks or +$250 (less commissions)

This is something I've been working on a sim for quite some time.

Outlook

Wow, things are a lot worse than I thought. I moved my 403b money from stocks back to money markets on Monday (8/18). As soon as I saw lower high with an important trendline broken, I quickly moved. I took a stop loss on GS (-$120 loss) on '5' lots. I'm still holding AAPL since I have some cushions to work on. Techs still look great but without overall markets' help, it'll be hard.

Oil, gold, euro, grains etc all started resuming its trend to upside. I should start looking at gold or gold related stocks pretty quickly. Financials are really bad and they are weighing markets down. FNM and FRE could be gov-owned very soon. LEH might go bankrupt. As soon as one or both happen, I'll look long again. Buy the rumor, sell the news, isn't it?

I talked about possible new long term trades. Today Natural Gas shot up from inventory report. Well, my order may not get filled at all!

I exited my soybeans short at 1184 and 1272. I'll look to short the beans again if the spread gets about $35000.

Natural Gas plan

The logic behind for this trade (or Lumber I'm currently in) is as follows:


'The price of Natural Gas (NG) will never go zero.'

In order to take advantage of this opportunity, I start buying it from certain price levels (depending on aggressiveness). The simplest way is to buy futures outright and cost-average as it moves down. This type of cost-averaging is different from 'scale-in' in day trading. Because you know it will eventually go up.

A smart or safer way to get involved with NG is to sell puts. Currently NG is traded at 8.2ish and 7 Oct Put goes around 0.150 (or $1500).

http://quotes.ino.com/chart/?s=NYMEX_ON.V08.7000P&v=d12&t=l


The 7 (if assigned) would be the first leg of NG as if you are long futures outright from 7. For futures, you have to wait until price comes down to 7 and buy it. For options, you do not have to. If you think you can bring enough premium, you can sell way before it gets to the 7.

So, say, you sold the 1 contract of Oct 7 put. Two cases can happen:

Case 1. NG did up/down moves but on the option exp day, it didn't close below 7. The option you sold expired worthless, meaning you get to keep the whole premium you wrote ($1500).

Case 2. NG's closed below 7 (say 6.8), meaning you'll get an assignment very next day. In other words, in your futures account, you'll see one NG long contract from 7 (7 put option is gone) as if your option is converted into futures contract. (Since you sold 1 option, you are assigned 1 futures.) Now that the current price of NG is 6.8, you'll also see you're -$2000.

Note that in either case, you get to keep the premium anyway, so your account's balance went +$1500 more than before you wrote (or sold) the option. This also means, instead of losing -$2000, you're only down -$500 (= -$2000+$1500). If you bought futures contract outright at 7, you're -$2000, but because of option's premium you're only -$500 at the end. This is exactly why you want to utilize options. The benefit of using options don't stop here. In the case 1, you got paid $1500 by trying to get in at 7 whereas if NG didn't come down to 7, you're sitting on your hands doing nothing.

Of course, there's a catch. What if while you're holding your put option, NG drops below 7 and quickly moved higher and keep rallying to 9? The max profit from selling 7 put option is $1500 whereas if you bought futures outright at 7, your profit is $20,000. The choice is entirely up to you. I like to play on a safe side and that why I like to sell options and keep the sure thing instead of being a hero.

There are a few choices you need to make. At what price are you going to start selling? How much options premium do you like to bring? At what level are you going to start cost-averaging? What's your exit level if assigned 1, 2, 3 etc? Are you okay with margin?

If you're aggressive you can start selling 7 or 7.5 option. But since I'm not, I'll try to sell 6.5 put with $2K premium. Note that 7 or 7.5 you can bring $3-4K premium. My cost average level would be every 1 basis point. I'll throw an order to sell 5.5 put for $2K ish if NG keeps dropping. 4.5 and 3.5 the same way. The realistic downside of NG is about 5, so I would likely get filled on 2-3 levels max. For two levels, I have to go thru 10K-ish and for three levels, the drawdown would be $30Kish.

On the upside, if I get assigned on 6.5, I'll sell 7 to 7.5 call option for $4-5K premium. If the call expires worthless, I'll roll over to the next month and sell another call for $4-5K premium with the distance being at least 0.5 to 1. If I get assigned on that call, it'll offset my long (from 6.5), so I'll be flat. If price is attractive enough, I'll sell another 6.5 put for $2K. I'll do this over and over again.

Last year, NG stays around this price for a long time, so it was very very profitable (not me, but the guy I learned the way how to trade this way. Let's say at least $50K). I'm looking for at least $20-30K with this opportunity. Why is this possible? That's because unlike Lumber, NG's contract is traded every month. Lumber contract is quarterly whereas NG is monthly.

What you need to implement this strategy is:

-Pit-traded futures account (so that you can write options)
-Enough account ($50K minimum)
-Patience to go through drawdowns

New trades (potential)

I'm looking at a few new trades now and they are all long-term position trades. The strategy I'll be using is similar to my lumber trade. Basically I sell put options, and either take profits or get assigned. If assigned, I sell lower strike puts (cost-average) or sell higher-strike calls (covered call). If I don't get assigned, I sell another put at either lower or same strike price on another month.

They will eventually go up although cycles can take years.

-Orange juice
-Cotton
-Natural Gas*

*Natural Gas could be a real money maker, but it's not for new traders or small account holders. NG's margin is about $13K per contract and it can be very volatile. One should easily be able to handle $10-30K draw-downs. Rewards are very high regardless. Sell at the or slightly out-of money options could bring easily $2-4K in options premium and sell covered calls could bring $3-7K. What's good about the covered call is if the call is not assigned, your average price gets lower. If the call is assigned you would make $5-7K profits from the long position plus $3-7K options premium you wrote. If its price hangs around that level long enough with a good volatility, $20K profits are not unusual.

If none of this makes sense, I wouldn't consider selling options.

Trading psychology (revenge mode?)

I'm still working on my psychology part of trading. Yesterday, I exited my 8-month long bean-meal spread. I didn't make as much money as I would hoped for, but made some. Great. Today I got up and checked the bean-meal spread as it became my habit for the past 8 months. Guess what, after I exited, it went in my favor of $1K, but more to come.

I don't know if this is normal, but I must have a bad ego. Since I exited, I want to prove that I made a good decision, but apparently it's not!

One of critical skills to learn in trading is the ability to quickly move onto a next trade. I don't think I'm quite there yet.

Profit / Loss update

I updated my 2008 Profit / Loss. I decided to put the P/L based on liquidating value, which is more accurate instead of close-based value.

I'm up as much as the last year, but not by much. I must admit that it was more stressful this year because of the bean-meal position trades. Now that I exited that position, markets will go my direction. Isn't it what markets do any way?

The good news is I've been doing very well practicing a new strategy. My goal is to quit my day-job, by early January.

Soybeans - Soybean meal Spread summary

Soybeans/Soybean meal spread
Short 1 Mar Soybeans at 1236.25
Long 1 Mar Soybean Meal at 343.9
(entered on 1/2/08 )

-----------------

Covered 1 March S at 1391.50
Sold 1 March SM at 360.2Sold May S at 1409.4
Bought May SM at 367.5(Rolled over to May on 2/20/08)

---------------------

Short 1 May S at 1345 and Long 1 May SM at 353.7
(entered on 3/25/08)

-----------------

Sold 2 May SM at 343.10
Covered 2 May S at 1353
Long 2 Jul SM at 348.40
Short 2 Jul S at 1368.25

(Rolled over to Jul on 4/18/08)

------------------

Covered: 2 July Soybeans at avg of 1582.575
Sold back: 2 July Soymeals at 423.40
Short 2 Aug Soybeans at 1580
Long 2 Aug Soymeals at 421.2

(Rolled over to Aug on 6/27/08)

--------------------

Covered: 2 Aug Soybeans at avg of 1604.50
Sold: 2 Aug Soymeals at 428
Short 2 Nov Soybeans at 1580Long 2 Dec Soymeals at 411.4

(Rolled over on 7/1/08)

---------------------
Exited 1 spread;
Bought 1 Nov soybeans at 1180.5
Sold 1 Dec soybean meal at 313.30
(8/8/08)

-------------------
Exited 1 spread;
Sold SM at 349
Bought S at 1272.5
(8/14/2008)

Exit the last bean-meal spread

So I exited the last bean-meal spread;

Sold SM at 349
Bought S at 1272.5

I think grains are bottomed out at least temporarly. I'll look to re-enter when the spread goes back up to $35K. I was able to pull out $4000 on this trade, but still considering all the agony I had in the last 8 months, I don't know if this is worth or not.

Exit 1 bean-meal spread

So I exited one bean-meal spread (still holding one).

Bought 1 Nov soybeans at 1180.5

Sold 1 Dec soybean meal at 313.30

I made about $3K on this trade, but I really hope the 2nd leg would meet my objective, which should give me $10K or so. It's a shame that I couldn't hold on to a bit longer for what I just exited, but I went thru quite a bit of drawdowns and I do a lot better when I book some profits. 

As you see the screenshot above, the spread trading is where you buy and sell two different contract simultaneously and expect the difference becomes bigger and smaller. I am losing (the shot was taken before I booked my profit), $19K on the soymeal, but making $39.6K on the beans.

By the way, lumber is not doing anything. It may take a while.

I'm also watching natural gas to see if it drops to 7 area where I'll start selling 6 puts.

Psychology

The number one reason that 90% of traders fail is due to psychology. I've been trading for a while, but I'm still struggling with it every single day.

The biggest one I have is the soybeans-meal spread. I was going thru a significant drawdown and now it came back up. As a matter of fact, I'm making some money, more than my monthly pay-check from a computer engineer job, but the problem it's still far less than the amount I risked. We all have invested or traded in one form or another and said to ourselves, 'if this thing comes back to break-even, I'll just get out and I'll never invest/trade.' That's the exact situation I'm in.

If I get out now, the reward-risk ratio would be 1:7. (Risking $7 to make $1, which is not right!) In order to survive in trading, I need at least 1:1 ratio. But man, my target is still so far a way. I don't know if I can fight for it or not.

FOMC

So the feds held the key rate at 2% (I believe). The decision was a piece of cake because as many of you know the price of commodities easied quite a bit. For example oil was at 145 not too long ago, and today we dipped below 120. That's about 15% drop. Not to mention, gold, euro and grains, they all fell nicely. The feds had to dilemas: inflation and liquidity (jobs, money from gov to banks, etc). Since the inflation has been easied and the credit crisis is slowly recovering, there's no reason for the feds to raise.

People were heavily investing money on inflationary instruments and they've been pulling out quite a bit. Where is that money? As I said in the previous post, stocks suddenly became very attractive.

Either the worst is behind or not, markets are liking what the feds are doing. Once dollar starts breaking high out of the consolidation, we'll see more drop in commodities. This doesn't mean, of course, oil drops to $50 and stays there, but we'll not see a parabolic type up-move near soon.

I have moved all of my 403b plan back to stocks and global equities and purchased some stocks in Roth IRA a few days ago. I maybe wrong, but I think we have a good shot here.

Outlook

We're living in a very interesting time for sure. Oil doubled its price in a matter of few months, grains tripled with in a year, dollar has been continuously getting devalued, gold hanging just under all time time etc...

As many of you know, we're facing two big problems. Inflation and recession. Inflation is from of course high food and energy and the main problem of recession is caused by sub-prime mess. Feds kept lowering rates for market liquidity, which eventually made inflation worse. When Fannie and Freddie were about to go bankrupt, people thought the worst was not yet over.

Feds, however, are dying to raise the key rate to ease inflation and I think that's about to happen soon. In Europe, there's no credit crisis. Their #1 priority is inflation, why they just started their rate, which gives a lot of pressure in dollar, so we do not have much choice. But it can't be done without solving our banking issue.

This week 5 big banks came with a lot better than expectation. I think this might be the bottom of the financial crisis. Smart money was in inflationary instrument (is that a right way to say?) and now it's moving back to equities.

Oil is coming down really hard. Goldman Scachs' outlook on oil is about $200 whereas Lehman's expecting $80 per barrel by end of 2008. Can you believe that two main hedge firms' outlooks are completely opposite. $200 in crude is about $6 / gallon in gas pump.

I'm leaning towards to $80 because I started seeing things that I've never seen around people. Our solutions about high oil were to dig more oil and support oil companies so that they can find better ways to get more oil. What did gov's subsidy do on enthanol and bio-diesl plan? It made things worse not only in oil but also in grains (food). We wanted others to solve problems for us instead of us being proactively find a way.

People are finally talking about changing behaviors. People are looking for 'compact' cars, electric vehicles, less travel etc. The #1 rule I learned from markets is when everybody knows markets do the exact opposite. Everybody things demands in India and China will exceed the supply. I disagree. A lot of it has to do with speculations and the sharp dropping in oil is exactly the proof of that in my opinion.

My money in retirement account has been sitting in money market since Dec 2007. My money was at global and domestic equities, but after I saw the credit problem, I got it out pretty quickly. Sure I didn't exit at the top, but I got out well above where we are now. I look at the funds I was in, it's -15% year to day. I'll look to move my money back there.

Still holding

Not much going on. I'm still holding 2 soybean-meal spread and 2 lumber trades. The spread trade came back to my way, but still far from my targets. I'm just getting really impatient though because when it came back last time and gave me about $5K profits, I didn't take it and it then moved against me quite a bit. I feel as if I just need to get out at break-even. However, that's not what's about trading. I just risked huge amount of money, and get out at b/e???

Lumber is giving me more pressure than before. It looked like it was bottoming out and then it broke the support making a new low. Everybody knows about how bad these housing markets are. I threw an order to sell 1 Sept 230 puts. Lumber has never been to this low and all I can say is it's 'well' below its cost of production. Supply and demand will eventually kick in, but it takes a while for sure.

Buy 4 ES at 1262.25

Results:
-1.5 pt or -$300 (minus commissions)

I did like the setup, but oh well. I'll take this kind of trade every day tho.

Roll-over

I rolled over my soybean-meal spread trade from July to Aug. I guess I should have rolled over to Nov where there are tons of volume. I suppose a beginner's mistake.

Covered: 2 July Soybeans at avg of 1582.575
Bought back: 2 July Soymeals at 423.40

Short 2 Aug Soybeans at 1580
Long 2 Aug Soymeals at 421.2

I've been holding this position for 6 months now. I almost forgot to roll-over which would have resulted in a stack of soybeans in front of my house.

6/17/08, Sold 4 ES at 1363.25

Results:
$150 minus commissions.

I forgot to record this yesterday, so I'm doing it now. If you can recall, I've been simulating a new strategy for about 2.5 months and I finally took my first live trade. Day-trading always makes me much much more nervous. However if I can achieve consistency in day trading, it's just matter of time till i double, tripple the size of contract.

Update: GCL 150 Calls

July Crude 150 Calls expired worthless. So I collected all the premium of $550. What's good about selling options is if it expires worthless, I don't need to exit at all ending up saving commissions too.

The oppertunity was almost ridiculous and glad it worked ok. Sure it could have gone to 200, but with one week left, I thought I had a very good chance. One mistake I did was, had I waited right before the close, I could have sold the same options for $1500.

Sold 1 July CL 150 calls

I sold it again for 0.55 (or $550). I didn't expect CL's +11 POINTS in a day. Now it's trading at 139 with the option value of about $1250 (or I'm losing -$700). With this pace, the CL can easily hit above 150 in a day or two. It expires in 10 days and the volatility is ridiculous. This is an absolute panic buying. I do not plan to exit the position. Either it gets expired worthless, or I get assigned.

If I do get assigned, I'll hold on to the short position for a possible profit of $500. If it does expire worthless, I'll make $550. Time is in my favor in this option or any option selling position. Each day it should lose its value about $100/day should CL doesn't move. If it drops, the time decay accelerates, then I'll consider an early exit.

Short 2 S at 1470.25

Covered 1 at 67.50
Covered 1 at 69.25

Net +187.5 (less commissions)

Covered CL 150 calls for 0.06

I exited CL call for $490 profit (less commissions). The opportunity was awesome, but took advantage of panic in options market. It worked out nicely.

Update

Not much going on here. I'm still holding the bean-meal spread, lumber and crude call. Crude took a big dip today which brought the premium from $720 to $240. My exit is at $100, so another $140 to go, which will give me $450 profit. This is why you want to sell options. All you need is a one big down day and you will see all the time decay it's got and options will get deflated.

On the other hand, I was ready to add one more leg on the bean-meal spread, but right before I got it, it turned around started heading down, so I guess I will wait. If it goes up, I'll add, if it keeps going down, I'm profiting from my current position anyway.

Lumber is not doing anything. I'm waiting until the 2nd part of this year to start kicking. If it starts move, I'm seeing at least $15000 profit. I would like to see profits, but I must be patient.

Sold 1 CL 150 Calls for 0.55

I sold this morning 1 July CL 150 calls for 0.55 or $550. CL oil has a ridiculous opportunity here. almost about 30 points away with a little over a month left. We'll see how this plays out.

Roll over in Lumber

I rolled over 2 lumber positions.

Sold 2 May Lumber at 212.20
Bought 2 July Lumber at 239.90

Still testing and watching

It's been a while since my last post. I'm very dilligently testing my new ES strategies. I'm getting there, but not yet ready to risk my real money. In the mean time, I was able to get $3.3RT for ES where I can use Zen-fire, institutional service, that provides unfiltered data and that account is fully funded. I also wrote a program in Visual Basic (I never wrote a program using VB before. I was a hard core Java guy) that utilize my money management. I even built a live dome!

As far as my position trades go, they are just hanging there. It seems that I'm not going to exit my spread until soybeans drop to $11/b level. Once I exit this position, I have to be more selective on position trades. Lumbers are all time low, but with housing markets, it'll take a while.

Hope everybody is doing great and let's see what FOMC brings today. Some say we're nowhere done from credit crisis and some think the worst is behind. I personally think either we are used to this situation already or we're getting better. Remember, stock markets are the most efficient instrument to gage our economy. If we get acceptance above 1400, I would say we go higher.

Update

Nothing new here. Still holding the spread and the lumber trade. I'm not used to this kind of super-long-term trade, so I have to be very patient.

I'm giving one more week of new scalping setups. I will go live if I become consistent in this final week. I'll start 4 lots.

Roll over

I rolled over my spread trade to July.

Sold 2 May SM at 343.10
Covered 2 May S at 1353

Long 2 Jul SM at 348.40
Short 2 Jul S at 1368.25

Position update

It's been a while since my last update. The main reason for that is I really need to manage my swing position. The spread went in my favor after planting report, but I thought it had more room to go, but it completely turned around and now I'm sitting about at break-even. This could take months to work out, but I hate seeing the spread goes to $40K again. Now I have two lots, I have to deposit more. However I still like this trade. I'm looking at least $10K profit off of this trade.

Lumber started showing some signs. Yeah, I know about housing markets, but we all know that when 'everybody' talks about something, it's time to do the exact opposite. I'm well positioned on Lumber. If May contract goes about 250, I'll sell 270 Call so that if the market drop back, I'll take the premium lowering my b/e level.

I'm also working on a new strategy in ES. So far very consistent, but need to simulate more. Previously, I hurried on trading from sim, I ended up losing a lot. I do not want to do that for sure this time. I'll most likely start with $10K trading 4 lots of ES. When I started doing that, I'll post live updates here.

As far as the money club I'm in, it is profitable, but slightly above +1% since inception. I will take everything out in July which will give lots of flexibility on my other trading account. If things go well, I should be trading 20 lots on ES (Yes, I'm very confident).

At the moment, I'm also programming to accommodate advanced order entry. I could buy a software and pay $4.10 RT on ES, but if I don't use that software and program it myself, I can get $3.30RT. If I trade more later, that 80 cents different will add quickly.

Update

Here is the update on my two position trades.

1. Beans - Meal spread.

I first got involved with the spread when it was around $27K. The spread is usually around $15K, so I thought I was in a very good position expecting minimum or almost no drawdown. This spread went as high as about $40K, which means my drawdown was about -$13K! What kind of system is that allowing a drawdown of -$13K, but I had to hold onto because it's a fact based trade. I know eventually the spread will get smaller. If I had money to add on, I would have definitely, but I couldn't in case it would go worse.

Gladly, now it's back about $27K. I added one more leg on it way move down around $31K, which gave the avg cost of $29K. So where is my target? I will take one leg off at $22K level and hold on to the last piece until $18K.

Today, the annual planting report came out and as I discussed earlier, people put lots of beans, which results in a limit down today. If beans (or other ags) have a limit day based on news, it'll likely have a follow-thru in next 2-3 days. As beans limit has changed to 70 cents /b, I may well see $22K level very soon. I personally think beans will go to $10 /b again.

2. Lumber

With the last month loss, I'm in a loss of $4K as of today. Housing markets are still bad and there's no sign of Lumber bouncing, so I'll probably hold this position for a long time. If it gets to 200 level, I'll sell another put. When it bounces back above 260, I'll sell calls, but that's a long way for sure.

Short 1 S at 1327.25

-2 or -$100

We have a support at 1325. I got stopped out on a snap back action. Will short again if it breaks 1325.

Short 1 S at 1345 and Long 1 SM at 353.7

I added a position for the bean-meal spread. Beans opened a lot higher than meal, so it seemed like a good opportunity.

Resume

It looks like everything turned around last week, resumed. Dollar collapsed again last night and grains started heading higher again as well as gold. I'm basically sitting on my hands now. We're at a critical point where anything can happen. In this kind of market, I'll probably get either chopped out or pick a wrong direction, so I'm staying out for a while.

At the same time, I'm working on a new strategy on ES. My trades will be based on volume mainly. Hopefully I can achieve 60%+.

As far as my current position trades go, I'm still holding. In early March, I was in a great danger, but it's eased back quite a bit. Lumber is seeing some strength of speculation of avoiding recession, which means more building. The bean-meal spread is still on the edge. I really should have added when it got down to $40K spread level. I got in at $27K and now it's about $30K, so I'm losing $3K on that. If I added even at $35K, I would have been exited last week. It's all hindsight I guess. I'm waiting to move money from swing account to day trading account soo.

Long 1 S

Result:

+0.25 or $12.5 before commissions

The action was very very slow, so I exited early. Beans ended limit-up .

What have I done... -$1370

Beans and bean oil were limt down, but bean meals were not, so I shorted. Stopped out. Re-shorted, and I stopped out. Reshorted again, moved higher, I added and not to mention I stopped out.

Now looking back, I look like I was on a drug or something.

Short 1 SM at 302.8. Result: -3.2 or -$320
Short 1 SM at 306. Result: -1.0 or -$100
Short 1 SM at 306.1. Result: -4.4 or -$440
Short 2 SM at 308.5. Result: -5.2 oor -$520

I have no execuse on what I did this morning. I moved my stop. I added on a losing trade. Probably the largest single day loss for a while.

Save the economy

Ben Bernanke is the man. Whatever he did, markets just love him (or love what he did).

Gold and Dollar were quite disappoited that 1% cut didn't happen, which is why we're rolling over. It's too early to say, but I think the gold will go to 920 level fairly quickly. Euro will go to 1.54 or 1.5 level quickly as well.

The problem is oil. Yesterday we had about 10-pt range and today about 5 pt range. I thought we were going to see a little more pullback after yesterday's big down, but wow right back up.

Long 1 S at 1302.75

+0.5 or +$25.00

After missing a trade, I 'usually lose, but I got stopped out at b/e.

10 pt move - order rejected

I placed an order, buy stop, at 1281.50 on beans. Guess what happened. Order rejected!!!

What happened was that price approached so quickly that Tradestation wouldn't let me place a buy stop order. With no surprise, beans rallied 20 pts, which is $1K. Based on my exit strategy, I would have been able to pull at least 15 pts per lot.

I can say nothing buy whining here.

Today is FOMC day. This is the day I usually stay away from stock indexes. I'll keep an eye on Gold and Euro though. I think markets expect 100 full basis point (or 1%) reduction in the key interest rate, which will likely happen.

I have not been trading well lately. The spread trade I'm in is coming back, but still a long way to reach my target. I'm attempted to get out at b/e, but I risked so much. If I get out at b/e, I'll not be successful in trading.

The Lumber trade is not doing well either due to housing markets. While this is my first position trade (2 year minimum), it's always pain to hold onto a loser.

I'm looking into implement ion a new day trading strategy in ES. This should be a very consistent strategy. I will trade 4 lots of ES scaling out.

Long 1 YM at 11877

+28 or +$140

Looks like a typical stoprun and short squeeze to me.

Anyway, indexes are really volatile. I may call it a day. I traded way too much.

Long 1 YM at 11877

-8 or -$40

Short 1 S at 1375.25

+9.75 or +$487.5

Finally a winner. Not a huge winner, but should take care of a few losers.

Short 1 S at 1376

-4.25 or -$212.5

Short 1 S at 1412.25

+0.5 or $25

Long 1 S at 1430

-2.75 or -$137.50

Another loser...

Short 1 S at 1396

-2.5 or -$125

Wow. I'm on a losing streak. No follow-thru got me stopped out.

Short 1 S at 1398

-0.75 or -$37.5

As soon as I got filled, I got stopped out due to slippage.

Short 1 S at 1411.25

+0.25 or $12.50

Short 1 S at 1411.75

-2 or -$100

Long 1 W at 1145

-0.25 or -$12.5

I re-entered, but I don't know why I got stopped out at b/e when W went as high as 1155. When things are not working out, jut about everything is against me. It was totally unnecessary stop-out on my previous W trade. Now when I entered again, it got me stopped out at b/e for a no reason. I should have been up +$1000 not -$162.50. Why is it that the more I trade, the more $$ I lose.

Long 1 W at 1145

-6.75 or -$337.5

I totally messed it up.

Long 1 S at 1389.50

+4 or $200 (before commissions)

I missed the 20pts move and looks like I exited too early on this one too. It's like I'm seeing things, but can't get things to work properly. I'm not losing money, but I'm not making much money.

Today's action in soybeans seems to be a short squeeze. Well deserves for a retracement. One thing to note is there's a big trendline, I think, right below 50EMA. While Ii'm thinking about shorting at 8EMA, I have to be careful there.

Long 1 S at 1361.75

-0.25 or -$12.50 (before commissions)

It'll probably go higher. I had to use a tight stop because I didn't want to get stuck short on a limit down.

Liong 1 W at 1103.75

Result:
+1.25 or $62.5

Too tight of stop yet again. Wheat's now at 1114. It popped higher to 1110, but came right back to stop me out at b/e and kept going higher. I liked it because Wheat was the strongest of all. I really need a runner. So far none this month. Just one runner is what I need each month.

Sick

I was right in direction darn 3 times, but I got stopped out all three times. I missed a short at open, so I waited for 30 mins to enter a short. I can't believe what just happened. I was using tight stops, but 3 out of 3 stopouts in a row??? Don't you feel like when you miss a trade, it goes in your favor a lot. If you're in, you get stopped out. Furthermore, as soon as you got stopped out, off it goes.

Markets are not syncing with me today. Yesterday was a golden and I left too much on the table. I will keep betteing on Soybeans down trend.

Short 1 S at 1479

Result:
-2.75 or -$137.5

I'm using too tight of stops. Direction is right, but it wiggles too much and it's just killing me.

Short 1 S at 1485

Result:
-2.5 or -$125 (before commissions)

Short 1 S at 1485.25

Result:
-3.5 or -$175 (before commissions)

Rolled over 2 Lumber

I sold March 2 Lumber at 200.60 and bought 2 May Lumber at 230.50 esentially rolling over.

Short 1 S at 1500.75

Result:
+3 or $150 (before commissions)

Entered again, but exited too early. Is this a stop run? I don't know.

Short 1 S at 1519

Result:
+0.5 or $25

It got me stopped out at the exact tick, and now it's trading at 1493. I knew if we take out 1501, yesterday's low we're gonna see a crazy down move.Damn it.

Long 1 YM at 12172

Result:
+2 or $10 (before commissions)

Short 1 S at 1528.75

Result:

4.75 or +$237.5

I re-entered even after I got stopped out.

Short 1 S at 1529

Result:
-3.75 or -$187.5 (before commissions)

Short 1 S at 1533

Result:
+0.5 or $25 (before commissions)

Tried to nibble in, but not much downside follow-through.

Hate the markets

Usually when someone hates markets, that means 'losing money.' I'm no exception.

1. Money club
As some of you know I'm involved with money club. The club's position is 99% of time against the market direction because it utilizes time decay in options. I don't want to see Gold, Oil, Grains etc make new highs. Yesterday, when gold dipped 20 pts, I was relieved, but today it's +25 making a new high. Crude is +3.50 still going. Euro making a new high and even Coffee is +1.2%. Yet, this is still managable. The real deal comes....

2. Position trades
Lumber is just not taking a break at all. Yesterday limit down. Today down again. I'm net -$5400. The soybeans-soymeal spread trade is even worse. Net -$13000. These are supposed to be all fact-based trades, so eventually it'll go in my favor (sometimes it takes years) but I was totally not expecting this much drawdown this fast. I have a big chunk of money coming in July, so I thought it'd be okay, but -$18000 is more than half of my portfolio and I have to worry about margin calls unless this move slows down.

I'm honestly not sure if I can survive on this. I thought I got better, but the same thing happens again and again. Sign me up guys, I'll be one of those 95% who lose money...

Long 1 S at 1550.50

Result:
+1.25 or $62.50 (before commissions)

So much for yesterday's weakness. Soybeans are up +40 today. I rather short on yesterday's low, but the setup occured, so I entered.

Short 1 S at 1551.25

Results:
+7.75 or +$362.5 (before commissions)

I have so much things to say. Yesterday I talked about the first sign of weakness in grains, so today I entered two short trades. The previous wheat trade was not as clear, so I used a tight stop, which got stopped out on a small wiggle at +$75. What was not clear was that I would like to see all the grains sync together, but corns and beans were not following wheat yet.

Shortly after that, corns and soybeans were approaching the low of the day. I entered a short on soybeans. I saw overnight low at 1543 level and I thought if we could take out that level, we will see the previous day's low at 1534. If we take out that low, we're talking about at least 1520 level. As beans moved down, I trailed, but guess what, I got stopped out at 1543 on a small bounce before taking the prev low. So I left lots on a table, but trading 1 lot is hard because you need to book profits, yet need to trail accordingly.

Now, I see more drop in beans / corns for next few days. I will add additional contract on my beans/meal spread.

Short 1 W at 1100

Result:
+1.5 or $75.00 (before commissions)

Short 1 S at 1559.25

Result:

+3.75 or $187.5

Lucky I got the almost dead low.

I'm still facing a possible disaster on the spread trade. It seems that we might see some consolidation, or a possible pullback from this point. I haven't seen a weakness for a long time. I may short S swing.

By the way, I got assigned on both 240 and 220 March Lumber puts. I'll roll-over some time this week to May contracts.

Monthly Total - Feb 2008

Day trading account: +$934.48
Swing trading account: $0

Even if the swing account shows zero, I have a huge drawdown in open positions. I'll include them once I close them. Last year I was not that good at day trading, but this year has been consistent (I know they are small but steadily growing).

Sweating

My position trades are absolutely going insane. While I was prepared to go through 'some' draw downs, but I didn't expect them to happen this fast and this furious.

Two lumber puts are expiring today. Lumber closed around 219 yesterday, so if it doesn't close above 220, I'll get assigned on two contracts. I'm hoping that the market closes above 220, so I have a bit more room on margin to carry my spread. I want you to know that this Lumber is doing exactly what I expected. But the problem is....

This spread trading is just nuts. This is not 100% same tpye of trading as the Lumber trade, because the spread can go to infinite even if it never happened before. As beans move higher, my loss gets bigger because soymeal doesn't move as much as beans. I'm really attempted to exit soymeal and sell another bean at the current level (adding onto a loser??). I was going to do that last week, but I just haven't seen any weakness at all! Ideally, if I see a big engulfing pattern or shooting star type candle, that tells me we're at least ready for a pull-back, which will give me enough time to take profits of $1-3K, which is significantly reduced from the projected target of $7K or so.

I really need to manage this position. I might need to deposit more. Some may say just exit the position, but it was a great level to enter the spread at $27500 and it's even better now at $37000! Maybe my version of black Monday is coming, but just not yet.

Long 1 S @ 1480.5

Results:
0 or $0 (before commissions)

I just can't believe what grains are doing. Wheat's range is $11 /b to $13, which is just crazy. I've been thinking about Wheat-Beans spread for a while, but even before I take any action (when Wheat was limit up for a while), Wheat came down really hard. I gotta call some farmers to see what they are thinking about this action.

Lately, I've been fighting against the trend, but this seems like a crazy topping action. I'll update about this later on.

Inflation

While stock indexes are still not doing anything, I think markets are nuts! Most of people think we'll see the Jan low again in stocks, so basically they are sitting on their hands until something happens. From what I've learned, when things are too obvious, markets tend to do the exact opposite. Take a look at bonds. Ever since it made 122 or so, it came down significantly now trading around 116. If bonds head lower, economy picks up and stocks rise, which is exactly what Bernanke wanted.

Now the problem is inflation. I trade grains keeping my eyes on other commodities such as metals, energies and softs. They are all screaming high. CPI and PPI numbers are not good at all. We have an FOMC coming in mid March. The current markets are implying another rate cut, but my guess is that this will be the first time that the FED will not cut the rate since last year. Rather, they will hold the rate to see what happens. If this happens, stocks will not like it, but probably not panic either but commodities will stabilize.

I will enter short trades in the first week of March to take advantage of this.

Short 1 S @1410

Result:
+1.25 or $62.50 (before commissions)

Still no clear direction

I'm still not clear on markets. Some are just too high to get in and some look as if they are going to die, but keep rallying. Most of all, I'm holding two losing long term trades, so I rather not do anything because I really have to manage my position trades. I might move some of my day trading account funds to swing accounts.

Soybeans and soy meal spread:
It's against me about -$6K (from spread of $27000). I was going to add another position at -$5 or ($32000), but I decided to wait due to roll over this Friday. I might as well establish a new position in May contracts.

Lumber:
Lumber went as high as 237 last week, but now it's around 221. I have 240 and 220 puts. What I'm hoping for is to have the 220 puts expire worthless ($770 profit), roll over the 240 and look into sell a May 210-ish put. Lumber's margin is about $1K, which is small, but it'll help me carry the spread trade if it expires worthless.

Rewards are high on position trades (not swing), but also it takes tad long. I've been doing okay on day-trading. So far this month about +$1K besides my full time job, but I feel that I'm over-trading, so if I move money to swing accounts, it'll prevent me from day-trading any more, which is what I want, at least for Feb.

Short 2 YM ay 12286

Results:
-9 or -$90 (before commissions)

I'm just not good at it today. I hope keeping my losses small eventually pays off. Not a good way to head into the weekend.

Short 2 S at 1362.75

Results:
+3 and +1.25 or +$212.50 (before commissions)

If Corn broke down together, beans could have fallen apart, but corns are just not paricipating. The last stopout could have been avoided. :(

The first target is usually an insurance for me and the real money maker is the 2nd target, which is a runner, but I haven't had a runner for a long time. I need a big runner one or twice a month until then my job is to protect my capital.

Short 2 S at 1364.50

Results:
-4.50 or -$450

I was trying out-smart the market and the result is usually... a loss.

Grains fundamental outlook

I talked to a few farmers the other night about recent grain markets. Note that I am just a speculator, so please read the disclaimer before you do anything.

While they are expecting a really good year from grains making all time high, they soon have to make a critical decision about planting by end of this month or so. (March crop report will be really huge because it'll tell us how much shortage/excessity we'll having for this year's crop.)

In short, many people are planning to put beans this year ($14 /b is just nuts), which will lead to too much of beans and a possible shortage in corns. People who put corns are a bit nervous because corns are not appreciating as good as beans or wheats, so they are changing to beans or even wheats. (Farmers whom I talk to, don't usually do wheat in that area, but they are considering to change.) They said corns must hold its price or they'll lose money. Of course, that doesn't mean corn won't go lower, but if that's the case they will highly likely change to beans. I guess after all the bio-desel thing, people put too much corns.

One thing you need to know is you can do beans back to back or a few years in a row (This is how I understood, but double check it). It has something to do with soil being used up. Hope you get the idea from here.

Where am I going here? I'm not saying it'll, but it seems that corn will appreciate quite a bit in the year of 2008-09. Farmers are very smart. They've using futures to lock in their profits 2-3 years ahead and the quantities they are trading is a few thounds contracts at a time easy scaling in! One of the biggest farmer said, while others put beans, he'll put corns. This guy has a specific level to buy futures on the white board in his home office. By the time, there are too much beans from other farmers, he'll be one of few suppliers who sell corns. This has been doing this for years!

This is also a good news to me because I have a spread trading that's going through $5K drawdown and as I stated earlier I'll scale in every $5K. The spread will get smaller as beans price drop, so I like that idea, but I need to make sure I'm not over-leveraged. I may even do beans - corn spread.

I've been trading grains since Q4 of 2008, so I'm curious about how much volatile markets are going to be during planting / harvesting seasons.

Long 2 S at 1361.28

Results:
+2 and +1.25 or $162.50 (before commissions)

Heading higher now, but it's okay.

Short 2 Wheat at 986.50

Results:
+3.50 and -1.25 or $112.50 (before commissions)

I put a sell stop order at 988.50 and I got filled at 986.50!!! On the 2nd position, I thought I moved my stop to b/e +1 (I didn't know I got filled at 986.50), but it was -1.25 and it all happened so quickly.

Overtrading?

When I used to 'always' lose money, the frequency of trading was very high. I was just losing money from commissions only (on top of many stupid trades). In the past few days, I felt as if I'm back in days doing the similar thing. Traders' 3 deadly sins are

1. Under-capitalized

2. Over-trading

3. Lack of discipline

It's just amazing that at on point I feel like I'm a pro, but next day I'm not different from when I first started trading. What I should do is probably video-record what I am doing. It will brutally record everything I do (moving stops, impulse trades, taking early profits etc...)

Markets don't seem much clear to me especially in indexes. It looks like it'll test its low, but moves don't seem strong. There's an old saying, 'Never short the choppy market'. Not much daytrading setups on indexes either, so I've only trading grains. One thing that stands out now is Oil.

Short 1 W at 1010.5

Results:
+0.75 or $37.50 (before commissions)

Update:
Wheat is just not working well with me. I know I am very aggressive on my trail stop (I like to move stops to b/e asap), but I got stopped out on a spike hike at break even. Now it's trading at 990. 20pts on grains is $1000! I called Wheat's top yesterday, but still not able to trade properly... :(

Wheat is a contract where you get stopped out 5 times,but when it works out 1 time, you make a killer. I need to stop trading today before doing anything stupid.

Short 2 S at 1321

Results:
+5.25 and +2.50 or +387.5 (before commissions)

I thought we were gonna blow 1313 level, but my 2nd position got stopped out on a bounce. I don't like this kind of quick bounce.

Short 2 S at 1324.25

Results:
-3.75 or -$375 (before commissions)

I'm going through bad drawdowns. I will keep trading my plan to limit my risk. I've had a good string of wins since November. I guess it's time for a string of losses. It's not fun, but what can I say.

^@$%%$#!%@ Wheat

After I got stopped out 'THREE' times in a row for the same setup, Wheat went my way at least 15 pts (or $600). This is a typical example of trading. When I get in, I get stopped out. When I don't get in, it goes my way. What I did right though was to take my stops where I'm supposed to take. All I needed was one trade to offset all the losses, but I suppose I missed it. Some may argue I'm using a too tight of stop, while it's a valid point especially considering Wheat's volatility lately, my setup doesn't need a tight stop.

Losses are small compared to what I've been doing this month. I was up about $1500 so far, so even after these 3 losess, I should be up $1100. I would take extra $1000 a month any time. In fact $1000 a month in trading was my goal last year.

Short 1 W at 1068.50

Results:
-2 or -$100

Well, I violated my previous statement and the result is a loss... Markets don't have a mercy on who's not disciplined. I felt like somehow I'm not synced with markets today.

Short 1 W at 1069

Results:
-2.25 or -$125.50

I thought Wheat's gonna tank, but it didn't, so I gave a small stop loss. Two stops in a row, I'm not trading any more for the rest of the day.

Short 1 W at 1070

Results:
-2.25 or -$125.50

Wheat limit up again

Wow. CME Group (or CBOT) decided to reset Wheat's limit move from 30 cents to 60 cents starting today. Guess what! In overnight session, Wheat is limit up 60 cents. It's 5 days in a row? Wheat is absolutely a panic mode now, which in fact is a very good candidate of an inverted V. I'll start looking for some day trading on short side tomorrow. If this move has been panic, a down move will be really panic!

I also start looking at some Soybeans and Wheat spread. I'll patiently wait.

Short 2 S at 1346.50

Results:
+2 and +8 or $500 (before commissions)

Short 2 S at 1351.75

Results:
+2 and -1.5 or $25 (before commissions)

I manged this trade wrong. Usually after T1, I move stop to b/e + 1tick, and I thought I did. $75 for another lesson from the market. :(

Short 2 S at 1338.75

Results:
+2 and +8 or $500 (before commissions)

I was not sure about this setup because Wheat was limit-up and only about 30 mins left, in which people who stuck shorting Wheat might buy Soybeans to reduce their risk. However, I did like the pattern that Soybeans came off its high (almost limit up), so I took the trade and it turned out well.

Still sitting on my hands

There is usually at least one or two markets that are standing out, but lately I've not seen anything special, so I'm standing aside. I used to get bored and did many implulse trades that only resulted in tons of losers. I was in fact suprised at myself becoming more profitable as my trading frequency goes down. It takes so long to build a good account, but takes only one bad trade to wipe everything out!

By the way, Lumber finally shows a bit of strength, but still too early to say. I think that demands for Lumber is not as good as when housing markets wer hot, so I have to see. On the other hand, the spread trade is just not doing well. I look into adding around $32000 level ($5K from the initial entry).

Monthly Total - Jan 2008

Day trading account: +$576.86
Swing trading account: +$4.68
------------------------------
Total: +$581.54

I did only handful day-trades this month. Luckily all turned out to be winners. I will eventually have a loser, but I will keep it as small as possible (less than $200 for YM and $400 for grains).

Not much on swing trades. I entered three position trades in two markets. As I will roll-over in Feb, I'll probably have to report losses even if they are still considered open positions. My drawdown is about $4500 (yikes), but I will show you how they will be profitable in 6-month to 3-year term. Thoses are, again, long term trades, so I don't worry much.

2008 Monthly Profit / Loss

2008 Monthly total breakdown

Month/ Liquidated Value:

Jan: -4597.52 
Feb: -7755.11
Mar: +4715.89
Apr: +3850.93
May: -2320.69
Jun: -4094.61
Jul: +14323.24
Aug: +8483.69
Sept: -8565.88
Oct: -5702.21
Nov: -1981.79
Dec: -2013.00

Total liquidated value: -7498.56

Month / Closed value:

Jan: 1525.98

Feb: -6622.79

Mar: -2539.93

Apr: 4109.93

May: -2787.69

Jun: -4093.61

July: 4399.24

Aug: 19098.09

Sep: 415.08

Oct: -1335.21

Nov: -12277.79

Dec: 4004.38

Total Closed: +3967.17

---------------------

Long 2 S at 1292.75

Results:
+2 and +5.5 or $375 (before commissions)

Took a bit of heat, but I did trade my plan. In fact, I let my 2nd target run a bit more.

When things are too lcear

What a rally today. After seeing yesterday's post fed action, most of people I know thought markets are in a deep trouble. I, too, thought the same. I guess when things are too clear, markets do the exact opposit.

I plan to enter a few position trades in my Roth IRA and now seems like I have to sit on my hands a bit longer. I told myself, I would enter after the annoucement yesterday, but I ended up chickening out just like I did on Gold a few months back. Had I bought a few stocks that I picked, my Roth account would have been up 5% from today's gain only. It's all hindsight and hard to get over. What I have to be careful is whenver I have 'I missed it' mentality, I lose a big money.

At this moement, I'll sideline. Things just don't look clear in all the markets.

Long 2 YM at 12530

Results:
+13 and +2 or $75 (before commissions)

I missed the short at Daily R2, so I bought a retracement to R1 for a scalp.

Where are we going?

After Fed's emergency rate cut of 75 basis points, markets have bounced. Last night European and Asian markets collapsed at least 3%. Surprisingly, the U.S. Markets are holding well, rather +74 on cash Dow now. Where are we going from this point? We have a FOMC meeting this week. There were some talks about the fact that the emergency cut would have not needed. Thus, we'll not see another cut this week. If the Fed doesn't cut anything this week, it'll be another disaster. I think the Fed will cut .25%, which will result in still a significant drop in stock indexes with a disappointment. .50% cut would be too much after cutting .75% although that will likely keep markets steady.

So many people are still long markets. What I mean by that is not from traders but from our neighbors or investors. There is a big cycle in economy. In the past a few years, money was in real estate markets and that was moved to stock markets, I would say, since 2003. Smart people slowly started moving their money from real estate to stocks in 2003, where they dumped theirs before real estates picked in 2005-2006.

Investors who saw a massive sell off last week are very nervous. They are hoping that markets just go higher and higher from this point. Their psychological level is that low I think. After the FOMC, we'll see a big sell-off, funds-run, stops run and a new low. After that, I say we'll make a steady higher high. We've seen so many times that after I take a loss, markets go my way!

Markets are designed for 'normal' people to lose money.

Short 2 S at 1238

Results:
+2, +0.25 or $112.50

$112.50 (before commissions)

I was pretty aggressive on moving my stops, so the 2nd contract was exit at b/e.

Short 2 YM at 12220

Results:
+10, +8 or $90 (before commission)

It was another interesting day. I have a lot of things to talk about tonight. In short, last night I talked my friend, JP, about where markets are going to go. I told him if we go above 12140 level, we might expect some short covering + buyers' attraction. We have about 15 min left and let's see where it closes. With stocks rally, bonds collapsed, which is helping on the investment club I'm in.

Short 2 S at 1223

Result:
+1.25, + 3.75 or $250 (before commissions)

It's been a while since last time I day-traded. It happend fairly quickly without taking much heat. Not bad for quick scalp.

As soybeans are falling, my soybeans and soymeal trade came back to my entry level (from a drawdown of -$2100, ouch). I'm looking into $5K target at least, but I would like to see what happens around $3K area first.

Ticked at me

One of high % setup is to fade a gap fill. Just about 5 mins ago, YM was coming to fill the gap, so I placed an order to fade it (short). Yesterday's close was 11955 I think, so I placed a bit higher than that at 11960. I patiently waited and it finally came up, but guess what. 11960 was traded but I didn't get filled. If you know YM, sometimes there are lots of orders sitting, but mostly 5-15 lots. I put 30 pts stop and target. In a matter of 30 secs, the target was hit. It could have been a stopout trade, but I feel like when I don't get in, it is a winner.

Sold Lumber 220 Put for 7.10 or $781

The order was sitting for a while and today I finally got filled. I'm cost-averaging down Lumber from 240 and now at 220. I will continue to average every 20 puts with intension of going long. Selling puts are great when you inted to go long if assigned. If not assigned, you're ultimately 'getting paid' to try to get in. A few things can happen:

1. If LB closes above 240 by the end of Feb, both positions (240 and 220 puts) expire worthless, I collect all the premium of appx. $1500.

2. If LB closes between 220 and 240, I will get assigned on the 240 puts (long from 240) and 220 will expire worthless. I need to roll-over 1 contract to June (I need to double check the next month). Since I still collect all the premium, it's as if I'm long from 228 (240 - $1500 / 110($/pt)).

3. If LB closes below 220, I will have two futures poistions with average price of 230. I will roll 2 contracts to the next month contract. Since I still collect all the premium, it's as if I'm long from 223 (230 - $1500 / 110($/pt) /2).

Let's see how it turns out.

Too volatile for me

As everyone should know, global markets tanked over the U.S. weekend. Fed came up with an emergency 3-quarters of key interest rate cut. FOMC being 1 week from today, the fed's move was really bold and shows how serious our situation is. So many countries depend on dollars. If we collapse, chances are global economy will struggle as well.

I've been watching markets since right after .com bubble. I've been through many post FOMC move, news, earnings etc... I thought the move in early 2007 was probably the most volatile market I will ever see. Not until today.... 20-30pts in YM move in a matter of second. The only way to survive in this market is to use a wide stop. I mean at least 40 YM pts or 4 ES pts. Of course, you don't want to take your profit at 5 pts. It's either make lots of money or lose lots of money.

One to keep in mind is don't over trade this kind of market. I've done that and lost a lot. I'll probably lose if I jump in, lose money, and start doing the 'revenge' trading. Keep a daily limit loss too. If you look back, don't you sometimes wish that 'if I could just get rid of one or two bad days...'

YM is up 412 as of 10:20AM. I guess the Fed's cut's been working ok so far. Monthly chart looks very ugly breaking a key support in trendline. I don't think this rally will last long, but I definitely like to see where it closes today. I've seen some people over-trade and exited their positions, which is ironically where pros will go long.

Gold was down at 850 level at one point, now 890. What as I doing. I've been talking about getting in gold again, but not doing any thing. For some reason, I have a hard time pulling the trigger this year.

Grains and oils are also down quite a bit mostly due to fear of recession. If recession comes in, people will reduce cost on everything / commodities. The position I'm holding (Soybeans-Soymeal spread) will benefit from falling in grains. It is again s position trade, so I will just sit back and watch. I put an order to sell another put in Lumber. The Lumber at 240 was cheap and 220 is a bargain. I will continue to add every 20 pts. I'm prepared until Lumber goes down until 150 or so.