A chosen one

Have you felt that you have so many things to choose from, but it happens so that you chose something that doesn't work out? I was looking at Corn-Wheat spread, Gold-Platinum spread and Nat gas. It looks like Corn-Wheat would have yielded about $1200 and Gold-Platinum would have yielded about $2600 whereas I'm about -$2200 with Nat gas. I guess we'd all become a good trader in hindsight anyway.

Here's my plan. My break-even on NG is 2.875. NG is currently being traded at 2.655. If it closes around this price at options expiration, I'll roll over and I'll place an order for at or slighly out of the money options for a covered call. To do this I need a bit of bounce. If NG keeps going down like the last 5 days, this can't work.

For example, my roll-over price is at 2.7 and my break even is 2.9 (after the spread between Feb and Mar NG factored in), I'd like to sell 2.8 Calls for 0.2 ($2000), to ultimately make about $1000. Once I have 2.8 calls sold, I'm in a sold position because if it drops again, my break is lowered (2.9-0.2 = 2.7).

On the other hand, if it doesn't give me a chance to sell the call, I'm looking to sell another puts at 2.5 to cost-average. In this case, I can try to sell 2.7 calls for $2000 or so.

There's been lots of talks on NG: hedge fund getting hit, the shortest winter, abundance, new technology to drill etc... I'm simply trying to trade my plan with lots of patience.

I hope for a bounce since the 5-day in a row down day has not been fun.

NG trade update

Looks like NG is being beaten down, making a fresh low by every moment. Two days ago, it was rallying, so I was thinking about getting out with $500+ profits, but I figured that's not why I got in, in the first place, so decided to hold.

With about a little over 2 weeks left, I can't do anything other than just sitting on my hands. Nat gas report comes out every Thursday, but being how warm it has been, I only expect a further down. Technically, volume spikes up when there's a peak, so I thought that's what I saw, but I guess not. It's usually pretty hard when you try to go against the trend.

My break-even is 2.875, so I think I'm in a good position still. I just need to chill and let it play out.

TOS option analysis tool

I don't know if you can see the above image well or not, but the above is a screenshot of ThinkOrSwim option analysis tool. It basically shows how my option is designed to work and where I'm at.

The red line shows the P/L at the expiration. I sold NG Feb 3 put for 0.125 so my break-even is about 2.875 and my max profit is +$1250 taking all the premium. The white line shows the relationship between options and my P/L TODAY. For example, if the options drops to 2.95ish, I'm about b/e. If it drops to 2.875 today (I hope not), then I'm -$522. If the market doesn't move until the expiration, the while line should shift to right everyday.

Now I put an order to buy back this option in case it just shoots up since the profit is limited. What's nice about TOS is it shows what the underlying price will be in regards to options price. In other words, if I place to buy back the 3 put at 0.5, this graph will show that the price of the underlying futures has to go up to 3.1 or something like that.

You can do this in your head, but it's certainly a very nice tool.

2011 Totals

2011 was a pretty quite year in that I didn't start trading until Sept. My portfolio is $25K and I finished with +$1323.03. It's also +5.3%, but I think % is a bit misleading because if, for example, a guy with 1K portfolio comes out, trade forex and makes $1000. Sure, he made 100%, but is it the same as $100K portfolio doubled? I don't think so.

I still have a hard time pulling the trigger. When I didn't know anything, I had no problem getting in, but now I'm very very cautious ended up missing a lot. I still have old bad habits of watching markets tick-by-tick once I get in, which probably doesn't help at all. I hope to make an improvement on this.

I also realized that I didn't do any update on 2009/2010 P/L. At the beginning of 2009, I was down a lot, but made all back + some before I withdrew all to build a house.

Sold Feb NG 3.5 Put

Today I entered Feb NG 3.5 put for 0.125 or $1250.

This winter has been nothing like previous ones. I don't think winter has never been this warm, which probably makes a lot of people think why betting a long on NG? Pricewise, it's already good. If weather starts turning even with a solid cold week, things can turn around quickly. NG is well below the cost of production, so I'm willing to sit on it for a while. $4 or $5 was about half and half, but I like it here.

Looking at nat gas again

Looks like it's heading south pretty hard. I'm not sure if this is just trying to run stops or will come down further. Ideally, I'd like to sell 3.25 puts for $1000+.

NG trade recap - daily P/L

As usual, as soon as I got in, it started going against me and I didn't really see profits unlit the final day. When you sell options, you see a lot of premiums evaporate in the last few days.