2008 started with a lot of hope. I implemented a new strategy, which utilize a long term trades. Just like any other trades, 2 positions immediately went against me. At one point my drawdown was close to -$20K under an excuse of 'long term trade'. I know I had to keep adding, but I simply got scared, so I didn't add. Sure, as soon as I decided not to add, markets went in my favor and gave me about $7K profit. Had I added and followed my initial plan, this trade would have been $40K trade.
After I exited 'early' on my first trade, I decided that I should really follow my plan and keep adding if this lumber long term trade keeps going down. Whatever number in Murphy's law says, as soon as I start adding more, markets started making new lows. I'm still holding my lumber trade since Jan 2008. I made quite a bit of money in different trading, but lumber is just sucking all the blood out of me. I begin to believe lumber might go to zero (or free). It sucks, but I keep telling myself to be patient. Because of this, I can't build my house, which has been planned for a year now just in case I need to add more.
Good news is I found a solid strategy in day-trading. I feel comfortable taking stops and it seems to work both in trending and choppy markets. I'd like to quit my job if I can get a home loan. Getting a home loan as self-employed is extremely difficult ever since sub-prime started.
Regardless, I managed to close 2008 with whopping 4K profit although I have open-losing positions. You can tell by looking at the difference between liquidating value v.s closed. Good news is I'm ahead of 95%, so called, fund managers. Furthermore, I didn't lose a dime in my 403b and I made 5% on my Roth IRA. Preserving money is good, but still, I should be able to make in both up and down markets, right?
Anyway, what's done is done and I'd like to move forward. Good luck to me and everybody who visits this blog.
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7 comments:
Good stuff man. If you were in the green last year, then that's all that matters. Keep posting about those lumber trades...I'm still very curious as to how profitable these trades are. I am tempted to take one myself.
Thanks, buddy. As long as you understand the concept of this long term trade. Lumber is an outstanding level to get involved. I would start selling March 170 Puts for 6 to 7 (equal to $660 to $770 premium). If you are interested in, I can tell you everything I know. If you truly believe Lumber is not going to go to zero like me, this strategy should work nicely.
Can you tell me why you sold the $170 puts and not one of the others? The max that you can make is the premium paid, right? If Lumber goes to $100 before expiration in March, how much do you stand to lose on paper?
sorry, it was me...boogster who posted the above.
When I get involved with any long term trades, I set specific levels to get in. For Lumber, I'd like to scale in every 40 pts. My last assignment was 210 puts, so my plan was to sell 170 puts (then 130 puts etc) . The point of selling puts is to be assigned.
If you sell 170 pts for say 7 and lumber keeps going down / you get assigned, your break-even level is 163. If you bought Lumber at 170 and lumber keeps going down, your b/e is 170 instead of 163. The premium you get is a bonus in this strategy.
The good thing about this trade is you clearly have limited loss. Thus, I do not use stops. I can hold until Lumber goes to zero. Make sure you do not over-trade, or it'll kill you. Stocks can go to zero, but I know lumber or other commodities will never. If lumber goes to 100, it bites, but I'll definitely add more because I know lumber's cost of production is way more than that and eventually supply/demand will catch up.
When selling options, I'd like to bring at least $500+ to make things worthwhile. If you look at puts on lumber, you probably notice there's not much premium because markets know commodities have bottoms (stock indexes are different). If you're happy with 4 (or $440) premium on 160 puts, there's nothing wrong with that.
You can wait for lumber to fall down more to the level you're comfortable with, but it may not get there. You need to find your own level first and calculate your risk. I would be very surprised to see 100 for lumber, if that happens, I'll borrow money and buy lumber as many as possible.
I think that I might join in with you on this lumber trade, but I'm gonna watch it for a little bit first and do some more research. Are you paying $55/month for CME data?
I use RJO Brien as my pit (long term) trading broker. RJO provides all of datafeed for free, which is very nice. They've been around long enough that they know how to deal with pit-traded contracts with (futures) options. For example, if a call option you written expired in the month, but next day it gapped up. Some brokers do not even know what's going to happen or even worse, they don't want you to get assigned!
If I remember correctly, you're using IB, so $55 CME sounds about right. Just double check if they have any problem you selling lumber puts.
Lumber might take a while, but it's probably the safest among natural gas, cotton and OJ. The current 160 Mar put is going for 4.1 or $451, which is pretty nice.
BTW, NG is looking really good as well. More risk, but more reward as well.
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