Profits Only, Please!!!

I have spent the last 2 years trying to figure this day trading with options thing out. I hit an ultimate low this past Tuesday and felt lost. With options, there are opportunities to make money on upward and downward movement. The 2 biggest problems is timing and expectation. You can be a little off with timing and may still be alright if your anticipation of the movement is correct.

Timing

How long will a move last? When will there be a change in direction? The key is going in direction of strength. There are upward and downward movements all day everyday. The overall market is inclined to move upward, but not every stock is going to move in that direction at the same time. Therefore it is best to look for the right times to buy calls and do not buy puts until there is a fundamental change. Many stocks look like they are changing direction when they are just gearing up to make a stronger move in the same direction. JP Morgan is a perfect example of this over the past month.

There are times of a bear market or recession. During that time, call options will not make sense and you should only buy put options. This occurs when there is a fundamental change in the market such as bank failure, rise in interest rates, decline in earnings, disaster, war...

Expectations

Most of the time, it is not realistic to expect a higher high. Many times a new high is not that much higher than the previous high. Many times a stock is approaching a new high but fails to reach it. I could keep going because there are so many reasons why a stock might change direction. There are times when a new trading range is established and that is when the new high is not only past, but blown away. This happened this year with Disney, Microsoft, Walmart and Home Depot.

How do you get timing and expectation right?

As I have mentioned many times, you do not want to buy options in the morning when the market opens. It is important to wait and recognize what direction the market is going and what direction the stocks you are watching are going. There are really 2 types of movement: Bounce and Breakout.

Bounce

Stocks will bounce off of a resistance level either on the upside to signal a move downward or on the downside to signal a move upward. Some days, mainly on Tuesday's, there is a V movement. It might happen early or midday, but either way is the harder one to trade because it doesn't double test the spot it moved off like a typical day. Sometimes this bounce doesn't happen until late in the day and sets you up for the remainder of the week. Boeing is great for having limited downward movement and making a clear bottom before moving upwards for most of the day.

Breakout

A stock breaks out when it has a sharp movement followed by additional green candles in the same direction. When there is a breakout, it is important to wait for a movement in the opposite direction before trading in the direction the stock wants to go. You should expect 2 more sharp upward movement with minor pullbacks after you enter.

Whether you are trading calls or puts, on stocks or ETFs, it is important to get the direction correct. One stock is independent of others and just because one goes up in a sector, doesn't mean they all will. The opposite is true about downward movement.

Do not get greedy!!!

Take your profits, but don't be alarmed if there is a retest when you see your option prices go back to where you bought it. If you picked the wrong direction, get out quickly to trade another day. Do not trade too many different contracts that make it difficult to keep tabs on and end of losing more money. Practice the KISS method. Keep It Super Simple. It's OK to go small until you are comfortable with your decisions. Small wins are always better than a loss. Huge losses will have you finding another career quickly.

Let Do This!!!

Day Trading Focus

I would like to own the job title of day trader. To be a successful day trader, you must focus on keeping your losses small and letting your winners run. Unfortunately I have failed to accomplish this. I have allowed myself to be impulsive in a number of ways including:

1. Buying options too close to open when the direction is not clear.
2. Buying call options on green candles and puts on red candles. 
3. Buying in the opposite direction with the first inclination of change.
4. Being greedy and expecting to sell where I can get ahead for the day.
5. Expecting continuation of a sharp movement when the there are signs of a reversal.

Buy low and sell high is the goal when investing in the market. It is near impossible to do that when you buy calls at the top of an upward movement just as it is near impossible to be profitable when buying puts at the bottom of red candles. Most large green candles are followed by red candles and vice versa. It is important to wait for confirmation when buying options. When there is a sharp upward movement after a large movement downward, you must wait to make sure it is not done going down. That might have been your opportunity to buy put options expecting more downward movement. The opposite is true when there is a large upward movement that there might be some downward movement on the way up to a higher point which might present an opportunity to buy calls instead of hoping a put option makes sense.

FACT: If is it the right opportunity, you will be given the opportunity to take advantage of it or it was not the right opportunity. Break even is always better than a loss.

This fact is especially important when buying options near open. At open, there is the most uncertainty for the day and therefore the price of options are the highest. Fear of missing out is very high when trading options but patience is what makes profits by finding the right entry point. Without the right entry point, you are setting yourself up for a loss or break even at best.

Change of direction of a stock might happen once a day or not at all. If a stock opens low, it most likely will not go lower without a test higher. And if a stock opens up, it most likely will go down some before going back up. That first movement might be sharp or it might happen over an hour. Just because a stock acted a certain way, does not imply that another stock will react the same way with similar movement. 

Taking Profits

Being profitable is the key when doing anything. With the stock market and trading options that go to zero, profitability is a must. Many times we set a limit order after entering a position and that limit may be too low or too high. When you have incurred losses, you have a tendency of setting the limit higher than the stock will move in the day. The top of a movement in a day is typically very clear as is the bottom. The top or the bottom of the movement rounds out and the indicators look like it is changing direction. Don't rely only on the indicators only as many times the MACD may show a change before the rounding out occurs.

I believe I covered all of my points. This might not be a good read for someone who is not an stock option trader. I have been depressed and frustrated for so long trading incorrectly. Discipline is the key to being profitable. Typically there is a trade a day that will double or even triple your money. You just must be patient and allow it to present itself. It may not be in the movement that the day starts, but don't expect to see a change of direction because some days it doesn't change for the whole day. 

This might be more of a message for myself, but I am done being depressed and working out of fear. I am angry at myself and determined to do what is right before it is too late. Focus is key along with patience. If it is to be, it will present itself. 

CARPE DIEM!!!

Profiting Huge Off $0.20 Moves

So many times I try to find the ones that devil, but many times you might miss your entry point, got in too soon, or got out too soon. Notice I left out got out too late. The goal is to take profits quickly, you should never allow yourself to get out too late. But many times the problem is you got in too early.

In the situation where you got into early, is often times better to take the loss where it's at don't worry about dollar cost averaging to make it better. Moreover if you do happen to benefit by dollar cost averaging and buying more when you do find the proper bottom, then the inflection point where you bought the first group at is probably set at the correct price and where you need to exit from the correct entry point. That sounds like a lot of mess, so let me give you an example.

Today JP Morgan appear to have topped around 114.70. I'm in money by buying 115 strike puts for $0.60 each. I made sure I sold them when JPMorgan got down to the point that it had hit in the morning around on 114.20 at which time I sold those for $0.95. So that was a quick profit a $350 minus commissions. So JP Morgan went back up close to that earlier Mark of 114.70 when I bought the same put options for $0.60. But there was a problem in that JP Morgan wasn't done going up.

JPMorgan topped in the afternoon at 115.07. at this time those put options were worth $0.38 a piece. So I bought more. And I had a large amount with intentions of selling at $0.60. It appeared that JPMorgan stopped at 114.68 so I exited the position at $0.56. my average cost was $0.52 on 50 put options for a profit of approximately $130. That certainly beat being down $700 in that transaction.

That would have been mad if I didn't take that profit and JPMorgan went straight back up. It did go up right after I'm foot that profit however it did go down further and those put options would have been worth $0.68.

Many Opportunities to Profit

I typically narow in on one or two stocks daily to profit from options. I feel it is best to know a stock so good that you recognize patterns that occur with it on a daily basis. I like using JP Morgan, I quit using Alphabet, Verizon is a fun one to make money on daily, Boeing is another one that moves and looks predictable,... I could go on and on. You can make money with options based on news for the day too.

Apple

Apple got a justified downgrade today based on limited device sales moving forward. That only makes sense if their service revenue is based on products that you get free other places and I could go on from there, but the point is Apple was set to open lower and probably fall further today. It failed to move up at open, so it was profitable to buy put options with a strike price of 200. You would have made a nice profit if you sold them when it reached 198. You could have made some money with 200 calls if bought at the bottom and sold when it peaked around 200.34. I did not investigate the options on it, but should have. See my chart to the right.

Boeing

Boeing has continues to have negatice news as a result of the grounding of the 737 Max. If somethinng makes the market negatice, Boeing likes going down with it.

Boeing had some nice movement up from the opening price, but failed to go hgher on the retest which would have been a great opportunity to buy put options. Call options could hav been purchased at the bottom, but it most likely was not going to reach the morning highs like JP Morgan.

I strongly believe and found that holding an options day trade for more than 90 minutes creates a losing position. 

JP Morgan

JP Morgan opened lower from Friday's close. It found a bottom at 112.50 and shot up from there. It came within penny's of break even for the day. If you bought 114 call options when it wsas at 112.50 at .35 and when it made it close to break even, you could have sold for .55 at a nice profit. At that peak, you could have looked for a place to buy 113 put options and wait for it to come close to the morning bottom.

Timing Summary

• Apple
• downside 25 minutes
• upside 1 hour and 20 minutes
• Boeing
• downside 1.3
• JP Morgan
• upside 20 minute
• downsie: from 11:20 to 3:05

Summary

It doesn't take all day to day trade. The key is to recognize when price is going to be spring loaded in one direction or the other, Do not expect it to continue throughout the day. Take profits quickly and do something else for the rest of the day.

Hopefully my blogs show you that there is money to be made with the market, but hopefully you understand there is a level of risk and if you don't time your entry and/or exit points correctly, you may be luck to break even or escape with a small loss.

Be paitent

Take quick action

Prepare to exit quickly if you are wrong

Prepare to exit quickly if you are right

And most important, sign up for a free papertrading account with Think or Swim, ETrade or Schwab. Learn the strategies and don't waste money.

When to Take Profit and Run

The market moves up over time, but during the time, there are many little upward and downward movements. Many times there are more downward movements than upward movement. Some say the market takes the stairs up and the elevator down. There are opportunities in both directions and sometimes the same day with the same stock.  It might not be profitable to play both directions as you might miss an entry or exit point killing profit.

When you do have the right trade, it is important to take your profit quickly as you

can not assume the stock will reach a similar level later in the day. Some of the most profitable trades only take 15 to 20 minutes as was the case with Apple on Friday. I was expecting a quick drop as it ran into resistance on the upside in the morning. I made the perfect entry as you can see on the first chart.

Expecting further downside instead of reading the price movement, I did not sell on time. I held until it turned into a slight losing position. After looking at the total picture, I don't know what I was waiting on since the put option actually doubled in value in that short time from 10:20 to 10:40am.

You can't expect it to go up for ever and you can't expect it to go down forever. 

There are signals that indicate a stock has made it's full run up or down and will change positions. This goes back to the point in my blog the other day in taking your profit and don't look to give it back. The house always wins in the stock market too. Your broker charges a commission and not a percentage of gains or losses. Maximize your money, because they are going to make money either way. The longer you trade successfully, the more money they make which is a good thing as long as you are making more money than you are paying them. When you invest properly, you should always make far more than what you pay them.

Reflection

Friday is the same day I made the great day trade on the stock that broke out. I knew that was going to be short lived and should expect other trades that make sharp movements to be short lived too. Apple moved just like that stock I don't care to remember the ticker symbol of with the exception that Apple moved in the opposite directions.

Sharp movements will have some spring back movements from the bottom to the

point they might not revisit that bottom. Based on the signals, you could have bought in the opposite direction with call options on Apple and I would have bought call options that expire next week instead of this week to allow the opportunity to hold over night if I wanted, but also because 205 calls were not going to be worth anything unless Apple broke well above 205 which was not expected at the end of a holiday week. And 202.50 calls expiring 7/5 cost too much. Therefore I would have bought 205 calls with 7/12 expiration date and here is the chart for illustration of entry and exit points.

The 2 charts of Apple are the same, just written up different. You can see how Apple took the elevator down quick and slowly worked up for the afternoon only to take another short trip on the elevator downward. One more chart I could have drawn up would have been when it capped at the top and made the movement downward. At the top, a 205 strike put could have been bought for around .20 and when it was at the relative bottom near close it was worth 1.11 approximately. There was a risky, but nice 5 to 1 return on your money in 30 minutes.

So Cheap You Buy the Stock

While watching my favorite day time show on CNBC, the Halftime Report, they ended with final trades. Brian Kelly sounds like a fool most of the time between his predictions of BitCoin and Roku, but Friday he said CRBC. I typed it in the chart and a large green candle appeared as you can see the chart to the right. Starting at 7.40-7.50 range was interesting to me.

I quickly bought 500 shares at 7.67 and it continued to run up as you can see in the next chart. I have see plenty of run ups like this and many times they hit a ceiling after a quick run. Sure enough that is what appeared to happen as it failed to go above 8.40. I quickly sold at market for 8.22 for a modest profit of $280 in about 10 minutes.

As expected, it slowly bled away for the rest of the afternoon to finish up at 7.85. Due to the rapid movement, low stock price, limited coverage, I would not recommend trading options on a stock like this. You could do it and probably make way more money, but you could also be stuck holding it into a losing position due to lack of buyers after you paid more than it was worth due to lack of sellers when you bought your options.

I attempted to buy put options on the downside when I realized it wasn't even going to retest the peak. When it was trading for 8.10, I bought 5 7.50 7/19/19 put options with a bid of .05 and ask of .10. At market, the order filled at .10.

I then placed a sell order with a limit of .20. The options bid went up to .10 and the ask went to .20, but came down to .15. By the end of the day, I sold at market price for .13. Not enough profit to really be concerned with considering the risk.

Without research, you might be asking why didn't I buy $8 strike put options for next week or even with a $9 strike price. The first expiration date available was 7/19/19 and the strike prices were 5.0, 7.50 and 10.0. Given the limited options available, you know the volume is not that high. Sellers are in control on the way up and the buyers are in control on the way down.

This strategy is used by day traders and penny stocks. It is not practical if you don't have the cash to pull it off. It is important to have some cash available when opportunity arises. I had the cash available to buy 1000 and probably should have done it and would be up $560 in just that trade. If you only bought 100 shares, made your entries as I did, you would be up only $56.

Opportunities like this happen almost every day. You just need the right scanners, or chat rooms with someone recognizing it as it happens.

Better Entry and Exit Points to Profit

When day trading options for profit, options are typically the most expensive at market open due to time until expiration is the greatest the whole day and uncertainty in direction equals a higher premium. The stock that you are watching could move in the direction you expected and the option probably won't be worth more because the directional movement made up for the loss of time until expiration and uncertainty.

I typically trade options on JP Morgan, but today I also attempted to trade options on Tesla and Apple. I am writing this blog as a learning lesson of patience to avoid doing what I did today and make more consistent profits moving forward.

Tesla

Tesla reported record deliveries in the 2nd quarter of 2019. This should have been expected as Elon Musk stated in the 1st quarter numbers were deflated due to many of  the deliveries not making it until the 2nd quarter. Either way, the stock shot up nicely in the after hours and fell today during the shortened trading day. If you bought put options with this expectation near open, you would have been disappointed, especially since the stock did not move substantially lower. Please refer to my first chart:

This provides the greatest example of why you you don't buy options near open. Looking at the next chart, you had to wait only 30 minutes until 10am to buy the put options and you would have had a better target of 235 strike price. I even drew on the chart where is the best place to sell them.

Hindsight is 20/20, so it is always obvious when looking at the chart after the fact. The key is to see the chart, wait for the retest to buy your options and have your defined stopping point in mind.





Apple
Apple looked interesting today and with the drop in JP Morgan, I was expecting Apple to have a bigger drop towards the end of the day and I was wrong. As you can see on my graph, there was a point where it could have gone either way and I was expecting it to go down thinking the upside movement was exhausted. I think I stated this already, "I was wrong."

The break in trend was going to determine the direction for the afternoon. It broke to the upside. Since we can not read the mind of the market without our artificial hindsight, we must wait for the breakout, wait for the retest and then buy call options. I am quite proud of how I have drawn on these charts today and hope that I can be more patient to be able to recognize the pattern and profit larger rather than making the wrong decision.

I hope these help me do better and help you as well. Making 300 to 500 a day can be done easily if you are patient, wait for the right opportunity and get the direction correct.