Cherry Blossoms

It's been an interesting week for the small time trader.

Spent the night in Hawaii on my way back to Japan. I highly recommend the Lava Flow at Duke's.

I was hoping I would get back to Japan, get some sleep and see that my Google Reverse Iron Condor would be in the money or closed at a profit. Not so much.

Looking back on it, it seems that I made a couple of mistakes in trade planning. Number one was that I shorted myself a day on this holiday shortened week. The theta, or the amount I lost daily on each of the long options in the RIC was way higher than normal. In addition, GOOG chopped around my entry price and closed within $15 of the entry at the end of the week.

Here's the weekly GOOG chart, and the trade details:

 

 



I had good movement towards the end of the week, but did not get close enough to the $790 strike to even get out at a percentage loss. It was 100%. This is a situation where I moved my strikes far enough out to get a very low entry price into the trade, but due to the shortened week, were just to wide.

So, the Google trade bummed me out, but I figure with all the stuff going on in Europe, maybe I could pick a catalyst and have a good currency trade to close the week.

One of the ways over the past couple of months that has been moderately successful for me is to trade an event as it happens to get momentum behind the move after the market has given away the direction. I started learning about the events from David Song's articles over at FXCM, like the one from last night: EUR/USD - Trading The German Unemplyment Report.

German unemployment can move the Euro quite a bit. Here's what the Euro looked like over the last couple of days:

You'll see my entry on the German Unemployment report as the first large red arrow, and my exit on the full stop value a couple hours later. A 100% loss of risk on the trade. Bummer again.

Here's what happened. We'll look at the economic calendar for the event risk picture yesterday.

 

My time zone is GMT+9 in Tokyo, so these times may be different than those that you see when you look at the calendar yourself, but the picture will be the same. On a normal week, the most significant event would have been the German Unemployment report. But this week, shortly after the Unemployment report was the Cypriot bank reopening. When I placed the trade, I figured that the bank reopening would be delayed, or would be a further downside catalyst for the Euro as people lined up to withdraw their money. I was wrong in that the Cypriot bank reopening cause a sharp reversal to the upside for the Euro and brought my trade to full stop in two hours.

Lesson1: Significant one time event risk can trump even the most powerful recurring event risk.
Lesson2: Most normally productive strategies can have a bad turn due to unforeseen circumstances.

So, not wanting to dwell, I entered next week's RIC trades as follows:

AAPL 05 Apr '13w 460c/470c/440p/430p or a 4.5% move to each of the short strikes.
C 05 Apr '13w 45c/46c/44p/43p or a 2.75% move to each of the short strikes.

Instead of getting burned on the reduced trading week by entering the Thursday prior, like I did with the GOOG trade in the article (still don't know what I was thinking), RICs that are entered the same Thursday as a week that's missing a Friday will be less expensive to enter, but will effectively have the same time until expiration.

So, this week I doubled down on two tickers that have done well for me in the past, while keeping the strikes as close as I could to enter at a reasonable price. 1 contract on AAPL, 4 strikes on C.

Small time.

STT

What's going on next week?

Well, I'm done working in CA, and I will be headed back to Japan starting Monday for a long weekend before I return to work.

First today, I'll be starting the Forex platform on my VPS so that I am open for trade when the Asian Session starts. I have 3 strategies active that have backtested really well for a period of the last 6 months. They each use different settings to enter and exit trades using Overbought and Oversold levels on the CCI, or Commodity Channel Index. I do this on FXCM's Tradestation II, using the Adaptive CCI strategy from FXCM Apps.

I have my settings to try to capture breakouts in EUR/USD and USD/JPY, and I have a 4 hour scalp strategy for AUD/USD. The AUD scalp strategy looks like this:

I'll upload the backtest results when I am able, but the short of it is by starting the strategy with $200 in a Micro Account, and trading with 2 lots per trade the ending balance was $320.52 after 6 months. I'm only one week into my forward test, but I'll post if it ends up working out. It didn't do that well the first week, but I'm looking forward to actual trade data under market conditions. Currently all three of my strategies are active trading single lots on a $120 balance. Small time.

As far as stocks go, Nordic American Tanker was the best performer in my portfolio on a short squeeze. Each of the squeezes in the past 3 years has been sold again aggressively, however the most recent one is the first to close above the 200 SMA in that period of time.

In options, I have open a Reverse Iron Condor trade in GOOG. I am looking for an increase in volatility as we approach earnings. Here's what it looks like in the platform:

 

My entry level for the trade was around $2.50. Because of the volatility present GOOG shares, the at the money and just in the money calls or puts should have a fair bit of premium present until mid Tuesday. I just need to go about $1 or $2 in the money on my long strikes and I will double if it works out.

Here is how my GOOG Mar 08 '13w trade went down. Entered on Thursday, closed on Tuesday. I could've got quite a bit more looking back at the chart, but I was at work with a limit to sell at $7.00 and could not manage the trade directly. Again, Small Time.

 



 



The best small time thing I've got going on in fixed income is with Lending Club. First, there is a risk of default with these consumer credit loans. I would say a much higher risk of default than almost any other type of credit. I try to mitigate this by selecting notes that are:

• Below $10,000 total loan value.
• Used for home improvement by Mortgage Holders
• If used for debt consolidation, I look for low debt to income ratio and that the loan value requested covers the entirety of the outstanding balance of the credit lines open.

I love the rates on these notes, but I am apprehensive of the risks. Thus, Lending Club is about 1% of my investment capital, and will only increase it's percentage of my holdings of it's own virtue. Here's how my notes look now. I'll update from time to time, especially if a default occurs.

Well, off to get my VPS started before the Asian Session opens. If you see anything that piques your interest, then drop a line.

Good luck to all you small timers out there.
STT

Good Friday

Well lets kick it off with a trade that closed for me this morning for a profit. Always good to start off on a good note.

I entered a trade called a "Reverse Iron Condor" which is a basically a call spread and a put spread at the same time on the same security.

The security I chose was Citigroup. I figured that with the problems happening in Cypress, and the overbought nature of financial stocks at the time, that this strategy had a probability of success.

One of the reasons that I like Reverse Iron Condors is that you don't have to get the direction of movement right to profit on the trade. It's true that the losing spread takes some of your profit away, but lately I like removing the direction of the trade as a variable for success. Learning about Volatility has been a fascination lately, and is proving to be time well spent. Anyway.

With Citi common at about $47 on last Thursday the 14th I purchased the 48c/49c/46p/45p RIC for $.52. I entered the trade with 4 contracts (like I said, I'm small time).

I'm working in CA right now, so I had to be at work real early in the morning, and I don't get access to my broker very often or at all at work.

On the night before, I entered the order as a limit to buy at $.52 because the mid-point on the spread was .55 and I didn't want to pay that much. So, that Thursday night when I got home and saw that the spread was purchased, I entered separate limit sell orders for each side of the Condor for $.85.

I was losing all week on this trade as Citi was chopping above and below $47 until the day before yesterday when I got the break I was looking for on a Cypress headline. Normally on Wednesday I close a RIC That's not working for a loss or even to look at next week's condor opportunities.

C moved lower yesterday, and lower still today on the open until at about 10:30 EST the put side of the Condor closed at my $.85 limit.

So, the long and short of it all is $190 out last Thursday is $310 in today.

STT