It is the allure of fast money that we seek when financial adversity strikes; it is the incomparable suspense and drama that eats away at our nerves minute-by-minute, second-by-second; it is the roller coaster that brings both twists and turns, ups and downs; it is the bringer of extreme frustration and exuberance; it is the unending permutations and combinations of unfolding events that help us break away from the monotonous nine to five; it is the reason that Mondays are loved and Fridays, well, are loved as well. It is my life. I am an options trader.
The misconceptions people make about me and option traders is a result of at least two things: their misunderstanding and lack of knowledge of the financial markets, and the stigma day traders have. To call me a day trader is a bit slanderous but having done both, I can tell you that the styles are vastly different. Sure, we have minor similarities. We both hope the direction of a stock goes in our favour, and we both might watch the market all day long to capture that fast money, but that’s really where the similarities end.
Day traders need significant movements or capital to make money. That is why so many have charts up all day waiting for the right time to close their positions. It is why it is an extremely stressful task, especially when you have an interest in the money being traded. Every second you must make a decision at the same time as every trade goes through. It represents your missed opportunities or your vindications, stirring doubt and questions about the validity of a sudden rise, processing every bit of information or lack of and creating a conclusion. You must time it and hope the move you made was correct, like sliding the queen, sitting next to the king, across the board as you prepare to execute some divine plan.
Thankfully, I have evolved beyond the stresses of day trading and onto the options trading market. Yes, I am arrogantly calling options traders better than day traders, live with it. While day traders worry every waking moment, I sit back and wait for the days to roll by until the morning of Friday or more commonly, the middle of the afternoon as I prepare to close my positions. This is the life of an options trader.
Monday January 6, 2014
Waking up at 9 AM MST is a bit tough for me, because I am a night owl. I love being up until 2 AM getting in some exercise, reading articles, playing computers games, or just watching Jon Stewart and Sportscentre. So, I decide to wake up at noon. I rarely trade on Monday. It's just too far from expiration and the market is more volatile than the option market is pricing. This Monday was particularly boring too. I usually let the big guns on the floor duke it out, flex their muscles, and move their stocks in whatever way they feel like. So, I keep note of the stocks on my watch list: Apple on a downtrend, not too good but heading higher on the day; Amazon still trading between $390 and $405; Netflix charts show negative sentiment taking over; Google supporting at $1,100, waiting for some direction, GLD extremely volatile and had a flash crash; and Tesla Motors moving sideways. Time to just sit back and relax.
Tuesday January 7, 2014
Nothing to take advantage of again. I'm my own boss. I only make money by trading, but nothing catches my eye. Again, it's time to relax and just cruise through the day. As we can see, there isn't much stress so far. Meanwhile, there's probably some day trader ripping his grey hair out as the market either is not moving or his stocks aren't performing for him. Either or, I'm taking the day off.
Wednesday January 8, 2014
For my own level of comfort, I find that executing my credit spreads after 2 PM EST on Wednesday seems to work best for me. So, looking at the prices of the options of my followed stocks, I find that only Amazon is worth touching. So I call in, spend a whopping 7 minutes, and ask for a 4-legged spread on Amazon with five contracts to expire on Jan 10. The trade speculates Amazon will be between $395 and $405 with protection at $385 and $415 at the close of Friday. At the time of the call, Amazon was trading at $400.xx, a price it continued to tread near for weeks. The total capital required is $5000 (as that is the maximum loss); the total money received: $1,037.02. That's 25 per cent (calculation is actually $1037.02/($5000-1037.02)). That's better than the average mutual fund's return in a given year. Now you see why I moved into the options market.
Thursday January 9, 2014
So, I get up around 11 AM and check the markets. Again, very little excitement remains. But holy, Amazon opened up above $405 but quickly drew back to $400. It's a new all-time high for the stock but it could not manage to hold gains. Fortunately for me anyways, it was what I needed. I decided to call again, this time it was 8 minutes, and asked the trader to create the exact Amazon position I have, doubling it to 10 contracts on all four legs. With an entire day's worth of "time value" gone, the total proceeds dwindles to just $542.02. This creates a return just over 12 per cent for one day, still a remarkable return. And the work day is done. I have now spent 15 minutes having to call in, with perhaps a total of another 10 minutes checking the prices of the options prior to each phone call. Everything is looking good so far, but it's not Friday. Nothing matters today.
Friday January 10, 2014
I wake up at 10 AM , always earlier in excitement, and find Amazon shares at $397. Still holding strong. I take a shower, eat some breakfast, and get ready for work. Okay, the shares have moved closer to $396, but I am still safe. Some stress is forming. I think to myself, "I knew I should have done lower call strikes." Doubt kicks in the moment it went below $395.
It is now 12:20 PM MST. I was not happy at all. For the next 40 minutes, it is excruciating pain. Oh my goodness, it's $393.80! For every penny it drops, I essentially lose $10, so you can understand why I'm now angry. At $394, I would have to pay $1 x 1000 shares to close. "I should have just paid the 25 cents!" I scream in my head. Day traders can empathize. It's now 12:58 and I call to ask iTrade if they can ask credit to extend the closing deadlime an additional 30 minutes. I want to see if Amazon will move back out of the money. It's now $394.40ish. They agree. I enter a buy to close for $0.25 while the option is bidding about $0.75 to an ask of $0.84.
Out of no where, the stock pushes higher at around 1:04. Some firm must have made a very similar bet too and must be buying the shares. I don't care if it's coincidence or manipulation, but it's helping me. Amazon had a nice upward move in a matter of 15 seconds pushing it from $394.40 to $395.26. Like a switch, my feelings went from disgrace to ecstasy. I would compare it to watching your favourite hockey team allow a goal in the last seconds of the game and then winning it in over time on the first shot. The stock makes another move at 1:14. Before I can even change the order, it has been filled. The shares would end up closing at $397.66. The total profit earned after fees was $1,309.55. All in three days!
To capture the emotional roller coaster that exists on the last day through this blog does not do it justice. Every second, every sweat drop, every penny, every share trading hands sends multiple emotions through my body. As I discussed above, it can fill you with joy and excitement or anger and frustration, sometimes all emotions before you blink. Is it fun? I love it! And when I'm right, when I tell myself to be aggressive and get the trade perfectly, that feeling of success, fulfillment, and self-gratitude boosts my confidence like nothing in this world. And when I'm wrong, shame, disappointment, and failure just takes control. It's a short-lived addiction that has its financial benefits, where work is considered a phone call, and a casino looks like child's play. But for everything that is negative about it, it is the positives that I love. And I wouldn't have it any other way.
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