Is this trading?
January 18, 2008 by addtrader
Today I figured would be a bad day to try and day trade. I just thought too many elements were in place (especially OEX), to make it a very choppy day. It turns out that I was right. But…..
I did take a “tricky” type of trade. And by tricky, I mean “I-usually-lose-money-on” type of trade. However, today I got lucky and made a nice profit.
I thought that we would have a very volatile, wide range day. So my plan was that if we broke hard either way in the morning, I would buy some cheap calls/puts away from price, with the concept that if we whipsawed back to the strike price, I could take a position, opposite my options, and one half the size. Then, if volatility continued, either way, I would make a profit, with the only risk being the very small cost of my options. This how it went.
As AAPL (Apple, Inc) ran up this morning, I bought 160 puts, at an average price of 39 cents, and 2x the size of my intended stock position. I then set a limit order to buy AAPL stock at 160.00 with a 1x size order. Then I went away from my computer, literally, into the other room, and set an alert in case the order got filled. It did get filled late in the day. Now at this point, all I needed was for AAPL to rally to 160.78 or drop to roughly 159.21 to break even. Any price outside those numbers would be profit. Given the movement of AAPL over the last week, you would think that having it stay out of that 1.60 range would be easy. But this was OEX, and those options market makers are much smarter than me, and know how to price things. It looked like my clever trade would be a bust, but AAPL began a small rally, literally in the last 10 minutes of the day, and I got out at 161.70, for almost a point profit, or about 2.25R.
Once again, probably not the best idea, but the max loss was fixed, the trade was on auto pilot, and it seemed worth a try, even if just to show me never to do it again in the future.
