Options Trading

If you missed the first post explaining WON—Wanderer Options Navigator, please give that a read first.

WON Rules

After a few months worth of trades, it is a good time to review our results. During this period I have solely traded WON setups for my personal account. I haven't chosen a particular time of day to make trades, but in general, once I decide to make a trade I will go through my entire Options Watchlist and hit all the trades that are setups at that time. I don't take into account whether they are puts or calls, whether the market is moving up or down, or really anything other than whether the WON rules are satisfied.

You are probably wondering when I make trades, but there is no answer to that. Some mornings I'm very busy and I won't get to the watchlist until the afternoon. Some days I don't get to them at all. I would say that I don't make many trades in the first half hour. During that time I'm usually busy with Basecamp, and monitoring my current trades. This isn't a firm rule, though, and there will be trades occasionally made close to the opening bell. Usually, I'm also done watching the markets by around 2:00 EST, so there aren't a lot of trades made in the last hour or two of the day. Again, not a firm rule, just a general observation.

One thing that has come up a few times in conversations with others is that I find they are picking and choosing their trades. The point of WON is to eliminate the need to choose (which hopefully helps eliminate bias). WON gives specific rules that are intended to put you in trades that have momentum. Market conditions, CNBC news, your personal feelings towards the company, are all irrelevant. Point being, if you are going to rely on an indicator like WON, you need to trust it and be consistent with it.

Everyone's portfolio is different. In order to stay within the risk parameters some accounts will require trading only lower priced options, eliminating many of the stocks listed in the watchlist above. If you find that you are eliminating a lot of these stocks I'd encourage you to search for replacements, while at the same time trying to get a list that encompasses a wide swath of the market's different sectors.

With that said, let's see how WON is doing.

Wanderer Option Trades

The first couple of weeks were covered in the blog post introducing the WON strategy, so I won't say much here other than to point out that this was a 62% Win/Loss number, and that will become a recurring theme.

WON Week2x705

In the second batch of roughly two weeks worth of trades I made fewer trades overall, but again the W/L was 62%. Overall portfolio profit was down to 1.34% due mainly to having no big wins. There were no gap lower losses, so those were all very close to the 25% stop loss mark, but this period was also lacking gap higher winners. Only two trades closed with a 2nd half higher than the 1st half, and neither was too much higher. So, while it wasn't an exciting two-week period, it was profitable. Carry even this small percentage gain out over the course of a year and you'd be very happy with your portfolio.

Won Week3x705

The third period did very well. The first thing to note was that the W/L rate stood at 63%. Consistency, so far, has been very good. Another thing that struck me right off the bat was that the first two trades, MSFT calls and WYNN puts both gapped in different directions on 9/15, causing a big win in both trades that were made the day before. It's awesome to see that both puts and calls can carry through on their momentum in different directions regardless of market conditions. In fact, it's worth noting that the S&P, on the morning of the 15th, hardly moved at all.

JPM calls had a Monday morning gap causing them to close beyond the 25%, but everything else was very close to being in line.

Overall 5% portfolio profit in two weeks.

WON Week4 Updated 705W

I took a one month break from options trading as I was focusing on other Wanderer items, as well as restoring a "new" vintage 1965 motorhome. I came back to it and things picked up pretty much right where I left them. Win/Loss percentage holding steady around 60% again, though due to a couple of gap move losses the total gain percentage was quite low for the period at under 1%.

WON Week5x705

The next two-week period consisted of eleven trades, all of which were made on just two days. Interestingly, each day consisted of both calls and puts, indicating that the trades weren't made strictly off of an overall directional market move. This was far and away the best period for WON yet, with an 82% W/L rate, and an overall portfolio gain of nearly 7%.

WON Week6x705

The record breaking previous two-week period was followed up by two-weeks in which it seems everyone struggled. This coincided with the Thanksgiving holiday, which may have played a part, with big market swings on lower than average volume. WON had a 2% portfolio loss as the W/L column dropped under 50% for the first time.

WON Week7x705

Losing periods are always going to happen, though. A person could flip a coin and somewhere along the line will flip ten tails in a row. Sticking to the rules, the next two weeks was another great period, more than making up for the prior period.

WON Week8x705

Another solid period, right back in line at that old 63% W/L mark again. Same number of trades, but one less win than the prior period, though a higher overall portfolio win thanks to two trades with big moves on day two of the trade.

Conclusion

We are now 114 trades into the WON system, with 71W and 43L for a W/L of 62%. This has been quite consistent since the beginning. Total portfolio gain for a 3% portfolio trade size is 23.3% over this period. During this time the Dow returned 1.7%. I am happy to see results so consistent up to this point, and will be quite pleased if the next hundred trades fall in the same range. At this point I don't even bother taking non-WON trades. It takes just a few minutes to zip through my option watchlist, scan for fresh Wanderer buy or sell signals and direction of moving averages, and enter a trade. At about seven trades per week on average this hasn't been too much work. It takes some attention to monitor the Gain% column of the account and adjust stops occasionally, but it would be hard to consider this very strenuous.

We will continue to monitor and report results as we move forward with WON. In the meantime, we're always open to questions and suggestions in Basecamp.