Total Contracts Traded:  11

I sold off the rest of my STT contracts yesterday as they report this morning.  One of two things will happen.  When they report, the selloff will be horrible and I’ll feel bad for not leaving some of my shorts on the table.  Or after they report, STT rallies as investors will have more clarity into their business.  Either way, I don’t care to play earnings and STT’s given me a cool 200%+ return so who can complain.

Within the first 15 minutes, my DIA/SPY calls used to hedge against any upside were stopped out.  After seeing the pre-morning action and noticed futures ever so slowly declining, I put the stops in place which were immediately hit.  Needless to say, it worked out fairly well.  I did re-enter into some hedged positions but that may have been a mistake.  I’ll know more when I land later this morning.

Profits:  $377

Yes, I’m hitting new highs.  I re-read parts of Trading in the Zone and should have a post sometime in the next couple of days regarding the last chapter in the book.

First leg of my journey home begins in about an hour.  I’m upset I’ll be missing the market open but hopefully the markets don’t tank too hard without me in the game.

Yesterday’s action consisted of 2 contracts sold for a profit of $268.  I think the contracts I sold were WFR.  Probably.  Yeah I’m almost sure.

Today’s action?  Well after the wild swings and rumormongering, I decided to take a big chunk of profits off the table, even if their trends hadn’t broken.  This may or may not play out in my favor but if the Fed is bailing out FRE and FNM, I don’t care to take chances on the short side with financials.

Today’s action consisted of 10 contracts sold:  Remaining LM contracts, remaining WFR contracts, and my entire TIF lot.   I may re-enter TIF Monday or Tuesday but I’m not entirely sure yet.  I had a decent gain on TIF and since I’d prefer to have the cash on hand I’ll take the profits.  No reason not to take profits, right?

Profits for today:  $1,229.  That’s right, I took $1,229 from the market today.  And yes, my account once again has hit a new high.

In all honesty, I think the past two-three weeks has been fairly easy to trade.  If this continues, I should hit 10k by the end of the month.  However, a couple of things to note.  First, I think the run on the financial sector’s done for now.  If the Fed is bailing out FRE and FNM, I’m expecting a modest rally in the XLF.  Second, my risk has remained the same since I went on this winning streak.  According to the rules I have in place, I should be trading about twice the position size per position with the run up in my account.  That being said, I haven’t increased my risk due to the fact that we are in a bear market.  I’ve been so delta negative I was not about to risk losing everything.  The new risk rules will go into effect at the start of August.  Just gotta make sure I haven’t lost my account by then!

So for now, I’m running at a reduced position size for the rest of the month.  I’m currently 2:1 short with some DIA/SPY puts in place as a hedge.  The Investing Adventures’ account is now at a new high.  Total return on investment since I started last year is about 62.5%.  It can be done.  You can survive in the stock market!

I’m off to Pittsburgh Monday for a conference.  I’ll be bored trading over there.  Enjoy the weekend!

What is the SPY: The SPDR S&P 500 SPY attempts to track the broad S&P 500 index. All equities found in the S&P 500 are found in the SPY ETF.

Why use the SPY: If you notice, the SPY has approximately one tenth the value of the S&P 500 index making it an attractive vehicle to purchase options with for broad based market exposure. The key to the SPY is that most hedge fund managers and others on Wall Street base their performance on the performance of the S&P 500. The SPY, therefore, makes an important tool for hedging portfolios against any drop in the S&P 500 benchmark. From the data I’ve gathered, the SPY is used primarily for hedging but can be used in a bullish sense as well with the S&P 500.

SPY Options Structure: As with the QQQQ, the SPY options are on a $1 strike price interval and trade with as close to $0.01 bid/ask spread.

The SPY is used mainly as a hedge against a dip in the S&P 500. Normally, the SPY is traded in a put options spread limiting rewards but also limiting risks in the event the market maintains a bullish view. As an example, today’s SPY put options had similar volumes at the $150 and $153 strike prices. Using a trade calculator found on OptionsXpress, if one were to purchase a put at the $153 strike price and sell the $150 put, the resulting trade at expiration would create a profit up to $233 per spread traded if the market were to drop below approximately $151 with a potential loss of $67 anywhere above $152. In other words, if the S&P 500 were to correct about 30 points tomorrow, your portfolio would take a hit but would recover some loss through the SPY spread trade.

In my opinion, the SPY should be an integral part of any options trader’s portfolio. With the above example, turning a $67 insurance policy into a $233 payout for downside protection will help you sleep at night.