Sunday, August 21, 2005

My Recent Successful Trades

These were 2 of the trades that I've closed recently, with Deere and Co (DE) earning me a profit of 1,100% ($330)and Abercrombie & Fitch Co. (ANF) earning me an incredible 2,033% profit of $305. This is the leveraging power of options which could let you earn a decent profit for a small outlay of investing capital. By the way of the total costs of the above put contracts were $45.

You might ask why I bought puts for the above stocks which have performed well in their previous earnings quarters. First of all, I want to reiterate that you should try to buy an option, whether its a call or put option, in anticipation of an event, in this instance, earnings announcement. Try not to buy an option after the event has happened, with the exemption of stock splits that I've mentioned earlier.

Now, why did I buy puts. First of all, I felt the general market was bearish. A few days earlier before DE and ANF announced their earnings, the oil price hit $65 a barrel. A few counters were hammered indirectly by this news, for example Red Robin Gourmet Burgers Inc (RRGB) plunged over $12 on 12 Aug 2005 though it beat Q2 EPS but lowered its earnings guidance for Q3 and Y05. That made me a bit cautious about buying call options.

Although I've decided to buy puts for the above mentioned stocks ie. DE & ANF, I wanted to keep my risks minimal so I bought Aug just OTM put option for both counters which would expire in a few days time. The time value wasn't substantial thus I was able to fetch the put options cheaply at $30.00 and $15.00 per contract respectively. But I would advise against buying options with less than 2 months of expiration date because if you have anticipated the direction of the stock wrongly after earnings announcement, you would most probably be left with insufficient time for the stock price to turn around. Thus, do trade cautiously and don't bet the whole farm buying loads of cheap options hoping to reap giant profits in anticipation that the stocks would gap in the correct direction after earnings every time. Try investing only 5% of your capital on any option positions so that if you were wrong, your account would not suffered a big blow with one bad trade. I have ever encountered a series of bad trades in a row and luckily because I kept every position at 5% of my capital, I was able to retain some capital to open new positions after a few drawdowns.

Yours Truly,

Tony Chai
Options Trading Resources

6 comments:

Anonymous said...

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Anonymous said...

Hi, Tony,

can i know you more? i know nothing bout option trading, but after one freely seminar, i believe that option trading is worhty to be tried. i just want to attend dr clemen chiang's course at the end of nov 05.

pls add me in:
changferry@yahoo.com
msn: cheungferry@hotmail.com
yahoo messenger: changferry

thanks and best regards,

ferry chang

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Anonymous said...

Dear Tony,

I chanced upon your blog while searching through google.

I guess most of the guys in option trading would rather shared their achievements, instead of mistakes due to 'face' value.

I am glad that one singaporean have come forward and share selflessly his growth and his journey through options trading.

Although I am still reading up on options trading, your actual battle experience would guide novices like me through the beginning stages.

I appreciate the time you spent in helping others.

Hope the almightly bless you and your family !

Tony Chai said...

Hi :

Thanks for your encouragement and blessings.

Sorry I couldn't reply you earlier.

I was going through my blog entries to ensure that my writing style would be consistent with my previous posts.

May God Bless You & Your Family Too.

Yours Truly,

Tony Chai
My Options Trading Blog