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I figured it would be good to go over an actual position so I decided to go over my position I just opened in Intel.   I decided to open this position because fundamentally I like the company, if this rally is going to continue it should benefit and it offers a clearly defined exit point if not.

Let’s first look at the chart and then I’ll talk about the specifics of my position and why I decided on the option I chose.  Here is recent action:

The stock is trading near recent highs along with the market at a fairly critical resistance level. If the market is going to continue moving higher it should take out this level at 20.50 and keep going.  I waited for a pull back and decided to get in near $20.  I could have waited until it tested 19.50 but I was not convinced it would re-test and I wanted to get some exposure.  The 50 SMA is right at 19.50(not shown) so it is a good reference point even though from this chart it appears to be in the middle of no where.

With clear defined support at the $19 level I am essentially risking one dollar entering at $20. Lets take a look at a reasonable profit target if this works out.

Zooming out to a two-year chart gives us a better estimate in my opinion because we can see longer term support and resistance levels.

From this chart it looks like $24 could be a reasonable profit target once(if) it breaks out. This move could take a couple months to play out so I want to give myself enough time to let it work.

I went with the 19 April Calls.  This gives me four months of time, which should be plenty for the expected move to occur. This gives me a delta of .63 and less exposure to Vega since it is already in the money.  We only need to see the stock move a dollar(5%) in 4 months to be break even.  Worst-case scenario we take a loss on a close below $19.  This means we have a 1:4 risk reward ratio, which is always a good trade to take.

Hopefully this is helpful for those that are just getting started to see what goes in to laying out a plan and then trading that plan.

Disclosures: Obviously I am long INTC April 19 Calls.

 To update my trades, all have been going well.

I closed my NDX short delta butterfly today for a nice gain.  Here is the graph on exit.  The market pulled back into the target area, and several days of theta helped boost the yield.

The MNX condor has required no adjustments.  I may be taking this off soon as well as it can only go down from here.

I opened a Neutral $RUT butterfly 600/640/680call butterfly yesterday.  

The rest of the month will follow this trade with adjustments as the other 2 are profitable.  If I keep the MNX on and adjust I will follow with a post.

One of my goals for 2010, and for the OBB, will be to present a vast number of backtested studies and strategies.  I will start with long-term (monthly/weekly) strategies, focusing on ways to maximize returns (and/or limit losses) on 401(k)s and IRAs.  Most of these strategies have been (or will be) backtested over a 50 year period using either TradeStation or Excel.  They are not overly complex whatsoever, yet they are extremely effective.  Having a plan for long-term capital can not be overlooked and it usually requires little maintenance once established. 

After I present several strategies for retirement accounts, I will move into intermediate (weekly/daily) and short-term (daily) trading strategies as well as market studies.  Short-term trading strategies will be provided to all OBB members withfull transparency (coding, methodology, etc).

Market studies will consist of things such as:

• quantifying the reliability of price patterns, candlestick patterns, etc
• confirming/debunking common market beliefs, such as the effectiveness of moving averages, volume, RSI, MACD, CCI, Money Flow, ADX, Bollinger Bands, etc
  
• correlations / pair trades
• fractals, pivots, retracements, etc

This is just a taste of what's coming to the OBB... come check it out!

After yesterday's market pummeling I was on the lookout for an adjustment this morning to the calendar I am running this month.  Deltas began to get quite long so I adjusted by selling the 640 long calls (I kept the shorts), and half of the 620 calls.  

Adjusting a calendar by selling some or all of the long positions on one side has benefits and drawbacks.  On the plus side, Deltas adjust very quickly and Theta increases nicely because you don't have any Theta offsetting your short position.  On the downside is mainly Gamma.

As you can see in the picture, if price goes over the hump on the right side the slope gets steep very quickly.  You can see that the Deltas go from +22 to -145 with a one standard deviation move on the upside, but only to 63 on the down side.  That's the effect of the Gamma created by having a naked short position on the upside.  In this case I am okay with the risk for a few reasons:

• If things get ugly on the upside I can easily adjust in a number of ways.
• We only have 13 days left until expiration so time is on my side.  That's a big move in a short time.
• I'm all bear right now.  I am much more concerned with protecting the downside and feel the calculated risk of the upside Gamma is appropriate.

I further added a calendar at the 570 position to balance things a little more.  Overall I like the current position.  Breakevens are now happily resting well inside the standard deviation lines, meaning probability of profit is increasing with each passing day.  I will stress that this picture represents my current position and does not account for the adjustments I've had to make.  I am still down a few hundred bucks on the position, but I we're managing it and will do our best to squeeze out a profit before expiration.

Finally, I've included a picture of my overall RUT position which has a condor overlaying the calendars.  On nice effect of the condor is that it has flattened the Gamma substantially.  You can see that the Deltas at one standard deviation on the upside are much lower (157). 

I have a feeling that this last two weeks will be a long one.  The market is getting crazy and IV is through the roof as of the last couple of days.  In some ways, managing in the environment is the most challenging and fun, but its also the most risky and it's NEVER fun to lose money.

Good Trading...