Are you making any money?

How do you know? If you own a portfolio of stocks and options, your account’s value goes up and down on a daily basis. Today, the DIA closed at $178.65. On June 25th, the DIA closed at $178.50. Take a look at your account on that day. What was your P&L for the year? Now, compare it to today, when the DIA closed at 15 cents higher. 20 days have passed – the DIA went nowhere – Did YOU make any money? We are up $17,000 since June 5, which is what we want to see. Our Theta (daily time decay) has been ranging between 500 and 900 so we should be collecting seven or eight hundred dollars daily. The numbers now back that up.

If you took a look at your account’s value on June 5 (DIA=178.50) and it was higher that it is today (DIA=178.65), then you need to ask yourself; “How did I lose money over the last month and how do I prevent that from ever happening again?” It’s crucially important that you do not lose money and if you do, it has to be studied and stopped. Running a portfolio is no different than running a business – you must have a plan to make money or you are out of business. When you are losing money, you have to fix it. Every trader has¬†a¬†different style and every portfolio is different. Here at Deep Pocket, we do it this way:

Our portfolio consists of a small number of symbols that we trade over and over. Some people call it ‘Trading Around A Core Position’. We start a position by selling one put. Then, we sell another put at a higher price on the same day or a few days later. We try to build a position over time so that we can average in and let the market decide how we buy symbols for the portfolio. Over a week or two, with maybe a weekly roll in the middle, we try to build a position that is usually 9, 12, or 15 contracts. This works out to around 5% of the portfolio IF all puts were exercised and we ended up owning the symbol. The term “symbol” is used because we do a lot of business trading ETF’s which are a collection of stocks, not a single stock.

As the portfolio is built, we track three numbers;

1. Our daily portfolio Theta

2. Our daily portfolio DIA weighted Beta

3. Our yearly Profit total.

This way, we know our daily (theoretical) income from the time decay of Theta, we know our daily market risk as defined by the Beta, and we know if we are making any money or not. You must know your Projected Income, Current Risk, and Year to Date Profit for every single day.

To get back to to our earlier question – On June 5, our year-to-date profit was $17,000 lower than our year-to-date profit on June 25. We have made $17,000 during a month when the DIA went nowhere. THIS is the power of the time decay of options! Learn to use it properly and you will build an income-generating business along with us.

Stay optioned, my friend!


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