Hey Guys, I made a few changes that I think will improve Mindful Trader. There's a lot of juice in this email!
1) I am changing the time limit I use for my options trades. Up until now I've been closing my options positions on the morning of expiration Friday (unless they hit their profit target first). As of today, I am changing that to instead be the Thursday afternoon before expiration Friday. I already updated the website to reflect this for my live trades. So now you'll see that the "close by" date for each options trade is the day before the option expiration date. And more specifically, I'm going to close them near the close of trading that day instead first thing in the morning. So in a nutshell, for options trades that reach their time limits, I'm closing them at the end of the day on Thursday each week instead of the beginning of the day Friday.
I made that change for a couple reasons. One is that there is a bit more time premium value still baked into the option at that point, and I think that might help reduce the drawdowns we face to some degree. Another is that in the morning the price is moving so fast with options that it's hard to nail down a fair exit price. I believe this change will make things easier for many of us. If you still prefer to close Friday morning, though, you can absolutely do that. Since I will no longer be closing any positions on expiration Friday, I will no longer be using any of the advanced options trading techniques that I had been teaching before (such as letting short legs expire worthless).
2) I finally put together a way for stock-only traders to participate in my futures trades! The /MES futures I trade essentially track the movement of the S&P 500. Since I now trade these futures during normal US trading hours, it's possible to trade the "stock equivalent" as an alternative. Specifically, you can trade the ticker SPXL instead. I will continue to trade the futures in my live account, but I will still post the stock equivalent trades on my Live Positions page and I'll put an asterisk next to them to denote that I didn't take that trade live. You can go to that page now to see the stock equivalents for my current open futures trades.
3) I put in a new margin "checkbox" on the Live Positions page next to the Account Balance field. It should make things a lot more simple. With the new setup, you would always put in your actual account balance. Then you would simply check or uncheck the box that says, "Click here if you use margin buying power." The position size will calculate automatically according to whether or not you checked the box.
Prior to this, people who didn't use margin buying power were asked to type in half of their actual account balance into that field to get the right calculation. That wasn't intuitive. I'm hoping that the new setup is much easier to understand and use. Now you put in your normal account balance either way, and you just check or uncheck the margin box to get the correct position size calculation for your situation.
4) I implemented a "maximum" position value for my stock trades. I will not take any trades where the recommended position size is more than 40% of my account value. This should help me limit the times when I run out of buying power.
So those are the changes, but I also want to talk about the CSCO options trade. That was crazy today! There was a company announcement today that caused the price to abruptly spike up, and then abruptly fall. Over the course of 6 minutes, the price rose 2 ATRS and fell 2 ATRS! The stock price peaked at 3 cents above our profit trigger, but speaking for myself, I didn't have an automated exit in place. So I manually went in to try to close the position using a limit order like I normally do, but it fell so far so fast that I completely missed my chance to exit anywhere near the profit target. The price was literally back down to breakeven 90 seconds later, and I was still sitting there with my limit order back up near the profit exit, waiting to see if the price would bounce right back up. It didn't, and now the option is way down in value at this point.
The trades I make at Mindful Trader are not intended to be ones that require quick reaction times. It's not expected that subscribers would be able to turn on a dime to react to price activity like we saw with CSCO today. That type of price activity is certainly not the norm, especially when you look across the tens of thousands of trades in back tests.
But I certainly took a risk by a) closing manually and b) using a limit order. If I had set up an automated exit, it would have at least immediately set up an exit order for me at the profit point (faster than I was able to set up a manual order). Or even with a manual trade, if I had used a market sell order when I first saw that the profit target was hit, then that would have forced me out of the trade immediately at the profit point.
Basically, with every type of exit order, there is a tradeoff. With limit orders, you might get a better price (which is my reason for using manual limit orders for options trades), but there is less certainty of a fill. I guess today I paid my toll for that lack of certainty! If you followed me on that trade, feel free to let me know how it turned out for you.
Well that's it. That's all the updates I have. I hope you enjoy all the changes. If you have any questions about these changes, just reply directly to this email and I'll be ready to help.
If you have any questions or feedback, I'd love to hear from you.