Welcome to Stumptown Trader!

Welcome to Stumptown Trader. I am a self-trained investor/trader. I’ve been investing in stocks for the last 10 years and trading in stocks/options for the last 5 years. I still have a regular day job, but my passion(and future full-time job) is the stock market. As an independent, self-funded trader with no one(other than myself and my brokerage account balance) holding me accountable, I’ve found that it can sometimes be too easy to ignore my own rules and forget about past trades. They say a good trader is only as good as their last trade, and it’s vital to not get hung up on past trades(both good and bad) and missed opportunities. But at the same time, it’s important to be able to see what is and isn’t working for me so that I can focus on my strengths and maximize my profits. That’s why I’m starting this blog. I believe that making my strategies and trade ideas publicly available, I will be able to enhance those ideas and become a better trader. I also think a lot of people can benefit from these ideas and that I can benefit from your ideas. So feel free to comment or email me if you want to.

For now, this blog will focus mostly on short-term option trades as well as occasional commentary on the markets and financial news. Although I say option trades, this may include holding stocks that we’ve purchased through option strategies(such as uncovered puts and covered calls). Not every trade I post will be a trade I actually make in my brokerage account. This might happen for a couple reasons: I may not have the available margin, I might be trying a new idea out, or it might just be too risky of a trade for an account of my size. I will try to make sure that I include this information in my posts.

Most of my trades will be during the week of expiration to take advantage of the rapid time decay. Because of this strategy, the majority of trades will happen during the main option expiration week(3rd Friday of each month). We’re seeing more and more stocks with weekly options available as well though, so there should be good trades available every week. Examples of trades you will see are:

• Uncovered(naked) calls/puts - selling OTM(out of the money) options.
• Example: Sell a INTC put with strike price of $20
• Credit spreads - selling a put or call while simultaneously buying a further OTM put or call. This is useful in limiting margin requirements and risk. These are also called bullish put spreads and bearish call spreads.
• Example: Sell a INTC put with strike price of $20 while buying a INTC put with strike price of $17.5.
• Short Straddles - selling an uncovered put AND a call at the same strike price
• Example: Sell a INTC put with strike price of $20 while also selling a INTC call with strike price of $20
• Short Strangles - similar to a straddle except that the put and the call are at different strike prices
• Example: Sell a INTC put with strike price of $17.5 while also selling a INTC call with strike price of $22.5
• Iron Condor - This is a combination of the credit spreads and the short strangle/straddle.
• Example: Sell a INTC $17.5/$15 bullish put spread and a $22.5/$25 bearish call spread
• Covered Calls - A combination of buying shares of stock and selling calls against it.
• Example: Buy 100 shares of INTC at $23/share and selling a $24 call against it.

You will notice many of these trades carry high or unlimited risk with comparatively low reward. Focusing mostly on expiration week and using short term technical analysis I have an extremely high winning percentage(75%+) which greatly reduces this risk. Remember, the large majority of options expire worthless, so selling them is much like being the house in a casino: You might lose big now and then and wipe out some of your gains, but over a relatively short time frame all those small gains add up to keep you in the black. I’ve been using these strategies for the last 4 years and have made money in every one of those years.

I will be maintaining a model portfolio as well to keep track of all my trades and track gains. It will begin as a $25,000 margin-approved cash portfolio and grow from there. I don’t expect this to track these trades perfectly as option prices can and do change rapidly, especially as they get closer to expiration, but I think over time it will be an accurate representation of the returns you can achieve with this strategy. For the purpose of the portfolio, I will not be including commissions and fees in the trades since these can vary widely from broker to broker. I will be shooting for 15% annual returns to start with. This is actually less than what I’ve been able to do in my personal account over the last several years, but I will probably be less aggressive with the model portfolio, at least to begin with. We’ve also been in an extended period of low and falling volatility, which if it continues will negatively affect returns on option-writing strategies. I'm also not sure how many trades I'll be able to post to begin with. If this little experiment works out, I'm sure the number of trades I post will grow, but for now I'll shoot for 5-10 per month.

The model portfolio will usually keep a high percentage of cash available. For the purpose of tracking, I will assume a 0% yield on the cash balance. In my personal account, however, I usually keep at least some of my cash in US Treasury and/or foreign currency ETFs in order to earn a little interest and diversify currency risk. 

I'm sure I'll find easier ways to do things as I go along, so bear with me while I work out the kinks. If you have comments or suggestions, please don't hesitate to email or comment.