I have been an active trader now for over 10 years. My original interest was spurred by the beginning of the dot com bubble in 1997 and the growth of on-line trading. At first I dabbled in stocks of internet companies, and quite frankly made a lot of money. I mean, you couldn’t go wrong back in those days. I was young then (well, right now 49 sounds pretty young) and I could put more money at risk.
I retired early (1999) and went on the road as an IT consultant and also did pretty well from an income perspective. I was able to slip in a few trades during the day, but I did most of my research and trade selections at night. I have always been what is called a swing trader (trade the peaks and valleys) and never a buy and hold investor – I just don’t have the patience.
Around 2003 I started to research options. I did a bunch of paper trades and then jumped into live trades later that year – just buying Calls and Puts. My favorites were Apple, RIMM, Google, etc. For the most part I was successful, but I was also very nervous if I could not monitor these trades during the day. I was trading slightly OTM options with 4-8 month expirations.
During that period I was also trading some option spread strategies, such as Straddles and Iron Condors, but I really didn’t know what I was doing and certainly didn’t know how to adjust a loosing trade. I had one Iron Condor that went against me and I couldn’t sleep for 2 nights!
At the start of 2006 I was laid off. While I was actively looking for work, I also had a lot of time to spend looking at other trading strategies. I signed up for a Forex trading course that cost a lot of money and tried that for a while. Talk about high pressure! While I didn’t lose much, I couldn’t stand to see trades go from +$400 to -$400 in seconds. I tried other option strategies – Iron Condors, Calendar Spreads, Straddles, Butterflies, etc., but the one strategy that I consistently made money on was Covered Calls.
During the first few months of 2007 I was considering starting up my own Covered Call service, so I did some research looking at the potential competition. I signed up for a few services, but quickly canceled them during the trial period. Then I found John Brasher’s Call Writer web site. I signed up for his service and soon found out that I could not compete with the sophistication of his ‘real time’ Covered Call and Naked Put tables and research tools.
If you have done any research on Covered Calls, you will see some articles that imply this is a bad trading strategy. The main reason in their argument is the limit on gains for stocks that are on a bull run. While this may be true for a buy-and-hold investor, it does not ring true for a trader looking to hedge risk while maintaining steady gains. You can tell the source of these opinions originate from web sites of traditional thinking investment firms. I don’t mean to degrade or slam that methodology; it’s just not my style.
It’s now mid-2009 and I have been very successful with Covered Calls (and they have taught me a lot), but unhappy with the limitations in markets that are trending downward. I was also looking for ways to increase my leverage without increasing my risk. Since March I had been trading Credit Spreads in my paper account and making a killing! I was unsure if I would be able to trade this strategy in an IRA, so I checked with my broker and found out it was OK.
In July I started to enter into Credit Spreads in my live account, increasing to over 50% of my account in August and 90% in September. I won’t get into any comparison with other strategies – that was a subject of a post in August – but right now, with market volatility decreasing and option premiums drying up, this is the way to go.
So how could I continue with a blog devoted to Covered Calls? It wasn’t right because my heart wasn’t in that strategy anymore, so I decided to create a new blog and to host it myself – giving me a lot more freedom to do some really cool things on the blog. After weeks of searching for a URL and creating a list, my wife and I decided on The Option Guru. Yeah, it might sound a bit arrogant, but the definition of Guru that I like to go with is: “A trusted counselor and adviser; a mentor.”
So on this blog you will be able to journey with me into the world of Credit Spreads and Iron Condors, and maybe a few Covered Calls and Naked Puts thrown in to keep everyone honest. I will share my successes and my failures, my thoughts and concerns – and maybe a few opinions on the world thrown in for variety.
I write because I have to get it out! Enjoy!