The Options Trading Game: How to Play It

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  • Topic: Derivatives, Options, Options spread
  • Pages : 4 (1271 words )
  • Download(s) : 81
  • Published : April 30, 2013
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Options Trading Game|
CJ Pierro|
FIN 659|


Throughout the semester I employed a multitude of options strategies ranging from bearish and bullish to volatility plays and arbitrage plays. While I have had some experience investing in equities I have never dug in and experimented with options in this manner. As the semester progressed I had gained more and more knowledge and was able to look back at my trades and understand more clearly why they performed they way they did and whether or not my trade ideas were smart plays in the market. My overall portfolio performed well in the sense that at the end of eight weeks my net worth had increased by 22.2% to $122,154, implying an annual return of 249.3%. Each week I attempted to make at least two to three new trades and toy around with different strategies.

Figure 1. Portfolio Performance vs. S&P500
Figure 1 tracks the net worth of my portfolio over the eight week period. The graph shows a steady increase in net worth with some dips and jumps along the way. The net worth did not track the gains of the S&P 500 too closely after the first few weeks since I was still able to make money on weeks in which the index saw a decrease. Additionally during the first three weeks I held options on the SPY ETF which contribute to the majority of the correlation. From this chart it can also be deduced that increasing my margin requirements did not have a direct correlation the performance of my portfolio. This is magnified my the near zero interest rates this account gained over the week, typically earning less than $1. In the following pages I will discuss specific trades I found interesting over the course of the trading game. Week 1

During the first week of trading I opened three positions: an SPY strangle profiting $2,800, a MSFT bull call spread profiting $500, and an XOM calendar spread profiting $11,600.

Table 1. XOM Calendar Spread.
Table 1 shows the XOM...
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