I like to set goals to have a better idea of how I should work my account over the year. I started working on this post after my year end summary, but apparently didn’t set a goal to complete it too quickly. I plan to use more caution this year. Using more caution means planning better and sticking to my goals. For 2009 these are some potential milestones to aim for based off of my end of 2008 balance of $52,999.48.
- A 10% return for the year would be a gain of $5,300, taking my account to $58,300. I only need to gain $441.66 each month to reach that. I could make that much with one option trade per month if I don’t hedge.
- A 15% return for the year would be a gain of $7,950, taking my account to $60,950. I need $662.50 per month for this to happen.
- A 20% return for the year would be a gain of $10,600, taking my account to $63,600. I’ll need to make $883.33 per month for this to work.
- A 30% return for the year would be a gain of $15,900, taking my account to $68,900. That comes out to an average of $1,325.00 per month in gains. I actually think this is possible considering this is only $331.25 per week and in 2007 I was only a few percentage points below this and volatility was lower then.
Expecting more than 30% isn’t worth the typing. I’ve finished a year with a 40% gain before, but great luck was involved I’m sure. I have more money now than I did back then and don’t expect that year to repeat. The trick with the numbers I listed above is that even in good years I will have at least three months when I incur a loss. That means that the rest of the time I have to go well above the $1,325 mark on an average basis to finish the year right.
The average (after commission) revenue for all of my option sell trades for 2008 was almost $365. That means I need 3.63 successful trades per month at an average of $365 to reach $1325 as long as the rest to break even or cancel each other out. In other words, I don’t even need to net more than one successful option trade per week to reach my goal.
What I messed up on last year (among many mistakes), and will try to be better about this year, is trying to be more careful and set my strikes lower on my naked puts. When I make a bad option sell I need to try to get out and move to the next one with the least amount of damage done. I might even aim for lower average trade revenue, but try to be more successful on a higher percentage of my trades and cut losses sooner, but that last part is easier said than done.
As I write this at 2:45 on January 8, 2009, I’m already up over $57,900.00. I broke above $59,000 before yesterday’s smashing hit me in the head. I could dump everything now and sell only far out of the money naked puts and finish the year above the 10% mark above, but where’s the fun in that.