The Texas Experiment/Challenge

Challenge: Turn $900 into $10,000 in 4 months time

Start Date: April 9, 2007

End Date: August 9, 2007

Overview


That's right, I have funded a trading account with $900 and will attempt to bring the balance of this account to $10,000 within a four month time period. This is a difficult challenge because of the buying patterns I will be using as opposed to what I would normally do. Starting with a low balance such as this will force me to buy options with a lower premium. Thus movements won't track as well as they do with the options I normally buy. I will make a separate post giving an overview of my buying strategies. Once I get the account in the $3,000 - $4,000 range it will get easier, but initially it will be slow moving. Plus, I'll have to be more cautious than I normally would be so I don't get wiped out early in the game.

My overall strategy will be three fold. I will have one strategy for my account balance being below $3000, one for $3000 - $6000 and finally one for over $6,000.

Strategy 1 (Account balance less than $3000)

I will attempt to pick stock options with low premiums, out of money, and where the underlying stock will be making moves of 1.5 to 2 points (or greater obviously!). My aim is to invest around $400-$600 per trade, trying to buy 10 contracts (1000 options, 100 options per contract). I will look to make at least $200 per trade and try to complete a full trade (buy and sell) within 2 days.

Strategy 2 (Account balance between $3000-$6000)


This strategy will be similar to the first strategy, however, I will attempt to buy in the money options if at all possible. Depending on the time of the month, this may or may not be possible. Main difference also will be that I will try to find simultaneous trades as well.

Strategy 3 (Account balance over $6,000)


At this point, the trades will be a little easier. I will have enough cash to buy in the money options. In the money options track with the stock price much better than out of money options. For instance, let's compare two strikes: one that is $1 out of the money and the other that is $1.50 in the money. If the stock moves 1.40, the out of money options may move $0.40 while the in the money options will move $0.85. This is a generalization but you should get the idea. While out of the money options are cheaper, they are harder to turn a profit on. I will attempt to buy options that are in the money $3-$5, depending how close to expiration I am. The options should track much better with the stock price than the ones I am buying in the first two strategies. Thus, it should be easier to turn a profit.

That's a good generalization of what I plan on doing. I plan on posting my trades, I'm not sure if it will be after the fact or while I have a position opened. I might be trading sporadically as well. I might trade heavily for a few days, then stop for a few days. All strategies will call for buying the earliest expiring options (with the possible exception of options that expire within a week, I may be the next month depending on prices). Let's see if this can't be done!