2006 Completed Trades

Completed Trade Number 1: October 2006 Sugar

On May 1, 2006 my trading account balance was $577.00.On May 18, 2006 I bought one October sugar 1500 put option for 36 points (1 point =$11.20) or $436.80. On June 15th 2006, I sold the option for 65 points or $728.00. My gross profit on this trade was $291.20. After commissions and fees of $84.47, my net profit on this trade was $206.73. My account balance after this trade was $783.73.
Note:  By the time this option expired on September 8, 2006, sugar had fallen to nearly $11.00, which means that this option by its expiration date would have been worth approximately $4,480.00. This is an situation where I didn't take advantage of a chance to get back in the market.

Completed Trade Number 2: December 2006 Corn
The  grain markets  had been very volatile all summer which  did not provide a very  good trading opportunity.  December  Corn  had been plunging for about four weeks and I  figured it was time for  Corn to rebound.  So,  on August  17th, 2006 I bought one  December  Corn  240  Call  for  9 cents  or  $450.00.  (1 Cent =  $50 in a Corn  contract). The market then proceeded to  move up nicely for  a few trading days.  At the close of trade on  August 31, the options was  worth  $800.00 giving a paper  profit of $350.00.  However , the market started moving  down  sharply  the next couple of trading  days.  Determined  to exit the trade with some profit,  I  liquidated my option on  September 6, 2006 for 11.25 cents or $562.50.  After  brokerage commissions,  I had  got  out  with a profit  of  $32.50 and my account value was 816.23. Rats! Again, similar to the sugar trade, this is another example of where I should have looked for another opportunity to get back into the market. By the time this option expired on November 21, 2006, Corn had soared to 355 which means that this option would have had a value of $5,750.00. Double Rats! I quess the lesson here is to keep looking for opportunities to get back into a market. I've learned a lot by looking at the profits I let get away.  Still, as they say, hindsight is 20/20.

Completed Trade Number 3: January 2007 Orange Juice
On September 14, 2006, I bought one January 165 put option for 325 points or $487.50 (1 point = $150).  I was hoping to catch the start of a move down. OJ had broken out to the downside of a pennant formation.   Trend Seekers rating was a neutral trend with a signal ranking of bearish.  I expected OJ to maintain a downtrend a the 2006 hurricane season wound down.  My downside target for OJ was 155.  I figured that the downside momentum would pick up in October.  Well,  OJ did continue to move down over the next week. On Friday, September 22, my option had a value of $802.50.  However, over the next week, OJ started to move back up. To keep the trade from turning into a loss, I liquidated the option on October 2, 2006 for 350 points or $535.00. That gave me a slight gross profit of $47.40 but after subtracting out commissions, I ended up with a slight loss of $40.64. 

This was one trade that, as it turns out, I was just as glad that I got out of.   On October 12, 2006, OJ exploded up with the January contract going up an astounding 26.85 cents or an increase of $4027.50.  Had I still been in this trade with a put option, the option would have been nearly worthless as OJ continued on to a multi-year high of 206.75 on December 8. Had this option become worthless, my trading account would have been nearly wiped out.  I guess this goes to prove how quickly one's trading account can be wiped out in this business if one isn't really careful. The value of my account was $775.59 after this trade.


Open Trades At The End of 2006

March 2007 Corn
Here was a trade where I really messed up the most in 2006.  March 2007 Corn had been in a long uptrend since September 18, 2006.  Even though Trend Seeker was showing that Corn was still in a strong uptrend, I wanted to try to buck the trend by buying a March Corn put as I figured that Corn was due to have a sharp correction.  Well, this just goes to show the folly of trying to trade against the prevailing trend. On October 18, 2006 I purchased one March Corn 300 put for 11 cents or $550 plus fees and commissions. My second mistake was in risking too much money on this trade. To make a long story short, March Corn continued to soar, reaching a high of 393 on November 30, 2006. Of course, this made the value of the option drop to nearly zero. On December 31, 2006 this option had a value of  $6.25. Another mistake was that I didn't have a good exit plan for the trade.  I kept thinking that March Corn would turnaround and I would be able to recoup my loss. But, alas, that never happened. After the option had lost most of its value, I figured I might as well stay in the trade in case March Corn did turn around. As of the end of 2006, it looked as if March Corn was finally forming a top formation.

With the value of my trading account dropping due to this option losing value, I added another $300 to my trading account in November 2006. 

Balance in Trading Account as of December  31, 2006:  $466.34

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About J. Steven Tucker, CPA

Steven Tucker is a Certified Public Accountant licensed in North Carolina and has has his own CPA practice for the past eighteen years providing tax and financial advice to a wide variety of small businesses. He has been trading commodities, both futures contracts and options for about five years.

Click Here To E-mail Steven Tucker

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DISCLAIMER

     Be aware that investment in commodity futures and/or options for potential profit is accompanied by the risk of loss. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The benefits of limited risk in trading futures options is only available for long options (Buying "Put" and "Call" Options.) "Limited Risk" refers to the amount of any potential loss, not the likelihood of loss. Trading futures options can involve the loss of the premium paid on the option, plus commissions and fees. Past results are not indicative of future results.