Hello dear community,
As I am often asked what I look for in my derivative trades and what my strategy is, I would like to share a few basic things with you.
First of all, I differentiate between very short-term derivative trades of a few days and medium-term trades of several weeks to a maximum of 6 months.
So let's start with the short-term ones like the ones below. There are 2 approaches for me here. The first one I would call event trading. This refers either to upcoming quarterly figures.
I look at how the interesting stocks (usually the ones that show the biggest reactions after the figures) have developed before the figures. If prices have risen sharply, I assume that expectations for the figures are very high and the possibility of disappointment is high. In this case, I tend to go short. If the prices have fallen before the figures, i.e. expectations are lower and there is a chance of a positive surprise, I go long. Of course, this doesn't always work, but on average I'm right in 3 out of 4 cases. Importantly, when it comes to US stocks, where the figures come after the market closes, I always take a base price in USD. This has the advantage that even if I am wrong at first, I still have the chance of a contrary development until the US stock markets open. An example from the recent past is $IREN (-5.57%) . All derivatives with a strike price in € and a spread of less than 15% were knocked out the next morning as a reaction to the after-hours sell-off in the USA. The price had recovered by the afternoon opening in the USA and the derivatives remained active.
The second clue for short-term derivative trades, in my view, is exaggerated movements in one direction without fundamental reasons. This was the reason for entering the stocks below last Thursday. All of them had fallen 20-40%. So I bet on a quick countermovement. I make sure that the leverage is not so high. With a leverage of 5, as was the case with all of them, the share has to lose another 20% for the bond to be knocked out. In my view, that was rather unlikely after the previous sell-off. For short-term trades, I always use turbo KO certificates and not normal OS. These always follow the performance of the underlying 1:1. This is not the case with OS, as they are also dependent on vola and premium.
The 3rd point of reference for an entry are shares or other underlyings that repeatedly move in a certain range, e.g. between 200 and 250$. Then I go short at 250$ and long at 200$, but it is important to hedge the position tightly, because at some point it breaks out of the range in one direction or the other and then it can go quickly to the KO.
In summary, the derivatives strategy is therefore characterized more by risk appetite and not necessarily by chart technology or fundamental analysis.
Longer-term derivative trades are then based more on fundamental data and momentum. These can either be shares that I can't afford given the small size of my portfolio because they are simply too expensive and I could only buy 0.5-3 shares. Then I either buy an AI certificate with low leverage, or a longer-term warrant or a discount certificate to accompany the expected development. Here, however, I trade 90% long or call OS. Long-term puts would only be an option if we were to enter a bear market.
In general, I would like to emphasize once again that all my trading involves an extremely high level of risk and is aimed solely at achieving a maximum return.
Total losses are included in the calculation.
On average, three out of 10 trades end in a loss, one of which is a total loss. I normally invest between 1-2% of the portfolio volume per trade. As a result, the bottom line return is normally always positive.
So that's it for now. I hope I was able to give the newcomers here a little more insight.
I am of course available to answer any questions.
Your Multibagger Chris
