Trading February 2008 +31% off $1,864

I really enjoy trading options. It allows me to make bets on my conceptual understanding of markets. Examining the market players and broad sector trends I can bet on certain swings by using options.

I had less than $2,000 invested, with 11 positions, and I made an average of 31%. I am very proud of the performance since I was limited to cheaper option contracts, which were less liquid and didn't have much open interest.

For example, in February, amidst the sub-prime fiasco, I noticed the increased pessimistic outlook by the market on Financials and Home-Building companies. At the same time I noticed the increasing price of oil and commodities, which can be attributed to the lowering value of the dollar due to the Fed's interest-cutting action. There are dozens of reasons, during February, why the market was bearish on Home-Builders and Financials. Using George Soros's theory of reflexivity applied to the financial markets, I noticed market players overreacting to the situation and dropping the value of these stocks very quickly.

I shorted Financials (Citigroup, Wells Fargo, Country Wide Financial, XLF Financial Index) and Home-Builder related companies (Lowes). I was long on commodities and oil using powershares commodity ETF DBC. The details of my performance for February can be found on my trading site. The positions that didn't perform as well were the ones which strayed from the general broad sector theory. I mean I still made profit because my speculation was correct but they weren't as dramatic as the home-builder and financial shorts.

Lesson learned: Create a broad sector based theory of the market. Filter companies based on individual performance and select them to test broad sector based theory of markets. If initial theory is incorrect or timing is wrong, exit position, cut losses and move on.