Here’s our (rather belated) holiday gift to you: no end-of-year hype, just some straightforward stats. It was a good year, and we think the numbers speak for themselves.

2007 Annual Performance

This data is culled directly from our performance page, so you should be able to reproduce it yourself, should you be so geekily inclined. The most surprising thing is how far we exceeded our target performance in 2007. We are discounting the 80% trade in June for the sake of realism, but the high numbers still persist. Member reactions to these numbers are kind of telling, and generally fall into two categories:

1. The Traders - say “hey man, what’s the big fuss over 20%? I have 3000% wins and losses on RIMM and BIDU calls every month!” Okay, that’s not an actual comment, but it underscores the point that this strategy isn’t for cowboys. You can aim for home runs and huge wins if you want to, but needless to say that sort of approach generates some pretty wild swings in your account. We’re a bit more interested in consistency and in risk-adjusted performance.
2. The Investors - say “hey man, why are you holding on for 20%? I’d be content with a 5-10% return on trades, and all this market volatility makes my stomach upset!” Which is a fair point. But there’s no sense leaving profits on the table, especially when you can use those bonus profits to soften the blow of future losses.

What We Learned

Just kidding, we did learn a few things. We shifted our trade selection criteria slightly in the latter half of 2007 to account for increased market uncertainty. There’s no secret formula or mathematical voodoo to any of this, it’s just a question of being a little more cautious and choosing strike prices that are appropriate to the situation.

For instance, if you notice that a widespread and sustained increase in market volatility boosts options premiums somewhat, the smart thing to do there is to adjust the short strikes of your iron condor outward a bit so that you get the same amount of credit that you were receiving in the lower volatility environment, but have a wider and thus more secure trade. If you do that, you’re essentially “spending” any increased volatility premium to give the trade a higher probability of success.

Coming Up

Up next: our sentiments for the market and the economy in 2008, including a tradeable idea or two and some election predictions! We’re also planning to accept some additional members in 2008, and we’ll have more news about that soon.