The Two Week Time Frame

I mentioned something yesterday that I would like to explain a bit more here.
It's the notion that making 20% in two weeks is better than 40% in four weeks (or one month).

Mathematically, the formula for calculating compound interest at a specified rate and time frame is:

where

P = principal amount (the initial amount you borrow or deposit)

r  = annual rate of interest (as a decimal)

t  = number of years the amount is deposited or borrowed for.

A = amount of money accumulated after n years, including interest.

n  =  number of times the interest is compounded per year 

Yes. I copied that from the first page of googling "compound interest formula"

So. In our case for the sake of illustrating the point, we'll put 1 as the principal amount. 

The rate we want to achieve in the two week time frame is 20%. Converted to a decimal that's 0.20

For simplicity's sake we'll go with 1 year for t

Since it's being reinvested (compounded) every two weeks throughout the year that's 26 for n.

Plug and chug simplified it becomes 1.2^26, which equals about 114.5

The same thing for the four week time frame with a 40% rate means 13 for n and 0.40 for r.

Plug and chug simplifies it to 1.4^13, which equals 79.4

What this means is that if everything goes EXACTLY AS PLANNED (40% GAIN) and EVERY SINGLE PENNY is REINVESTED EVERY FOUR WEEKS, your initial amount invested will be MULTIPLIED BY 79 by the year's end.

And if everything goes EXACTLY AS PLANNED (20% GAIN) and EVERY SINGLE PENNY is REINVESTED EVERY TWO WEEKS, your initial amount invested will be MULTIPLIED BY 114 by the year's end. 

That's a SIGNIFICANT DIFFERENCE.

If we reduce the time frame to just the first four weeks (meaning n is 2 for the two week time frame), the results are 1.44 versus 1.4. This still shows that a two week frame at 20% is better than four weeks at 40%.

Now that I've bored you with all that math, let me show you what happened today.

If you remember, the combined MU and VZ call cost $283.96. I sold the MU call today for $0.10 as you can see and the VZ call for $3.00. This means that $283.96 turned into $597.98 (a gain of 110%).

After the sale, I bought new options. The AAPL Aug 16 97.14 call @ $2.31and two AA Aug 16 16.00 calls @ 1.15 for a total cost of $472.99. Yes, I saved some cash from the gain this time around. The aim is to turn that into $567.59 in two weeks.

Here's what the account looks like after the market closed today:

I've gone from an account value of $319.74 two weeks ago to $620.49 today.
Obviously things turned out better than expected but it's just proof of the potential behind this system.
I'll continue to aim for modest gains (20% in two weeks) but will accept whatever gain comes.
I'll be occupied till Friday, so till then, have a wonderful week!!!

Proof of Concept

This will be a pretty long post so bear with me.

Today after the market closed:

The plan was to wait till Friday before getting rid of MU, but at this point it doesn't matter so I'll sell it tomorrow. The combined cost of the MU and VZ call was $283.96. Even with the loss of the MU call, the combined worth is now $348.00 ( a 22.5% gain in two weeks). At least the $10 it's now worth will cover the commission costs. The picture you're looking at shows two things.

One: Don't expect a win for every call you make.
Two: Your winnings should cover your losses if the system is followed.

Let me explain what just happened.

This shows what day I bought the options ( "Date Acquired" column ):

Now compare the following two pictures that show the stocks on the days I bought them.

If you spotted a difference then you already see why the MU and VZ calls turned out the way they did.

This system hinges on two things. One is what's called the Williams %R indicator and the other is the MACD Divergence. Don't ask me what that means because I don't know but the point is they both serve as a way to measure momentum. What I've done is combined the two.

For VZ, notice that the Williams %R is above that red line and the green MACD line is above the red one.

For MU, notice that the Williams %R is just about to drop below the red line and the green MACD line is below the red one. 

That is the difference between the outcome of the two. Momentum upward was on the VZ call but not the MU call.

Now because I had limited funds in my actual account, I went ahead and made some purchases in a virtual one based on the same concept.

Here are the current results.

And here's when they were purchased. (The VZ was the same day as the one from above so you already know that story)

Here's what the stock charts looked like on the purchase dates. I didn't draw the line but you can just look at the bold date at the bottom. You can click to enlarge the pictures. And YES. Three of them were purchased today.

Notice how EBAY was behaving just like VZ?
ARCP on the other hand looks like it's about to become like MU. So in truth, buying it was a bad idea. It's probably held up because it will be releasing earnings soon and stocks typically run up till right before an earnings announcement.

What about JBLU and CLF? You can barely see the separation between the green and red MACD line for CLF, but know that the green is above the red. The Williams %R is also above the red line. So that should continue to run up. JBLU looks similar except the Williams %R just dropped below the red line. No need to panic though since it just happened today. If it stays under for three more days, then we need to be out of the position. I don't think that will happen though because JBLU just released its earnings and it matched expectations. But we'll be sticking to the rules.

And what of LUV? Again. Green MACD line is clearly above the red one and the Williams %R is also above so expect a good outcome.

And there's a quick overview of the strategy. Again, I'll be getting rid of MU tomorrow. Probably VZ too since tomorrow makes two weeks. Mathematically, it's better to gain 20% every two weeks and reinvest all funds than to gain 40% in four weeks and reinvest funds. New opportunities are ready almost every day. Let's forge ahead!