Trades – Page 23 – Travels and Trades

Oct 5 – Protector Alpha

As of Oct 2, the protector alpha is down about 3.5% (vs SPY -5.4%) and in the baseline portfolio we use 1.6x leverage thus the official trade is down about 5.6% real equity and probably a bit more today. The last month it has seen some correlation issues with the equities chosen vs the market. However, the mechanical system has outperformed SPY since the start of the year. We’ve also obviously experienced a little bit of whipsaw in the short rolls and quick overnight moves. These things will correct itself over time. It’s a long term portfolio. The equities will or should out perform SPY over time and the hedge will eventually pay for itself. The portfolio was up some money during the Aug 24 crash and the week following. The volatility in the longs helped and as well, the equities were still overall following the market. It’s just the past 3 weeks with healthcare and biotech falling, that we’ve seen some big disconnects. The challenges of trading 🙂

It’s definitely been the most challenging 5 weeks of trading for me. If it wasn’t the Aug 24 crash decimating my Modified condors, it’s an 8 trading hour 6% move that halves my M3 profits, or its a correlation issue in the protector alpha 🙂

Onwards and upwards I guess.

Trade Plan (Oct M3 Trades)

The October trades got brutalized today. On Friday afternoon the RUT touched just below 1080 and now it’s closing Monday at 1142. That’s a 6% move in a single days worth of trading. The trade type cannot withstand that kind of movement this close to expiry. I adjusted in a flurry on Friday and at the end of the day the trades were OK. I was a bit uncomfortable with a fall in volatility and a rise the RUT but everything was in decent shape, the T+0 lines were relatively flat. Today it gapped open and didn’t stop. I did some moderate adjusting this AM but it wasn’t enough and the trades lost a lot of their profits with a big reduction in the volatility and an oversized moved to the upside. It is what it is. I’ll be looking at them tonight to see what we can do but likely I’ll start to peel them off and we’ll take whatever profits are there. The recovery from Aug 24 goes very slowly.

Trade Plan (Nov M3)

No adjustments today. The upside delta is getting a bit high but we’re not at an adjustment point yet but will be soon. We’ll likely add a few verticals and if it spends about 2-3 days outside the tent then we’ll roll up the BFs. We’ll be aiming to be out before 14 DTE and hopefully before 21 DTE. This is how the trades will be managed going forward. I won’t be trading too close to expiration.

This trade has survived a lot of movement and is still profitable.

Oct 5 – Trade Update #2

I just read that Friday’s intraday move was the biggest in 4 years. Quite a short squeeze have going on. We’re now at RUT 1134 which is another 1.75% and marks a 5% move in 5 or so trading hours for the RUT. It really does hurt the October trades unfortunately. Moving up that much in 4-5 trading hours is just too much for the trade to handle while keeping its all time high profit numbers. It’s going to be positive but man, it does hurt a bit. I’ll be doing most of the adjusting at the planned 2pm time. Hopefully it comes down a bit. I did some adjusting but decided to wait until 2pm since its probably better to follow the plan off such a heated up move. I’ll be watching any retracement to start putting in place our upside adjustments.

Oct 5 – Trade Plan (General)

It’s been a very challenging 5 weeks. It started with the Aug 24 correction which was followed by weeks of big 5-10% moves in the RUT as we approached the ever important fed announcement. On Fed day, the RUT tags 1194 only to correct back down to 1078 (nearly 10%) in a matter of 5 trading days only to now bounce about 4% into Monday. Managing theta based market neutral trades through these kinds of moves is a test of patience and resilience.

On Friday, the RUT was down 1.7% and closed the day up about 1.4%. This AM it looks like it’ll open another 1% higher. That’s a 4% move to the upside in a matter of hours. Quite impressive. Likewise, the SPY futures tagged 1885 on Friday and is sitting at 1957 right now. That’s nearly 75 points in a handful of trading hours.

The extreme upside movement will give some problems to our October trades. My plan is to close a bunch of 1060 BFs and get my T+0 line as flat as I can to the upside and start closing down the trades throughout the week. The upside move is pretty extreme and quick but that’s usually the way. It was touching lows and now its going to blow past 1120. When it’s this close to expiration it can cause some issues on the upside with a sagging t+0 line as volatility floods out. I don’t like adjusting near the open, but I think I have to nip this in the bud and make sure we’re not exposed on the upside for any further run. The RUT is one of the lagging indices and probably has more room to run.

The November trades will likely have a bit of a sag in the right side of the T+0 line that we’ll need to fix. Nothing major.

Hopefully the Protector Alpha can start catching up again, it’s been underperforming the last month.

Oct 2 – October M3 Updates

Wow. So the market opens up and gets to about -1.7% then proceeds to close at about +1.4%. This is why you wait till 2pm to adjust 🙂 At 2pm, most of our deltas were just fine. The market was hovering around 1093 and all is good. We were at ATHs for each of the trades. The market then starts screaming around 3:15pm up to 1113. This huge rise so close to DTE puts pressure on our upside deltas and as volatility is falling out of the trades, our T+0 line starts sagging on the right side of the graph. I had to make a flurry of adjustments to get the deltas in line and to protect from a potential gap up on Monday. The Trades are still at all time highs for the P/L but they’re a bit vulnerable to a big up move on Monday.

Oct 2 – Nov M3 Trade Update

Nothing to do today. The trade is showing that it’s up 8500 now. We’ve got tons of range on each end. Probably won’t have to do much for the next few weeks and we’ll let Theta do the work for us.

A high value day

Days like today happen every so often especially when we’re about 12-17 days from expiry, all of your time decay based strategies suddenly increase in value. I notice that most of the ‘time decay’ you get closer to expiry happens in spurts and does not occur consistently day to day. Days like this are sometimes called a high value day amongst theta based traders. Every month I find myself pointing it out to my wife and showing her the increases in P/L across he board on one single day. I try to explain it as market makers having to start getting rid of the time value in the options once we start approaching expiration day. I gather its when they think its more of a ‘risk on’ environment than risk off. Perhaps this means that the next week or so will be positive or at least less volatile? This happened with my MICs and now today I saw it happening with my M3 and BB trades. I’d be chugging along at a pretty static P/L and then in one day, all of a sudden, it’s worth a lot more. Anyways, interesting.

All of the Oct trades are up a good amount of money and its probably time to start winding them down and getting in Nov and Dec M3s.

Oct 1 (November M3 Trade Update)

Not much to say. Trade requires no adjustments. Yesterday night the futures ramped up hard (about 1%) and today we saw all of the gains dissipate and the RUT is hanging around 1090 again. The trade is up ~5k on 250k planned capital. Being farther out makes this trade quite resilient. I am eyeing up an early entry on December M3 (77 DTE) we can get the BFs for about $7 and we can do a 30 lot with 1 call. Large downside protection and we can scale out of the BFs as time goes on and if we have any upside issues.

Sep 30 – October M3 Trade Update

What a difference a day makes. This “up” day has seen a decrease in volatility that has brought the trade values up quite a bit. Maybe 1% off of our trade highs. I have to do a bit of upside adjustments to get the T+0 line flatter on the upside but it won’t affect theta and will only modestly affect downside risks but it’s something we have to do in case the market runs off into the 1100s again. I also started closing down some Bearish butterflies for 15% profit given we’re 15 days to expiry. I’ll slowly be taking risk off here. I’ll probably roll up some of the 3rd standard deviation puts to take risk off on the downside. (If you can roll a put that’s 60c to $1 and it takes off 5-10k of risk, do it). If you’re worried about the costs, sell one or two butterflies to make up for it.