Category: Trades

Aug 22.  Trade plan

whoa.

That sucked.

Market fell 6.5 or so percent in two days. The speed of the decline is extremely rare.  It used to take 7 days to fall that far – historically. The VIX (volatility index) is 97% above its 21 day moving average. It’s only been higher during the flash crash and the U.S. Debt downgrade. The put volume is also the highest ever recorded.  The VIX is up 40% and the cpce ratio is in extremes.  Probably more down to come but we should expect some bounce as all these extremes suggest it is near.  The 198 level on spy is significant and I am hoping it holds for now. The interesting thing is the Small caps out performed on Friday right at a significant level and maybe that suggests the SPX will too at least during this leg.

However, I am sure that more down will come after the bounce. Not to say we won’t instantly go down Monday.  You might get all the folks who don’t follow the market get scared by the crazy news on TV and newspapers this weekend and they will call their brokers and sell out of their 401ks.  That brings a new type of seller not present before and that worries me re Monday and having more down before a bounce.  

I wish I was out of my protector portfolio and scaled into the new strategies I’ve been trading (m3, bearish butterflies and rock) all of those are still up cash! Resilient damn trades! Not to say they don’t have weaknesses but they are more well rounded than an MIC or protector. 

  My protector went from plus 4.5% to negative something or other over two days.  That hurts.  

The MICs for September are all down now and heavily in the 5%+ range due to the massive volatility increase and the fact that most of this extremely fast decline came in after hours or five minutes before close making it very challenging.  The loss hurts even more than the protector.  Nothing could have prevented that.  The speed of descent gave little room to adjust at good prices and the massive (and I mean massive) increase in the volatility has caused the options to be priced extremely high and since we sold that insurance, well it’s more expensive to buy back and just as expensive to adjust.  It’s extremely (almost correction level) expensive.  Time and (hopefully) prudent adjustments will solve that as expiry is three weeks away.  

My account balance, though at all time highs three trading days ago is now about 10 percent from that level. Most of the loss is from the protector (which is expected and not worrying in any way). The protector puts are now more delta negative and as the market falls it should more closely match the losses on the longs. 

The MIC can likely get back up to break even or maybe positive with some luck,  while the protector requires an up move.  But bad news aside, with declines like this we have opportunity and I am spending the weekend thinking about how to handle Monday and our current trades and what to do with future down moves re position.

Aug 19 – Trade Plan

We are now 4 days into our cruise and about 11 days from being back home in Cayman.

Right now we are in Trondheim, Norway and have so far seen Flam and Alesund and a whole series of Fjords including one that was listed as the number one thing to do before you die by National Geographic.  The four of us went out in a rib and toured around.  Was fantastic but I am not sure what else can beat it 🙂  

The market hasn’t done a whole lot except hold range despite negative headlines.  This tells me that perhaps we are ready for a leg up. But only time will tell.  The long term bollinger bands are about as tight as they have been for 65 years.  So either way there should be quite an explosive move but in what direction remains to be seen.  The market corrects at least 5 percent each year and it hasn’t yet (well the RUT (8 %) has and most individual stocks have, but not the SPX).  

I got out of all the August trades at 5.6% (half tranch of MIC, two rock trades, an m3 and a few bearish butterflies). We were in both August and September trades for the month and soon come we should be at profit target for those and they will be closed soon and can conclude the months results which are very positive.  

Our protector portfolio is up about 4.5 percent for year while spy is at around what 1.5%?

   
    
    
    
 

Aug 13 – Trade plan

These past few weeks have been interesting. On the 6th, the market fell quite a bit but we were only 3% from all time highs.  There were no new headlines just the same old bearish stories (rate hikes, Puerto Rico default, Greece etc etc). I didn’t expect a full out correction because the people scared of those specific head lines had already sold long ago and we were only 3% from ATH.  Obviously, the current holders weren’t too worried about those specific issues and aren’t going to sell on most news coming out of those regions.  However, on Monday we had a new headline which wasn’t present before, the devaluing of the Yuan and the implications of a weakening China.  These types of unexpected headlines are the ones that have the power to cause selling. It takes time to quantify the effects of a devalued Yuan and brings an unknown into the market for most participants and unknowns can cause panicked selling.  I didn’t expect as strong a bounce we had yesterday and the strength of the down move usually suggests more to come.  I waited for a smallish bounce to reposition and ended the day with a negative delta upside risk! Go figure!  Anyways, this is a very whippy market and normally I’d be moving my delta limits on the upside a bit higher to accommodate for the volatility. However, this market refuses to correct. It had the opportunity yesterday and it decided to close green. Yesterdays action suggests more upside ahead barring no new headlines from China.  It was definitely a bullish move and I’ll be taking that into consideration alongside my current thought to allow more upside room before adjusting. Confusing market no doubts.

The devaluing Yuan should help the US economy as it is a net importer so maybe this was a washout opportunity to shake out the confused and fearful weak hands for a big bullish move to all time highs?

 

 

 

 

 

Aug 13 – Back in Action

It was a rough go the past 2 weeks with more sporadic travel, driving and hotel stays. This put me in a constant catch up mode with both work and the market and I had little time to update the blog.  I should will be back to regular posts and updates from here on in, probably every day.

We’re now finished the “road trip” part of the “sabbatical” and are in London, UK where we will trade in our Tesla for an american version for use in the Cayman. Tesla HQ is accommodating me in this respect and I’ll end up with a new P85D (a 3s 0-60 car) for not a whole lot more when considering the differences in the price of the Tesla in UK vs USA. It all worked out.

The market was nuts yesterday. That was a tough tough go but I am confident and proud in how it was handled. The market fell 1.6% only to rebound into the green for a 3% round trip in one single day all the while the entire market has moved 5% in the entire year!  Not an easy environment for a theta based market neutral group of strategies. In fact, it was or should have been one of the toughest days a trade like that could experience.

For the M3s I added 1170 butterflies to hedge the downside and on the bounce (around RUT 1195 – an area I expected the bounce to stall) I took off some 1230s. Of course, the market did something I haven’t seen and the SPY ended up closing green on a <1.5% red day and the RUT just slightly red sitting around 1210 after touching the 1180s. Ah well, my entire account balance didn’t move to much by the end of the day (down maybe 0.5%) but the adjustments surely cost me. The size and intensity of the adjustments were nominal and probably the best case we could have expected if a rebound this size should have occurred. Can’t help but wish you were psychic and could have waited 🙂 With a fall that intense, you have to manage your risk and it is what it is.

The AUG MICs were mostly closed on Monday (thankfully). Some straggling parts to close out today. Will post the results soon. All positive.

The SEP MICs had debit spreads and bearish butterflies added to them on the down move yesterday and are probably around break even so far for the month.

Come Sept 1, I’ll start posting all my trades and adjustments as they occur.

 

Aug 1 – Trade Plan

I’ve officially added the M3 trade into my larger portfolio. I find it a much more conservative trade than the MIC in terms of risks, but strangely it should produce slightly better results, which is quite interesting.  It’s also a lot less stringent on timing of adjustments and more forgiving in general. From a direct comparison to just the mechanics of the trade vs the MIC, it is a better trade overall. The edge for the MIC is my experience managing it.  Either way, it’s a nice strong compliment to the MIC. The M3 is a trade John Locke developed when he was at the Sheridan mentor program. He’s since branched out on his own. It’s 10 bearish butterflies coupled with 1 long call thats DITM as to have no time value. It’s a market neutral time decay based trade. It’s got very little upside risk, and the downside adjustments usually occur when the trade is already up money and when the butterfly is close to its max value for that specific time in the trade. That’s neat.

Theoretical backtesting of the MIC in a strictly mechanical way produced an average of 3.3% a month since 2008, where the M3 produces an average of about 5% per month. However, with active management of the MIC and use of several indicators, I gather I am closer to 4%-4.5% over time.

For a neat look as to how well the M3 handles any market environment, in 2011 if you had put the trade on at the top of the market and had it on through the huge 63 point down day (what was that 8% down day?) and all the way to the bottom (~200 points??) and its subsequent rebound, the trade still came out at a win of the target 10%. That’s a resilient trade. This was managing the trade by checking only once per day at 3pm. That’s it. No intra-day adjustments besides that. Even during that 63 point down day, it was still up money.

Come September, I’ll start posting my trades and adjustments.

 

 

 

 

Jul 29 – Trade Plan

The protector Alpha is up 3% for the year vs SPY ~1.3%.  We got hurt a bit on the last whipsaw. I had reluctantly rolled my 211 short puts to 213.5 when the market was at around 213 for a loss having missed the big upswing and thus losing on intrinsic value. The market moved very quickly and I just couldn’t stay up on it (overnight gaps etc).  THEN the market decided to suddenly reverse falling to 206 leaving our 213s with no extrinsic value. Talk about whipsaw. I then rolled to 211 to get a bit of extrinsic now it’s on its way up again. I do believe this is a bounce into fed Wednesday and that we may stall or reverse hard but I’ll be sure to quickly roll if we come near 210.5. Not a great environment for rolling the shorts.  That and the big loss NEM had (was actually -15%) has put our PA account at just about 3% for the year.  Leveraged 7x = 21% or just about 3.5% a month for the year. This is better than expected given the market this year. This is a bullish strategy and has its place in our portfolio. It does well when the market does well yet is completely hedged on the downside. It’s not the big returns you’ll see in the market neutral options strategies but it’ll help in big bullish years. Maybe those years are behind us in the next 5 year time span? I don’t know.

My balance moved up 5% yesterday after the fall in volatility. Again, it shows how the mids and stated option pricing moves around so much in high volatility environments. It’s like the volatility was just sucked out of my accounts yesterday. It wasn’t delta losses or actual losses, it’s just that when the volatility floods out the MID pricing gets tighter and more accurate especially in the SPX.  This can affect your stated balance (AND margin calculations quite a bit). Any new traders utilizing portfolio margin should be aware of this. You can go to bed with PM stating 100k liquid only to wake up having it show -100k and be forced into liquidations.  It’s happened to me in my early days running MICs. You end up buying back risk at a premium during the first 15 min of market open. Not pleasant.  There are tricks to reduce margin during these 15 min but that’s a subject of another post.

Some early results:

Aug Bearish butterfly: Up about 15%

Aug M3: Up about 8%

Rock Trades: up about 4%

 

Jul 29  trade plan

So we got that relief rally and the buy zone at 1210 on the RUT seemed to work out.  On the way up I added some hedges and balanced my delta.  I did this while driving through the Swiss alps enroute to Arona, Italy.  I sometimes shake my head at my lifestyle.  So bizarre what technology allows in terms of personal freedom.

I gotta admit though, the last few days were a bit hectic. On Monday, pretty much every trade (I have 9 on) hit delta or Greek trend limits and needed adjusting and man, it took all of my concentration. Every  indicator I use suggested a near term bounce and that meant my adjustments were reluctantly and more conservatively made.    I spent about 3-4 hours on Monday managing my trades and setting them up for a potential incoming bounce all the while managing my risks.  Because of the volatility, the option pricing (mids) were all over the place. My balance was fluctuating the size of an expensive car. I’m used to it by now. But it can defiently scare a new trader into closing out trades prematurely.  

By EOD today my account is at All time highs.  I’m happy about that.  All the trades are sitting perfectly and soon I’ll start closing off August ones at profit targets.  I even think a few September ones may soon be reaching targets.  My September M3 is up about 5 percent already. Every trade is sitting nice (maybe not so much the protector) but all the options trades are.   I’m feeling like I am about 60 % where I want to be re this trading thing that I am doing.  I am now actively working on a lot more trade due diligence ( trade plans, post trade back test and analysis –> where’d I deviate from plan? Why? How did it work out? Etc etc.) and alongside of that I am continuing to learn more advanced options strategies that are far more risk averse. 

So I write this almost two months into our road trip, and having some regret not actively updating as much as planned.  Every day felt like a scurry with never ending catch up with obligations in my business,  trading, new courses I’m taking (m3, bearish butterfly, m21 and APM2) seeing each place we visit and making sure to keep up my fatherly duties. There simply wasn’t much time for updating. I will make up for it this week. I’ve been all around Europe now on this road trip and I’ve come back to where I started.  Why? Because it’s our favorite place and we kept talking about it the entire trip, so why not just come back? We are in Arona, Italy near como.  We pulled in the driveway to be greeted by the b&b owners the two dogs, a goose that thinks he is a dog and a cat.  All tagging along with each other. And it feels like home.  

   

Jul 28.  Trade plan #2

The spy opened on a gap up only to fill it 15 min later.  The RUT opened up down and fell hard to 1205 (below the important 1210 level). It’s much below its Lower BB and probably a very good r/r zone for a buy. By 10:15  It bounced back to its support at 1210.  This action and volatility is giving me some sticker shock (account balance fluctuations) .

Everything is over sold and we should get a relief bounce where I’ll reposition a few things.  I don’t want to do it right yet unless the rut breaks 1200.  

Jul 28. Trade plan

The last 5 trading days have been a bit tough on our protector alpha portfolio and MIC positions as we experienced whipsaw in the big up move followed by a very aggressive down move.  The PA lost significant value when both rolling out shorts didn’t work in our favor and also having one of the equities fall 10 percent (NEM). The MIC for SPX suffered when we closed 9 units of our credit spreads and added 3 2040/2020 to balance only to have the 2040/2020 take a big loss on Friday and again yesterday (they are closed). Trade is still up as is the Rut mic but definetly felt the hurt.

I’ve got a few M3 and Bearish Butterfly’s on which are all profitable.  My BB was up about 20 percent and is now at around 15 percent.  Rules call for closing the trade at 30 percent.    

Through the trades I figured Rut should find support at 1210 area and it appears it did.  I have no idea how this will go but the China situation could cause pain after what I expect will be a brief oversold bounce.  I am so glad I realized a few weeks ago that we were not getting paid for our risk and kept the mic allocation below 50 percent.