On this mornings bounce I sold off some upside hedges I had (1 TF future per account) and (10 2125 call hedges for SPX) and the market proceeded to sell off through most of the day making the decision look great. That said, it did end up bouncing towards the end of the day. I took the bounce as an opportunity to add some Bearish butterflies (Jul Expiration) at such a good price (If I recall, they were 10.60 for July expiration!). The steep option skew has made butterfly pricing very attractive these past few days. As I said yesterday, it was different and kinda unusual. Volatility increased and usually vol skew flattens out but this time around it actually did the opposite. This made pricing great for entry but negatively affected BWB and BB trades already entered. My OV risk profiles were not as expected going from Thursday till today. However, it got better towards end of day.
There is a lot of doom and gloom right now, we cut 2080 like butter and kept going. The selling is relatively emotional and fearful and until we have resolution in the events, we can expect some more uncertainty and volatility. The Brexit is mostly about immigration and I’d guess that on an exit, the politicians would keep the same trade agreements in place. So probably ‘much ado’ about nothing that has any real effects on the economy.
My gut says we’ll have a bounce tomorrow re the Fed meeting and probably into OPEX. I might hedge with some cheap weekly calls. I don’t know yet. We’ll see how it plays out.
Here are the risk profiles of the three Jul Rhinos. The P/L aren’t accurate as I hadn’t updated pricing on a few adjustments but the profiles are correct.
Jul Rhino M3 (P)
Jul Rhino M3 (M)
Jul Rhino M3 (D)
Here are the other three which started off more as an Broken wing condor.
Jul Rhino M3 BWC (P)
Jul Rhino BWC M3 (D)
Jul Rhino BWC M3 (M)
Here are August trades, which are a testament to the whole Vol skew issue. These should have had a massive P/L increase on the fall. We were outside the tent and entered in, the OV mdoel would have suggested a large increase in P/L. This will self correct. But I kinda learned something, I was or had a tendency to add Rhinos at perceived tops and I did this fairly well timed a week to two weeks ago when RUT @ 1180-1190 and I’d have expected that with heavy negative deltas and a bearish bias, that I’d not be down right now. but I am, at least for now, because of Vol Skew. The pricing on the BWBs were about 3.30-3.40. Not great. I don’t think I’ll be as excited to enter on big up moves, rather, I’ll be more excited to enter during down moves where vol pops and skew is favorable.
Aug Rhino M3 (P)
Aug Rhino M3 (M)
Aug Rhino M3 (D)
I have a bunch of SPX ones as well but I’ll post those later. They were purchased at much better prices and are doing well.