What a week. I closed the MICs for July at 4.268% which is a great result considering the whipsaw and challenges that the large gap ups and moves provided towards the end of our last week. It was fortunate we had a big up day today to allow for some volatility to flow out.
The Protector alpha is up about 4% for the year completely hedged vs SPY which is up about 0.6%
My first bearish butterfly went extremely well with a 30% return.
Another wild day. The Chinese markets had half their equities halted and the NYSE halted trading after a technical error causing a bit of panic in the markets. Volatility reared its ugly head again and the pricing of our Jul MIC options went up. No chance to exit yet and we did have to adjust a bit more on the way down. Both trades are still well within positive territory and only lost a tiny bit through the wild day yesterday if any at all (I can’t tell because the mids are all over the place as is usual in high volatility times like this –Especially in the SPX options).
There is a nice bounce in the futures and Shanghai is up 6% but I wouldn’t expect much more than a bounce here which could only last for tomorrow or it could go for a few days. The CPC (put-call ratio) is extremely high and usually these means more down ahead but we shouldn’t be too far from a bottom. Additionally, the bullish percentages are also quite weak across the board
BPNYA -1.02%, BPCOMPQ -1.48%, BPSPX -0.73%, BPOEX-1.59%, BPENER -7.69% – but BPFINA +1.85% and BPINDU +5.56% are up. Only BPNDX is flat
Heavyweights of SPX: aapl -2.48%, xom -1.09%, msft -0.14%, jnj -1.16%, brk -1.11%, wfc -1.78%, ge -2.19%, jpm -2.05%, pg -0.89% ibm -1.12%, pfe -0.83%, goog -1.56%, sbux -1.81%, amzn -1.61%, t -1.44% (Source: Uempel@Cobra)
In any case, I am going to just start to close the trade on any bounce and call it a day for July. Things are just too volatile to hold much longer, we’ll take what we can get and use any decline to enter more into our Aug MIC. I did enter about 4 units yesterday during a big decline. I was getting decently paid on 200 point (1870/1850s) which is great. If I enter any more in the next days on down, I will be using a ratio of 5:1 for the put spreads to call spreads rather than 3:1. The plan will be to add the other 2 on any large upwards retracement.
What a swingy day yesterday was (50-55 points peak to trough) and it’s not ending anytime soon with the futures now down 30 (1.5%) points as I type this. The big July MIC trades expire in 11 days ( 6 trading days) so we’re right at the end of it and will have to get out before the weekend.
JULY RUT MIC
I made two adjustments. At the start of the day I bought 8 1230/1210 debit spreads and as it kept falling I added 10 1220/1200 debit spreads. Towards the end of the day I had to adjust again but this time on the other side and I had sold 5 1240/1220 debit spreads. A bit of whipsaw experienced here. The futures market for RUT (TF) is now down again about 1.5% so we’ll have a bit of pressure here. I am concerned about a big correction in the next few days and how it’ll affect the exit of our trade. The futures aren’t looking too good right now. I have about 15 units left on this trade.
JULY SPX MIC
In the off hours, on the big up move, I was able to get out of 71 1950/1930 credit spreads which was nice. During the early part of the day, I was actually quite a bit above my adjustment point on the upside and had to reluctantly adjust. I sold two 2070 puts as a placeholder move to help correct my delta as well as sold 12 2090/2080 debit spreads. This was done when we had solid down move in the AM, so I didn’t get terrible prices, the problem was this down move continued on at least for half the day. Made me wish I took more time making adjustments when the markets or volatile like this but we have to manage risk. When the market rebounded I bought back 2 2030 puts thus levelling off our debit spreads. We ended the day up quite a bit on the SPX trade and as well we were pressured on the upside. I decided to leave the upside risk in this volatile market. Good timing I guess, since the market is selling off right now. Still, like the RUT MIC, the increased volatility in the trade will probably make things difficult for us. I have about 18 units left on this trade.
Bearish Butterfly
I added some 1210 butterflies to even out the delta on the big move down. I then removed some of the 1270 butterflies on the big bounce. Ended the day with downside preference. Good timing again, I guess.
M3 Trade
Very resilient. No issues or requirements to adjust yet
Kelvar Trade
Very resilient. No issues or requirements to adjust yet
Anchor Trade
A lot of the mechanical picks weren’t that affected by the big down move. I think its up about 5% as of close last night for the year. Not much else to report.
Aug MIC Trades
Had to adjust the small amounts of MIC AUG trades I had on. I *think we might be in a great position here. I’ll be closing off July trades and entering Aug trades at super high volatility. I’ll be entering AUG trade this week.
The SPX options are now open and we’ve got a nice little bounce on a rumour that China pension plans are looking at buying equities. A bit of volatility is seeping out of the option pricing and I am seeing a big bounce in the paper balance of my account. The market is closed on Friday so we should see some accelerated time decay through the next 3 trading days. I plan on entering this long weekend close to delta 0 with a more elongated risk profile. I want to be able to handle a 30 point swing in any direction with modest effects and I’ll likely close the entire trade on Thurs/Fri of next week if there is no significant bounce.
Yesterday, the SPY closed at 205.5 and has erased all gains this year. Our protector equities are up 4.5% and our hedge portion is down 1.5% putting the overall portfolio up about 3% for the year while the SPY is just below 0%. I like that, I mean, considering the market movements and environment. Relative to the non-directional options strategies it isn’t a whole lot but during better runs, it’ll do just fine. The trade lost about 1.2% yesterday.
The July MICs are sitting at about 0-1% P/L but that’s with all that volatility packed in the pricing of the options. Not bad considering yesterday was a 2% down day for SPX and 2.5% down day for RUT. I’d guess that a slow consolidation day would put the trade up to 2-3% as volatility decreases and the time to expiry gets shorter. The potential in the trade has gone up and if the market goes our way, I am looking to close it at around 5-6% P/L for the month which wouldn’t be bad considering the whipsaw movements which required adjusting (on the upside) and now on the downside. Anything can happen and more sharp and sudden movements down could affect the trade and its profitability. All we can do is manage risk and exploit theta.
The bearish butterflies for Jul and Aug are all up obviously. Nice trade compliments.
I used Friday and yesterday as opportunities to enter some of the AUG MIC. I’ve got about 15 units on. I can’t really put on too many more until we start getting rid of the July ones. I’ll be considering this as we go forward. I sold 1890/1870s and 2175/2200s (almost 290 points between the shorts) yesterday for a good price! Gotta love that. Huge width in what I could see. On another down day, I’ll probably enter another 5 units for Aug.
Wow. That was probably one of the biggest down days I’ve experienced. It was the worst day this year thus far. A 46 point drop in the SPX futures. Neat. First 2% decline since Oct 2014.
The increased volatility is hurting the positions a little. I was quick to start balancing on the early morning bounce from the futures lows. I added 32 units throughout the AM of debit spreads to hedge my 22 units of SPX MIC. The thing kept falling and the VIX is up 35% this means the insurance (credit spreads) we sold are now getting expensive to buy back. Our positions are packed with volatility premium and they (at the moment) are hurting a bit. The good thing is that there is only 17 days left and time decay is high. That premium will suck out of the positions on any stall or bounce quite quickly. The trade could do better (even much better) than expected but right now (as is usual in a big drop near the end of the trade), our paper P/L is sobering. I’ve seen this type of thing many times before, I’ll need to be vigilant in adjustments and risk management. Hopefully the worst is over. I’ll close the trade sometime next week when we’re about 5-10 days to expiration (DTE) as I usually hold the trades a bit longer when we’ve got a big volatility inducing drop around this time in the trade. There’s a ton of juicy premium waiting to be sucked out by the time vacuum and we’ve got so much room to the downside (we sold the 1980/1940s and 1950/1930s on the SPX and we’ve still got 90 points to the downside with only 17 days left. Still, the SPX trade is hurting the most as it started the week delta positive while the RUT started borderline max delta negative. However, even though our RUT trade went from borderline limits of delta negative to just slightly positive delta, the position P/L has fallen (on paper) due to the massive increase in volatility. It moved in the direction we wanted but it came with an amount of volatility that hurt the trade.
On Friday, I entered a few bearish butterflies (timing was impeccable!). These bearish butterflies will soon compliment the MIC portfolio. They’re based on the same concepts and do well in any market despite the name. Though, they do prefer down movement. I also sold a a lot of longs on the Alpha portfolio in an attempt to reduce it. Obviously good timing again.
A bounce is likely as soon as tomorrow. The daily RSI of the SPY is <10 and the daily RSI of the VIX is >90 and was up 30% in a single day. Too much too soon. The SPY Futures are about 6 points away from the 200d moving average as well.
The RUT has been on a tear breaking to all time highs (1293) while we entered at 1210-1220. This has put pressure on our RUT MIC trade and it’s sitting at break-even right now. I’ve been very diligent removing call spreads as we move up and I am happy we’re at break-even given the large move up which this trade hates. We’re in only 2/3rds unit as I couldn’t get a good entry for the rest. We’ve got about half the call spreads off now. We still have some upside pressure but I expect the RUT to cool off around 1295-1300. I don’t doubt that by the end of the year, we’ll hit 1350 but not right now. The big up move is likely due to the negative headlines and increased short pressure which tends to fuel these V recoveries.
The SPX has been lagging while the RUT is leading. The SPX MIC trade is doing well up about 2.5%. As with the RUT MIC, we’re only 2/3rds entered this month. I just couldn’t find good entries after that fantastic last month.
Overall both trades combined are sitting at about 1.5% with 14-20 days left in the trade. I wouldn’t expect much more than 4% for this month.
The protector alpha portfolio is doing fantastic due to some great picks in the healthcare/insurance sector. There’s been buyout rumours which have fueled huge runs in AET, CI etc. I held CI which had a 30% run (just sold) and I currently hold AET and UNH. The protector is up about 5% for the year vs SPY up 2.6% and we are fully hedged! I leverage this at about 6-7x because of its low risk fully hedged nature. So for that, I am up 30-35% on equity less whatever the margin costs are.
So far the year is going very well, my account is at all time highs and I am expanding my options education. I never thought I could be so challenged w/ options as I am with the new material I’ve been learning via John Locke (M3, Bearish Butterfly, Rock and specifically the M21 trade). These are all non-directional theta based trades that are more or less based around the same concepts the MIC is but quite a bit more complicated. Looking forward to implementing these strategies in the fall as a nice diversification to the MIC and protector alpha.
There’s that upside energy I mentioned in the last post. The market rebounded to the 2120 area with a big 1% move up. There were no sellers left. That’s a big hit to the bears who had all that they needed for a full blown correction. Supply and demand is the rule, and the supply dissipated and the sell off ended. The tells were in the big bearish attitude which pointed to the market having a lot of pessimism which means less long exposure and less sellers going forward into Wednesday. Once you get a big sell off like that and a rebound that surpasses many of short stops, you get a short fuelled V-rally. Again, this is especially pronounced when there just isn’t many pressured longs selling, the law of supply and demand. That’s just right now though, things change quickly, it doesn’t mean we won’t revisit the lows in the upcoming days. On Tuesday, the TRIN was over 2 and usually that means the lows will be retested in the short term.
New note: I just read Urban Carmels report and he’s got a whole report about the TRIN and Tuesday/Wednesdays action. He’s basically saying that we can expect the lows to be revisited. In 2012/2013, there were 10 instances like Tuesday with strong bounces, all led to more selling. In the last 3 years, 20 instances were TRIN spiked over 2 and 90% revised the lows. Caution is warranted for longs perhaps.
http://fat-pitch.blogspot.com/2015/05/summary-yesterday-stocks-fell-more-than.html?spref=tw
Look at that chart, what a difficult market to trade. BIG gaps everywhere and lots of V-shaped recoveries. These past 5 months have shown a true battle of bull/bear, a market with relatively equal buying/selling pressures.
The RUT MIC stayed the same at about 4.5%. I removed about 7 1100/1120 put credit spreads for between 25c and 42c as the market rose I did this to release some margin and also to basically start taking off some of the trade. The delta is at about -20 which is a pretty big change from Tuesday when I was getting ready to adjust on the downside! I will adjust at about 1262. My hope is that we get till next week before that happens (soak up some good time decay without any adjustments). The theta on the trade is about $53 per unit. I think the best case scenario is about 6.5% for this trade.
The SPX MIC is sitting at 5%. I haven’t done anything to it in a week. The delta is at $0. Time decay at $100 per unit per day. I think best case for this trade is about 7.5-8%.
The market cracked that important 2120 area and proceeded down quickly (as expected if it broke that area) and it even briefly went through the next support at 2100 only to close at about 2104. So we’re now about 1.5% off of all-time highs but the attitude and sentiment are very bearish (much too bearish when we’re just 1.5% away from ATH) which usually lends itself to a bounce as it typically means many people are under-exposed to the market (already sold or unexposed = less sellers going forward). AAII Bullish sentiment is at 5 year lows, Stocktwits stream is quite low etc etc which usually means that the worst of the selling is likely over. We’ll probably extend a bit lower through 2100 but I’d expect up momentum soon.
My plan? I’ll give the downside on the RUT until about 30 delta to adjust and the downside on the SPX to hit 25-27 delta before adjusting. Not a whole lot of plan 🙂
I added a 1270 calendar to our RUT trade on Thursday as a slight delta adjustment for any upside risk. Other than that, there’s been no adjustments since Thursday. The MIC trade is sitting at about 4.5% which is fantastic given yesterdays waterfall decline and increased volatility. I gather without that increased volatility the trade is sitting at 5-5.5%.
The SPX trade is sitting at 4.2% and hasn’t been touched since Thursday. It’s sitting at about 7-10 points away from a downside adjustment and I’ll monitor that closely. If we can get a slight bounce and end the week anywhere between 2095-2140, we’d be sitting very nicely with the trades.
The Protector Alpha is down about 0.7% yesterday (as expected) with a decline like that. A new thread appeared on the main forum/community that I am a part of, and it is a discussion talking about new methods for the protector. I am quite excited by the developments and will start putting some thought into it.
As for the Paris trip:
We’re consolidating between 2120 (support) and 2130 (resistance). We had hit 2135 during the fed release but retreated back into the range. This is a tight range that we’ve been holding for 6 days. I’m not really sure which way the odds favour. Time will tell. My guess is that we’ll have a shallow pullback then an up move towards 2150-2160. Mostly this surmising where the market goes is just for novelty. I don’t really use it all that much practically, but I do enjoy it.
The positions are sitting nicely with the RUT MIC now sitting at ~3.5% and the SPX MIC sitting at ~3.7%. That’s a nice gain from the day before. It appears we started to see some accelerated time decay yesterday ahead of the long weekend.
Yesterday, I spent some time testing out a 9 day no touch condor and had some decent results. I’m going to do 3 years worth of backtesting but so far It had a 2.9% weekly return (after commissions). A 78% chance of making some money and it was closed with a loss of 20% or more and a gain of 11% or more (after commissions).
The protector alpha is doing well. A bit ahead of SPY which is nice. If we had used the regular ETFs instead of the equities we use now, we’d be behind by a good amount.
Ash and I leave tomorrow for a 3 day (sans kids) Paris trip. I’ll post a trip report on this blog.
I’ve used this little fall @ the open to adjust some of my call spreads.
I’ve rolled 2 units of SPX short calls from 2175 to 2185
I’ve rolled 2 units of RUT short calls from 1290 to 1300
SPX MIC delta is sitting at -7
RUT MIC delta is sitting at -16
