Well, I guess I've caught my breath now...I came out from under the bed and have started breathing again. This "crash up" has toasted most of my delta neutral positions.
My NDX double diagonal went through several adjustments to the upside, nearly every other day, until I finally threw in the -20% max loss towel. Have you looked at a NDX chart lately? From 7/13 to 7/23, NDX had an up range of 15% in 9 trading days. Not good for the delta neutral, market neutral trader.
I have a similar MNX double diagonal with embedded calendar trade on. It too has had some adjustments but isn't quite out of the game yet. (Read: I'm not at max loss yet.) Actually, I'm only down about 6%.
My normal 36-day RUT high prob iron condor was wiped out only 9 days into the trade. Luckily, I had "call side insurance" (extra long calls, in case of a big/fast move up) and it allowed me to stay in a little longer, but with so many days in a row of higher highs, it wasn't enough. Instead of waiting until my -20% max loss, I pulled the plug a little earlier, with "only" a -13% loss. My stop loss exit points are -20% loss, or 10 points from the short strike, whichever occurs first. In this case, I was within 10 points of the short strike, which allows me to escape with a little less loss. This trade was started on 7/14 with RUT at $496, and exited 7 trading days later on 7/23 when we went past $540, 10 points from my 550 short strike. That's >9% move up in 7 days. Crazy. Some people would reposition their entire trade up at that point, but when the max yield is only ~12%, and you took a 15-20% loss, you're only going to get close to scratching. Granted, scratching is better than a 15% loss, but you also have a chance of turning that 15% loss into a 30% loss. I'm taking the position of keeping my powder dry until next month...what's left of it. I'm also afraid with such a strong run up, that we could retrace fairly quickly too, so repositioning, especially the puts, isn't appealing to me at this point.
I still have a SPX calendar on. Originally, it was a bearish bias 900 strike, and 7 days into the trade I rolled it up to a 930 strike, still bearish. Now a couple days ago I added a 980 strike to make it a double calendar, give me a little more theta, and cut my delta a hair (not much). My new break evens are aroun 915 - 1000. The last couple days have been kind to me as vols crept higher, helping this vega positive trade. I'm currently sitting at around a 3% loss, even with the previous roll.
Last but not least, I have several butterflies on RUT. What started out as a single butterfly with a second one added a week later has morphed into butterflies at several different strikes and for the most part, I'm now managing the entire trade by the greeks, trying to keep delta relatively low (but no where close to zero) and theta high and positive. I'm still very leary of a downward move, so I'm still leaning a little negative delta.
Overall, a pretty rough month for delta/market neutral trading.
Showing posts with label NDX. Show all posts
Showing posts with label NDX. Show all posts
Wednesday, July 29, 2009
Wednesday, July 15, 2009
Big move up, VIX low but up. TOS contingent orders.
Today seen a 2 standard deviation move in several indexes, spurred by better than expected earnings, especially in INTC. RUT closed up 3.8%, NDX up 3.3% and SPX up 2.9%. Even though SPX had a steady climb all day, the VIX was only briefly down setting a 10-month low, then also climbed steadily the rest of the day.
Upon the suggestion of Mark S., I decided to buy a little volatilty by buying a slightly bearish SPX calendar. When SPX was around 928 today, I bought a 900 put calendar. The upper break even is around 948, right around the early June resistance. VIX rose a half a point after putting on the trade, helping a little. Here's how it looks (just a simple calendar):
Next, with the huge move up, I was thinking it was a good time to sell some call verticals, to compliment the puts I had left over from a RUT high prob iron condor. I had previously covered the calls and wasn't excited about reselling any (rolling) with the market near its recent lows. But today's move up, I took advantage of it. Here's how it looks before and after. Note that when I re-sell some spreads, I typically only sell half of the original contract size. If we keep trending up, this trade won't fall off a cliff. I can essentially go all the way up to my short strike and still not take my max allowed loss (-20%). In fact, if we were to go there today, it would only be a 10% loss, but I'd pull it off 10 points before the short strike, or only a 6% loss. One good thing about this 'adjustment' is that I've now doubled my theta. The puts are currently worth about $0.45 and I'd probably pull them off at 0.15 to 0.20.
I've saved the "best" for last. NDX moved up just short of 50 points today. Considering my NDX double diagonal had short strikes +/-100 points from ATM, we covered a lot of ground today. Here's how the position looked at yesterday's close. Not bad. Not centered, but not down any money.
With the big move, I decided to move up the put spread. This wasn't really in the plan. (Uh oh, plan the trade...trade the plan.) The put spread was nearly zero theta, so it wasn't doing me much good. So I rolled up both the long and short puts up 75 points. Here's the new risk graph at today's close. Note that the current price is right at my short call strike, 5 points away from my adjustment point.
Here's my planned adjustment point, if we reach 1405. Simply buy a Aug 1400-1425 call spread. This will be done with a contingent order, so I don't have to worry while at my day-job.
And speaking of contingent orders, I got a tweet from jcvictory who wanted me to cover this topic on the TOS platform. He specifically asked about locking in profits, but I'll start with the adjustment first. Let's do the call side. I know that when NDX hits 1505, I want to roll my short 1500 call up to 1525. So I start with a order to buy a 1500-1525 call vertical.
I click on the Rules "Day" and in the new dialog box, I change the order to GTC, then in the section where it says "Submit when at least one of the following conditions is met" I put in NDX, MARK, At or Above, 1505. Then up towards the top, where it says Price Rules, I change the "Limit Linked to" MARK. What this does is, when NDX trades at or above 1505, it will submit this order, with a limit set to the mark (mid-price of the spread) at that time. If this order is on a very liquid options, you could leave it at mid. But if you have experience with the vehicle, you may know that you'll never get filled at mid-price. You may need to give the market makers some edge. I'd NEVER pay the ask for 99% of the spreads out there (except for the extremely liquid options where only one or two pennies separate the mid and ask). For a RUT vertical, you may need to give in a nickel or dime. In the case of NDX, there's typically around $0.80 between the mid and the ask on a ATM vertical. So, because I want a fairly good chance of getting filled, and I may not be around to baby-sit the order, I'll cave in around $0.20 of that $0.80. So, I'm wiling to pay $0.20 more than the mid-price of this vertical. Again, the amount all depends upon the liquidity of the options and how the spread normally trades. So, I take this $0.20 and put it in the "LIMIT Offset" area. Now if you look at the order description, it will tell you that the order will wait until 1505, and then put in an order set to the mark (at that moment) plus 0.20.
Hit Ok to that Order Rule box and you're back to the normal order entry. At that point, you can confirm and send.
Now, jcvictory asked about profit taking, or "locking in profits". Well, there's a few means of doing that. One is to be at your computer, decide that you currently want to get out, and work the order manually. Another is to put in a LIMIT order with a sales price that gives you your profit target. (A simple case is: you bought a calendar for $1.00. You want to exit with a 20% profit. You simply put in a calendar sell order with a limit of $1.20...maybe plus a couple pennies to cover your commissions.)
But the more complicated case is say, I'm up 15% on this trade. I'd like to stay in longer, but if the underlying moves, I don't want to go under a 10% profit. If my 15% profit sinks to 10%, exit the trade. How I would handle that is to look at the risk graph, determine at what underlying prices would correspond to my 10% points, and put in a contingent order, trigged on the underlying price, and again use the LIMIT LINKED TO MARK feature. You can again "cave in" a few cents on the mid-price, as appropriate.
Let's use an OEX calendar to simulate this. Looking at the risk graph, I'm up $224. I don't want to go below a $175 gain on this trade. By moving the price slices, I've determined that this would occur if OEX drops below 434.10 or above 446.75 (excluding all volatility effects). See the graph below.
Armed with that information, I put in a OEX calendar sell order, go into the Rules, and set the conditions that will trigger the order (below 434.10, above 446.75), change the LIMIT Linked to MARK, and then maybe cave in a little on the mark price. In this case, since you are selling the calendar, you want to cave in negatively. That is, you want to sell it for a little under the mark (mid-price). For a calendar, depending on the vehicle, you may want to not cave in at all, maybe a nickel on most vehicles, and something like a dime on a vehicle not very liquid. Use your own judgement and experience here.
I hope that covers what you wanted.
Upon the suggestion of Mark S., I decided to buy a little volatilty by buying a slightly bearish SPX calendar. When SPX was around 928 today, I bought a 900 put calendar. The upper break even is around 948, right around the early June resistance. VIX rose a half a point after putting on the trade, helping a little. Here's how it looks (just a simple calendar):
Next, with the huge move up, I was thinking it was a good time to sell some call verticals, to compliment the puts I had left over from a RUT high prob iron condor. I had previously covered the calls and wasn't excited about reselling any (rolling) with the market near its recent lows. But today's move up, I took advantage of it. Here's how it looks before and after. Note that when I re-sell some spreads, I typically only sell half of the original contract size. If we keep trending up, this trade won't fall off a cliff. I can essentially go all the way up to my short strike and still not take my max allowed loss (-20%). In fact, if we were to go there today, it would only be a 10% loss, but I'd pull it off 10 points before the short strike, or only a 6% loss. One good thing about this 'adjustment' is that I've now doubled my theta. The puts are currently worth about $0.45 and I'd probably pull them off at 0.15 to 0.20.
I've saved the "best" for last. NDX moved up just short of 50 points today. Considering my NDX double diagonal had short strikes +/-100 points from ATM, we covered a lot of ground today. Here's how the position looked at yesterday's close. Not bad. Not centered, but not down any money.
With the big move, I decided to move up the put spread. This wasn't really in the plan. (Uh oh, plan the trade...trade the plan.) The put spread was nearly zero theta, so it wasn't doing me much good. So I rolled up both the long and short puts up 75 points. Here's the new risk graph at today's close. Note that the current price is right at my short call strike, 5 points away from my adjustment point.
Here's my planned adjustment point, if we reach 1405. Simply buy a Aug 1400-1425 call spread. This will be done with a contingent order, so I don't have to worry while at my day-job.
And speaking of contingent orders, I got a tweet from jcvictory who wanted me to cover this topic on the TOS platform. He specifically asked about locking in profits, but I'll start with the adjustment first. Let's do the call side. I know that when NDX hits 1505, I want to roll my short 1500 call up to 1525. So I start with a order to buy a 1500-1525 call vertical.
I click on the Rules "Day" and in the new dialog box, I change the order to GTC, then in the section where it says "Submit when at least one of the following conditions is met" I put in NDX, MARK, At or Above, 1505. Then up towards the top, where it says Price Rules, I change the "Limit Linked to" MARK. What this does is, when NDX trades at or above 1505, it will submit this order, with a limit set to the mark (mid-price of the spread) at that time. If this order is on a very liquid options, you could leave it at mid. But if you have experience with the vehicle, you may know that you'll never get filled at mid-price. You may need to give the market makers some edge. I'd NEVER pay the ask for 99% of the spreads out there (except for the extremely liquid options where only one or two pennies separate the mid and ask). For a RUT vertical, you may need to give in a nickel or dime. In the case of NDX, there's typically around $0.80 between the mid and the ask on a ATM vertical. So, because I want a fairly good chance of getting filled, and I may not be around to baby-sit the order, I'll cave in around $0.20 of that $0.80. So, I'm wiling to pay $0.20 more than the mid-price of this vertical. Again, the amount all depends upon the liquidity of the options and how the spread normally trades. So, I take this $0.20 and put it in the "LIMIT Offset" area. Now if you look at the order description, it will tell you that the order will wait until 1505, and then put in an order set to the mark (at that moment) plus 0.20.
Hit Ok to that Order Rule box and you're back to the normal order entry. At that point, you can confirm and send.
Now, jcvictory asked about profit taking, or "locking in profits". Well, there's a few means of doing that. One is to be at your computer, decide that you currently want to get out, and work the order manually. Another is to put in a LIMIT order with a sales price that gives you your profit target. (A simple case is: you bought a calendar for $1.00. You want to exit with a 20% profit. You simply put in a calendar sell order with a limit of $1.20...maybe plus a couple pennies to cover your commissions.)
But the more complicated case is say, I'm up 15% on this trade. I'd like to stay in longer, but if the underlying moves, I don't want to go under a 10% profit. If my 15% profit sinks to 10%, exit the trade. How I would handle that is to look at the risk graph, determine at what underlying prices would correspond to my 10% points, and put in a contingent order, trigged on the underlying price, and again use the LIMIT LINKED TO MARK feature. You can again "cave in" a few cents on the mid-price, as appropriate.
Let's use an OEX calendar to simulate this. Looking at the risk graph, I'm up $224. I don't want to go below a $175 gain on this trade. By moving the price slices, I've determined that this would occur if OEX drops below 434.10 or above 446.75 (excluding all volatility effects). See the graph below.
Armed with that information, I put in a OEX calendar sell order, go into the Rules, and set the conditions that will trigger the order (below 434.10, above 446.75), change the LIMIT Linked to MARK, and then maybe cave in a little on the mark price. In this case, since you are selling the calendar, you want to cave in negatively. That is, you want to sell it for a little under the mark (mid-price). For a calendar, depending on the vehicle, you may want to not cave in at all, maybe a nickel on most vehicles, and something like a dime on a vehicle not very liquid. Use your own judgement and experience here.
I hope that covers what you wanted.
Wednesday, July 8, 2009
NDX Double Diagonal
My plan was to open up a new MNX double diagonal around today. Instead, I decided to save commission costs and open up a NDX instead. Today was my first ever trade in NDX. I got filled right at the midpoint instantly on a 4-legged trade...I guess I should have held out for more! Nothing fancy here. Will manage the same way as the MNX. Will roll up/down shorts to next strike when I get to 1505 or 1295.
Here's how the MNX double diagonal is looking. We had a low of 139.49 today, with the lower adjustment point at 137.00. Very, very close. We closed at 141.15, so the adjustment point is only a 1.7 daily standard deviations move down. It could happen at any time, and that's why I have a contingent order set to trigger at 137.00. Simply buy a 137.5-135 put vertical a few cents above mid price.
Lastly, I was able to buy the remainder of my RUT iron condors 580-590 call verticals for $0.20. This leaves me with all the puts and therefore fairly long delta. With the move down over the last few days, this position is down only about 4%. I'm hesitant about re-selling some calls...not without a day or two of upward movement first. And if I do resell, I'd only sell about half of the original amount at no more than a 10 delta on the short strike.
Here's how the MNX double diagonal is looking. We had a low of 139.49 today, with the lower adjustment point at 137.00. Very, very close. We closed at 141.15, so the adjustment point is only a 1.7 daily standard deviations move down. It could happen at any time, and that's why I have a contingent order set to trigger at 137.00. Simply buy a 137.5-135 put vertical a few cents above mid price.
Lastly, I was able to buy the remainder of my RUT iron condors 580-590 call verticals for $0.20. This leaves me with all the puts and therefore fairly long delta. With the move down over the last few days, this position is down only about 4%. I'm hesitant about re-selling some calls...not without a day or two of upward movement first. And if I do resell, I'd only sell about half of the original amount at no more than a 10 delta on the short strike.
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