Trade update

August expiration:
I'm still trying to claw my way back to profitable. My SPX calendar, which I rolled up 3 times and then turned into a double calendar, is now profitable. I'll probably take that off on Monday or Tuesday. I still have some pieces of the MNX double diagonal on, with no hope of profitability, but trying to recover some losses. I'm around -8% on that trade. And I have what started as a couple butterflies in RUT. That trade is still underwater, but I have a relativily low delta with theta >300. I'll try to hold that for another day or two to collect that theta and get out.

September expriation:
I liked that XLE DD that I put on so much, I doubled my position. XLE had moved up a little when I decided to double, so I chose 1 point higher on the call side. I'm currently up 7% and still perfectly centered. Max gain (in the saggy part) is 25%, so I'd be looking to take profits around 15%.

My MNX double diagonal is also fairing well, almost perfectly centered and up about 4%. Max gain (sag) is about 15%, so will look to take profits around 10%. This trade has developed a little tilt. I'll have to watch that, maybe purchase a Oct call to help with the fast slope on the up side.

The RUT fly is going well also. I'm up 9%, but I don't have any plans to take profits any time soon. In fact, I'm looking to double and most likely triple my position. My plan is to add another fly when RUT hits 550 or 590, but RUT has been behaving well and hasn't gone there yet. If we don't hit those points by Thursday, I'll probably add another fly ATM, just so I can get the capital in use.

I put the second tranche of my RUT iron condor on. Since RUT didn't move much since the first tranche, I ended up using the same strikes. The first tranche collected $1.48, whereas the second one netted $1.35, 5 days later. I sold the second one on 8/11, on a 10-point down day, to take advantage of the higher vols on that day. Vols dropped about 2 points the following day, as RUT recovered with a 10-point gain. Even the large drop on 8/14 didn't cause vols to climb much. Not much theta has ticked out of this trade yet, so I'm up only ~3%. Max yield is 12% and looking to get about 10% out.

Watches:
As previously mentioned, I'll probably add another RUT butterfly this coming week. I'll most likely add a SPX Sep/Oct calendar. Possibly a OEX butterfly.

XLE Double Diagonal added

Can you believe it? An honest to goodness down day. I hope I'm not jinxing myself by saying that (Bob D and I have a standing joke about whenever we comment on direction, it reverses...unfortunately reverse psychology doesn't work in this case). This really helped all my positions since they were all delta negative and gave me a rare positive P/L DAY number.

I guess I was in the mood for more action (is there a Traders Anonymous?), so I couldn't help myself and I added another new trade today. This time it's on XLE. Unlike most indexes, XLE isn't trading at recent highs, which made it more attractive to me. The trade of choice was another double diagonal to add to yesterday's MNX DD. I also looked at OIH, but decided to go with XLE. So I started to look at some strike choices, found a setup I liked, and was about to place the trade when I noticed that the back month that I modeled was the Sept Quarterlies. Oh, that's not what I wanted to do. But the Oct isn't available yet. And, quite honestly, the Sept/SeptQTRY trade looked decent. Open interest in the Quarterly looked decent. Not much volume. Bid/Ask spread for the entire double diagonal didn't look to bad, so I went for it. I tried getting filled at mid for about 2 hours. Caving in 0.02 I was able to get filled. I was happy with that fill for a 4-legged trade, especially since I was the only volume on my Quarterly strikes today. Trade is pictured below. Adjust when slightly past the short strikes. Consider taking profits if up about 20% and a stop loss around 25%.

Chart of where my adjustment points are.

Whoa. I almost forgot that I entered another new trade today. I put half of my RUT iron condor on today. I'm short the 480 and 630 strikes, and I bought some extra longs (460 and 640) as "insurance" against fast, big moves. I sold about 10 delta on both sides and collected $1.48.

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.

Starting Aug early: RUT IC & MNX DD

First some old business. I closed out of my RUT 420-430 credit spreads today. I was able to buy them back for 0.10. I still have some call spreads on that I recently (less than a week ago) resold. Those would be the 550-560's that I sold for $0.50 and are now priced at $0.80. Ouch.

My RUT double butterfly is still hanging in there. Since I sold half of my spreads earlier, it's taking its sweet time to make more money (since I cut theta in half). Also, as we've been moving up, I've been adding back month (August) long calls to cut the negative delta. This has increased my trade's vega, which isn't helping since volatility keeps dropping. Yesterday this position was up about 14%, but with the move up today, I did an adjustment and am down a little since yesterday. I'm holding out for 3-day weekend time decay and would like to close at the end of tomorrow or very early next week. The market has been fairly calm and I can't expect it to stay that way for much longer. So today I stripped off a 490 short call and moved it up to510 to collect more ATM premium as well as cutting my negative deltas. Because I moved it closer to the money, my theta increased as well.

Now on to August trades. This has got to be the earliest I've opened up a trade in years. My normal timeframe is 28-40-ish days before expiration. Today is 50 days before expiration and I put two trades on.

First trade is a plain-Jane RUT high-prob iron condor. I put about half of my (recent) normal size trade on, in an attempt to time-diversify my trade. I've been doing this for the last few months, but my first "tranche" would normally be put on next week, in the 42-day range. But I thought I would move it a bit further out, and hopefully capture a little of the holiday weekend time decay. I'm short the 430's and 580's. This morning I got a great fill at 1.48 credit (at the market's current mid-price), but even as RVX dropped, somehow the mid-price climbed and climbed through the day, and my great fill didn't look great any more. As of close, the mid-price was a whopping $1.67. I think some of that may be widening of B/A spreads, as the natural price is $0.95, so the mid to natural is a gigantic 0.72, or double that for the condor's B/A spread. We'll see what the price is mid-day tomorrow to get a better feel on if I've been had or not. Funny thing is that I tried getting this trade on all day yesterday for this same price and couldn't do it. So I was happy when I got filled this morning. Anyway, I added some downside insurance (extra 410 put) and I've been concerned with the upside, if we ever punch through the equivalent of 950 on SPX, so I added some cheap extra calls too.

And now for something totally new (to me), I put on a MNX double diagonal. My plan is to do this mid-week next week (around 43-days), but was again hoping to benefit from the holiday weekend decay, so I put some spreads on today. MNX shot up to nearly 150 today, and I didn't really want to start this position up near it's area of resistance. I wanted to see it punch through, or fall back a small amount so I had more room to the downside. And a slight pullback is exactly what happened, so I put the trade on. I went +/- 10 points from ATM for the shorts, and 10 points further out for the longs. Because the trade wasn't perfectly centered, I cut the deltas in half with a back month extra long call. This didn't hurt the theta much and actually got me closer to vega neutral, as I was short a bit of vega. Adjustment plan is simple...if I get 0.50 past a short strike, roll the shorts to the next (2.5 point spacing) strike. Repeat if necessary. Since this roll is just buying a debit vertical spread, I already have contingent orders set up to automatically do that for me. While MNX isn't very liquid, it does have penny-priced options and surprisingly tight markets for the low liquidity. In fact, I got filled 0.04 worse than mid, where the mid to natural price spread is only $0.13. And this is on a 4-legged spread. Even more surprising is that I was the sole day's volume on 3 of the 4 strikes. I call that a good fill.

Quick adjustments on RUT

So today was day 1 of the Dan Sheridan Options Mentoring Reunion and it was great. I was the first speaker, followed by mentor Dan H, Seth, Mark and Mark. Then talks by Tom Sosnoff of TOS and a Broker-Dealer guy and a market maker. And let's not forget seeing good friends/fellow students and meeting new ones, as well as a great meal in Greek Town in Chicago. Definitely a great day. Well, it turns out I'm sitting in my hotel room, the one I didn't expect to be in because I was planning on doing the 2.5 hour commute back up to Wisconsin. Dan Sheridan insisted that I stay in a hotel overnight, and since I only had two hours sleep last night, I thought it would be a good idea. Due to the long commutes both ways, I would have only gotten about 4 hours sleep tonight before having to turn around and head back down to Chicago. Definitely looking forward to tomorrow, especially on a few more hours sleep.

So today during the seminar, I made a couple of small adjustments. First of all, I entered an order to sell some calls on my high prob RUT iron condor. As previously mentioned, I have all my call spreads off, so in order to decrease my positive delta as well as increase my theta, I thought I'd sell some call credit spreads. The Jul 550-560's to be exact. After seeing the futures down, I wasn't too optimistic about getting a fill at the price I entered for my limit. Well, I got filled sometime during my presentation. I looked at the current mid and I got a pretty good fill. Of course, that was before RUT made it's big move up.

And due to the move up, and leaning fairly short deltas on my butterflies, I added a Aug 570 call to cut my butterfly deltas in half.

What can I say about my SPX now-double calendar? We moved up so much today (after converting it to a double calendar yesterday due to fear of the downside) that I'm now right at my original 920 strike. Unfortunately, my P&L is something like -13%. Yuk.

That's it for now. No pretty graphs tonight. Time to get some sleep.

Catching the blog up

Didn't seem like that busy of a week, but I guess I have some trades to catch up on. TOS says I had 37 orders filled (and 182 canceled!) for the last 4 days.

Let's start with this week's closed June trades. Finally closed my calls on the High Prob RUT IC, but due to a bunch of excuses, I only pulled about a 2% gain on this trade. Not a highlight of my RUT HP trades. The really sad thing is that if I would have truly traded it like my "no-touch" non-adjusting condor, it would have returned my standard 10%. But I over-traded it. The big run up on 5/26, 6/1 and 6/2 had me running for the hills, or at least to cover some of my call spreads at a loss. Doing so locks in this loss and I didn't resell any spreads to make up for it. I also tried a Friday through Monday (actually Tuesday) hedge because I was afraid of a quick move up on Monday morning like we've seen in the past. Just goes to show me....I can't read charts, and the 80+% odds of this trade works better than I do. I should REALLY leave it alone. I'd make much more money that way.

That's the bad news. Now the good news. I also had a Low Prob RUT IC on and I hung onto that all the way until Tuesday, only 2 days before expiration. I covered this one quite extensively in the blog. I ended up with 14.4% return. Not stellar, but not chump change.

Now let's cover July closed trades. I'm sorry to report that all of my bullish put credit spreads opened on just this last Friday hit their max loss, roughly -14% on each. That's APC, EWZ, OIH and OXY. Closed in only 5 days. Yuck. Also had to close my GENZ bull put spread at max loss. This one lasted all of 12 days.

That's the bad news. Now the good news. The SPX 930 calendar I opened last Friday closed today for 10.3% gain in 6 days. Kinda funny thing is that I was planning on adding to the position today, and that trade closed on a open limit order. Even funnier is that today's ATM strike is almost the same as the trade I close. Closed the 930's, opened the 920's today. So let's take that as a segway into the rest of the July trades and new July trades.

So here's the SPX 920 call calendar. Interesting to note is my fills. I originally tried getting filled on the 920 puts, but as soon as I'd put in an order, the mid would jump up $0.20. I tried it on the 915 put calendar too, and the same result. I let the trade sit for a while and the mid came back down to my price but no fills. I then checked out the 920 calls and found them about $2 less. The negative skew was a bit less than the puts. (Golden nugget there....check the skews for both the puts and calls and pick the one that has less negative skew.) So I put in a order for mid on the calls and got filled instantly. I decided to put in another order for $0.10 under mid and got filled instantly. I then put in yet another order for $0.30 under mid and didn't get filled. I let it sit for maybe 1 minute then moved it to $0.25 under mid and got filled instantly. Wow. Great fills on SPX!

Next up is the RUT Fly I started 6 days ago. I'm currently up 10%. Today I doubled the position by adding a 460-500-540 butterfly along with a Aug 600 call to help the short deltas. Below is pictured last week's position by itself, and how it looks with the combination fly.


I have two tranches of the RUT HP IC. One started on 5/29 which hit 10% loss in one day and the 2nd tranch started on 6/10. Nothing is happening on the 2nd tranch other than time decay, and I'm now just shy of 4% gain in 8 days. Pretty good for this trade. The 1st tranch I've managed to get back to about a -3% loss. As previously mentioned, I took half my calls off, locking in that loss. Yesterday I took the puts off for $0.20 (a little early) and today I decided to resell them for $0.60 (short 430 strike), as well as put the other call spreads back on for $0.53 credit (short 570 strike). This was to collect more credit to offset that previously locked in loss. The overall trade is now sitting at only -8 delta and +160 theta. Nice. I'm going to try very hard to not touch this trade again. Either I'm going out with max gain (~10%) or max loss (~ -20%) per my plan.

I've decided to not put on a RUT LP today. It's not that I didn't try. I just couldn't get filled close enough to mid (I caved in $0.05 - 0.07) and I tried nearly all day long. Maybe I'll try again in the morning, but I'm thinking the two RUT butterflies will replace the LP this month.

And saving the worst for last, CAT has made quite a run down, an 11% drop in the 4 trading days since I put on the butterfly. I decided to cut the 400 long delta by moving the entire put side down. I moved all the shorts to the current ATM strike and moved down the longs. I couldn't keep the 5 point spacing because of the lack of 1 point strikes below the 30 strike. So I went from a 32-37 put spread to a 30-34. This helps cut the delta even further. After this adjustment, I'm at +176 delta and +48 theta. Not a great ratio, but better than the 417 delta and only +21 theta before the adjustment. Before and after adjustment risk graphs shown below.


I wonder what tomorrow will bring?

Closing June trades

Time to do a little catching up with the blog. I've been doing little adjustments here and there, and closing out June trades when possible.

First up is my COST butterfly. COST has been a true roller coaster. At first I was -25% down (at my max loss) on May 23rd, then earnings came out on 5/28 dropping the vols and putting me only down 10%. It then was fairly calm until June 4th when COST made a big move down at the open and put me down 17%. I tried not to over-react and overtrade, and later in that same day I was essentially flat. I finally closed the trade 7 days later on 6/11 with a 12.2% gain. From -25% to up 12%. Nice recovery.

TEVA didn't work out as well. Three days after I put on this trade, TEVA went from totally channelling to climbing 11% in 3 weeks. I tried rolling some of the shorts from 45 up to 47.5. It helped slow the bleeding, but not enough to save the patient. I closed this trade out on Wednesday 6/10 for a -14% loss.

I had a bull put vertical (put credit spread) on MA. It's been a little rocky, but finally closed out on Wednesday for a 12.1% gain. This trade took a while, 30 days. I had 8 other such verticals on and they closed in 6-22 days, with an average of 12 days, so 30 seemed like eternity.

Out of my 9 verticals for the month, 7 were profitable, 1 took a loss, and 1 was a scratch. The winners averaged 9.8% return and the loser was -14%. I think the reason for the winning percentage is that all but one were bull put verticals and the market was running up hard. I'm not so sure how this would work if the market was a little more sideways.

My RUT high prob iron condor didn't survive the big runup too well. I still have some call credit spreads on (short the 570's). Last Friday I was concerned about what might happen over the weekend, so I hedged with a July call. It was very expensive and would completely save me if we ran up, but if we run down, it kills any profit. And that's essentially what happened. At one point I was up 7% and I'm now only sitting at 1%. I'm still trying to buy back the calls for $0.10 but not filled yet. I'll have to go back and backtest this trade to see what would have happened if I treated this as a "no-touch" HP like I would normally do, as opposed to all the adjustments that I did during the month.

I still have two trades on that I'm carrying to expiration. My SPX calendar and a RUT low prob IC. The SPX calendar, day for day, has never showed a profit. It's kind of an insurance policy and my only positive vega trade for the month. It started out as a single calendar at the 915 strike, one day later turned into a double calendar by adding the 850 strike, 12 days later taking off the 850 strike which then left me with the original 915 strike single calendar and a realized loss on the 850 calendar. My upper break even is at 940 and we've been riding that line for two weeks, with an excursion to 956 on Thursday 6/11. Yesterday I decided that I didn't want to take this trade off yet in case of a pullback. It seems that 950 is an area of resistance, and if we pull back some, this trade could turn profitable. In order to cut my deltas slightly, I added another calendar at the 950 strike. The June 950 still had over $8 in time premium, so it seemed like a good idea. In looking at it, it doesn't really cut my deltas much, but definitely moves the profit window over the range that we've been trading for the last two weeks. And with the strong resistance at 950, I guess I didn't want to be completely delta neutral, but rather lean a little short.


When I last wrote about my RUT low prob IC, just over one week ago, I had a tiny loss. That's turned around with the beauty of time decay, I'm up 15%, and because deltas are essentially zero, we'll let this ride out a tiny bit, and close out sometime next week.

Potpourri of RUT spreads

First off is my staple trade, the ~36 day RUT "high prob" iron condor. This one is sitting well. Next thing to do is to pull of the calls if I can buy the back for $0.10 after this weekend's time decay. Currently sitting around 5% gain. Goal on this trade is just short of 10%. This trade was started on 5/12 with the trades shown.
Next up is the Russell "Low Prob" iron condor. This was started only a few days ago, on 5/20, and is already approaching the first adjustment point: when it hits 472.50, I'll buy one July put to cut the deltas in half.

Love the RUT...next is the RUT double butterfly. First is one centered at 490 opened on 5/12 which I'm up 20% on, then another centered at 500 which is roughly break even, which means for the entire trade I'm up just over 10%. Not bad, but hoping for a little more. If the market heads down early this week, I'll cut some deltas by buying one 460-500 call vertical.