April 2016 – Travels and Trades

Apr 29 – Rhino M3 Trade Update

Trade updates below. The P/L might differ a bit through the day. I’ll check again in the next half hour or OV updates. Definite recovery with the down move. I am looking into Jul expiration right now since the vol is a bit higher and I’d like to get some trades on in that expiration. I am looking for 2.9-2.95 as a price.

June Rhino M3 (P)
# of Units: 30
Planned Capital: 750,000
Current P/L : -4,767
Max Draw Down: P/L: -18,000
Current P/L(%): -0.6%

June Rhino M3 (D)
# of Units: 16
Planned Capital: 400,000
Current P/L: -1,197
Yesterdays P/L: -11,000
Current P/L(%): -0.3%

June Rhino M3 (M)
# of Units: 25
Planned Capital: 625,000
Current P/L: -2,566
Yesterday’s P/L: -16,800
Current P/L(%): -0.4%

Apr 29 – Trade Plan

We’ve finally got our downside movements. For some strange reason I had some great timing on removing some of my upside hedges that I put on before the AAPL and FED meetings. I got rid of them @ RUT 1152-1154 area and a few more around 1145. The trades are now sitting in a position where they should be able to gain some profits on the way down and if we continue up, then we’ve gained some theta and I’ll look to make the appropriate upside hedges.

We’re at an important juncture right now: This is what I am looking at.

Yesterday was a bizarre day, the BOJ caused a sell-off at night and the market opened and filled its gap and went green for the day despite the bad news. Then we had Icahn dump 2Bln worth of AAPL stock which apparently was the catalyst to move the markets down. The day ended at RUT 1140 as compared to its touching 1154/1155 area (where I dumped my upside hedges :P). Today it’s hovering around 1134 and any move to 1120 will be welcomed and profit turning for the June trades. I’ve still got May trades on but they’ll only be slightly profitable unless we go below 1100. I might start looking to close soon and open up some Julys with the increased volatility (if I can get a good price, I am not paying as much as I did in June, I was fighting an uphill battle there).

I’ll update the blog with the trade images at EOD.

Apr 26 -Mid Day Update

It appears we are actually going to retest the 1150 area pre FOMC. My gut was right. After yesterdays action, I just didn’t see much more downside ahead of the FOMC and I was pretty aggressive in my adjustments and hedges to the upside. The data today was abysmal and it appears that’s all that’s needed to convince the market that Yellen can’t signal a rate rise in June. Terrible data = stocks go up. We’re back in that phase I guess.

Yesterday I bought 5 DITM calls as a hedge after I had sold them on Friday, I am looking to sell at around RUT 1149 area. I doubt we convincingly break 1150 and hold before the AAPL earnings release and FOMC meetings. Perhaps the 1110 test comes after this retest or perhaps we break out. It would be something astounding if RUT continues north of 1160 from its Feb 11 low of 940.

Apr 25 – Rhino M3 Trade update

Today provided some refuge and an opportunity to get my trades adjusted. The RUT closed at 1146 on Friday and even touched 1148 with after hours action (using IWM as a proxy). In a previous post, I thought RUT would stall out and short term top at about 1140/1150 area and so far that’s what’s playing out. There’s a ton of resistance and supply at the 1150 area so my gut was saying that we’ll hit 1110 after a test and fail at 1150 but with the FED meetings and AAPL earnings tomorrow, anything really could happen. After the action today, I am not convinced we’ll be going much lower than 1125 before a retest of the 1150 resistance area. If we fail on a retest of 1150 then maybe we’ll go down towards 1110 at minimum but I think we probably do retest 1150 before any significant move down. The market has moved so much in 2 months but it’s been consolidating and sort of reset itself re overbought conditions. In short, I have no idea where this will go and any direction is not a surprise.

Everyone’s expecting AAPL to report dismally and that could cause a sell-off but any surprise could catapult it further. and then there is the FED, well, before they can rate hike, they have to telegraph the intentions, they usually always do. There’s been no telegraphing so perhaps this is where they’ll telegraph utilizing the recent market strength as a buffer? Perhaps it’s more jaw-boning. How can we predict anything in the next few days? We can’t. I can’t say that there is an edge one way or the other. All I can do is manage risk appropriately.

On Friday, I had removed some upside hedges right at EOD on Friday (great timing) and then re-added them around 1137/1138 today. Bonus. Anyways, as for market action, the RUT fell to 1135 where I did some adjustments to the trades and got them a bit more desensitized to an up move. Not perfectly of course, as there are always trade offs, and any up move won’t really generate any profit but they’ll allow it to occur with out as much pain as before. The idea being that a pull-back will occur after a brief move-up sometime in the next 20-30 days. What we really need is a nice juicy fall into the 1100-1110 area.

I want to add in some 1150/1110/1060 BWBs into each of the trades below to raise that T+0 line in the middle (the dip) and add theta to the trade. I’ll do this if we move up in towards the fed. It’ll add negative deltas so I’ll offset it with some call calendars or BWBs. Get that thing beefed up so that in 2 weeks anything between 1020 and 1170 will be profitable.

Here’s the June trades

June Rhino M3 (P)
# of Units: 30
Planned Capital: 750,000
Current P/L : -11,706
Yesterdays P/L: -16,425
Current P/L(%): -1.56%

June Rhino M3 (D)
# of Units: 16
Planned Capital: 400,000
Current P/L: -6,762
Yesterdays P/L: -9,643
Current P/L(%): -1.69%

June Rhino M3 (M)
# of Units: 25
Planned Capital: 625,000
Current P/L: -12,139
Yesterday’s P/L: -16,206
Current P/L(%): -1.9%

Apr 21 – Rhino M3 Trade Update

A down day? Impossible. I used the down to adjust the trades a bit. The current loss was reduced quite a bit for just a 0.6% down day. Another 1% down would get these things all profitable.

June Rhino M3 (P)
# of Units: 30
Planned Capital: 750,000
Current P/L : -7,546
Yesterdays P/L: -16,425
Current P/L(%): -1.0%

Adjustment: Bought 8 x 1120/1170/1200 @ $18.06

June Rhino M3 (D)
# of Units: 16
Planned Capital: 400,000
Current P/L: -4,532
Yesterdays P/L: -9,643
Current P/L(%): -1.3%

Adjustment: Bought 3 x 1120/1170/1200 @ $18.05

June Rhino M3 (M)
# of Units: 25
Planned Capital: 625,000
Current P/L: -7,454
Yesterday’s P/L: -16,206
Current P/L(%): -1.3%

Adjustment: Bought 8 x 1120/1170/1200 @ $18.06

Apr 20 – Rhino M3 Trade Update

June Trades

~~I didn’t adjust today~~ Update: At 15:40pm the market pulled back so I used the opportunity to enter some orders for Call BWBs and Call calendars slightly higher than the price I paid for the same yesterday. The RUT oscillated between 1137 and 1148 and is sitting right at 1143 right now after a stronger EOD pullback. Yesterday, I added some upside adjustments and we’re comfortable until about 1152 area where I’ll add more to keep theta higher and to prop up that portion of the tent. My plan is to add modest adjustments on any pullback to keep the negative deltas around -20 or so per unit. This will allow for any pullback but also keep theta in the trade and beef up the right side of the tent.

May Trades
All the May trades I had on are now slightly negative P/L. Any pullback would quickly get those profitable. I’d probably start exiting slowly on each pullback while keeping the upside adjustments alive so that the deltas stay around -15-20 per unit. I wish I was a bit more aggressive on the upside adjustments for all May trades, I’d have added more calendars on the call side around RUT 1130. I’ll take any PB as an opportunity to get May more balanced, though like I’ve said, the upside risk is mostly minimal for these trades.

Market
The market looked primed for a small roll-over earlier today but some bogus Oil headlines came out which shot the markets up aggressively. However, we’ve come too far too quickly and the risk is to the downside at these levels. The market will do what it wants, and any technician is merely playing the best odds. The odds favour risk to the downside. Things do look bullish over all, and I’d expect any pull-back to just be a short term thing. If it goes much past 1155, then the market is doing something quite abnormal and extraordinary and I’ll have to consider getting more aggressive with adjustments. Any modest 2%-3% pull back in the next 30 days will get us profitable. I won’t have any gamma issues for my May trades, so it’s likely I’ll stay in longer than 21 DTE in search of a pull back. If we can get the May/June trades profitable that would be a fantastic result.

June Rhino M3 (P)
# of Units: 30
Planned Capital: 750,000
Current P/L: -16,425
Current P/L(%): -2.2

June Rhino M3 (D)
# of Units: 16
Planned Capital: 400,000
Current P/L: -9,643
Current P/L(%): -2.4%

June Rhino M3 (M)
# of Units: 25
Planned Capital: 625,000
Current P/L: -16,206
Current P/L(%): -2.59%

Apr 19 – EOD June RHINO M3 Trade

Today started off with a move to about 1146 which was where I thought we’d have some sort of retracement or a pause. It quickly fell to about 1136 where I put on some upside adjustments to get the deltas in line. I’ll do more adjusting if we get into the 1120s and pause. I do think we’ll have a larger retracement eventually, SPX is just below the very important psychological 2100 resistance and that tells us that buyers are running out as it has not pushed above and held (lots of buying last 2 months, so those people have lost their vote, they’ve already bought). I can’t see upside risk being less than downside risk. So I continue to keep the trades right at the edge of the adjustment points. Any 20-30 point drop will give the trades a profitable P/L. As we get dips, I’ll keep getting those deltas more and more balanced as I did today. Frustrating time for these trades but they’re working as expected. I have one hindsight regret, I think I started them with too much negative delta bias which I thought, at the time, was a smarter play given the run up to 1100 in such a short time. If I could go back, I’d probably have added 2 call calendars per tranche to keep it more neutral.

June Rhino M3 (P)
# of Units: 30
Planned Capital: 750,000
Current P/L: -15,335
Current P/L(%): -2%
Loss @ 1145: -17,200

–>Todays Trade: Added 10 1120/1170/1200 call BWBs @ 18.2 and 15 1170 call calendars @ 6.23

June Rhino M3 (D)
# of Units: 16
Planned Capital: 400,000
Current P/L: -9,233
Current P/L(%): -2.4%
Loss @ 1145: -11,500

–>Todays Trade: Added 4 1120/1170/1200 call BWBs @ 18.22 and 12 1170 call calendars @ 6.15

June Rhino M3 (M)
# of Units: 25
Planned Capital: 625,000
Current P/L: -14,516
Current P/L(%): -2.24%

–>Todays Trade: Added 7 1120/1170/1200 call BWBs @ 18.2 and 15 1170 call calendars @ 6.22

Apr 18 – EOD Rhino Trade update

June Rhino M3 (P)
# of Units: 30
Planned Capital: 750,000
Current P/L: -15,000
Current P/L(%): -2%
Loss @ 1145: -17,200

June Rhino M3 (D)
# of Units: 16
Planned Capital: 400,000
Current P/L: -9,600
Current P/L(%): -2.4%
Loss @ 1145: -11,500

June Rhino M3 (M)
# of Units: 25
Planned Capital: 625,000
Current P/L: -14,000
Current P/L(%): -2.24%
Loss @ 1145: -18,000

I got partial fills for the 1160 BWBs when price dipped to about 1128 for (P) and (D) trades but none filled on the (M) trade. I upped the price a bit and waited for the day but got no fills (not surprising since RUT pretty much moved up and up the entire day). We’re testing a huge downtrend resistance line (RIGHT NOW) and are extremely overextended. My guess is we’ll turn around around 1140 to 1145 ish area (overshoot and fail). I am hesitant to adjust more right here right now without even a 4 point pullback because of how much the RUT has travelled. The technicals are all quite bullish but we’re historically over-extended and haven’t had any reasonable pull back. I’ve said this a thousand times, but this move is truly historic. I do have have positive gamma and my negative deltas are decreasing as we go up. I am going to give it till 1145/1147 area before throwing in the towel and adjusting heavily. If we fall, and as we fall, i’ll be adding adjustments for the negative deltas to get the trade balanced. I think the risk/reward favours a hold-off for more favourable conditions for upside adjustments.

The may trades are all approaching break-even and don’t have too much upside risk. Though as it moves up it does remove my profits to date. Still, as May expiry approaches, any 3-4% pullback will put the trade in such a great situation. I mean, if you wanted to map out a perfect trade, it’d be putting the trade on and having the market rise and hold for 20-30 days only to fall back within the tent right near the time to take it off. So I mean, we really are not sitting too poorly from a R/R standpoint. If it bumps around 1130-1140 for a while and then falls towards 1100 in a few weeks. I mean we couldn’t ask for a better result. Anyways, I had removed the 1120 call calendars on Friday which removed some of the upside risk. I added some 1160 call calendars in their place but I want to add more on a pull back.

So IF we had a 3-5% down move any time in the next 50 days, the May and June trades would profit very nicely. I’ll continue to put on Rhinos for July and onwards as we go and when we do get that pullback, we’ll be sitting well.

We’re four months into the year and have no profits but given the market conditions and just how bad they are for this type of trade, well, I guess I can’t complain, these sorts of conditions are incredibly rare. I feel a lot of pressure to have the trades perform but I think it’s most important to focus on trade management and risk than it is to try to force anything. The trades can handle an 8% move within the time period but they just can’t really handle 22% moves well in general (especially when we’re whipsawed around). I don’t think anyone managing these trades appropriately could have done well in those periods. Even our March expiry trade would have done extremely well if RUT just moved 8% up instead of a straight shot to 1070 from 940. So essentially, our March expiry did slightly negative, our April expiry did slightly negative to break even and now our May expiry is approaching break even while our June expiry is ~2.2% negative. Not a great year.

Here’s the RUT chart that I am looking at:

My thesis is that we’ve run up too quickly to adequately break the downtrend line and maintain a sustained break of the 200SMA. If we get up to RUT 1145 and hold for a day or touch 1151, I’ll have to rejig all the trades. That’s my plan. IF we get any sort of pull back, I’ll be adjusting on way down to get things balanced for any potential bounce.

Apr 18 – Trade Update

The market is now very green. I’ve heard that this is the strongest up-move since the great depression bounce, especially in the RUT. To start the year, we had a 22%+ decline (from 1200 to about 940) within a very short period followed by a 22% up move, again in a very short period (strongest in history) and preceding those two events we had the Aug 24 crash and THAT subsequent huge move up. I posted the SPX graph earlier, note that the RUT chart is much more pronounced and extreme. As you can imagine, this is the most frustrating 6 months imaginable for trading market neutral strategies. It can, hopefully, only get better. I’ve heard in groups and chats that many people have given up (frustrated) and I’ve felt like that at times recently too. I understand the environment is extreme and it’ll pass so I am trying to just manage risk and get out of this thing profitable – Easier said than done. If you backtest the Rhino back 7 years and you backtest it through the latest period, you’ll see that it truly has been a terrible period to trade these things. The RUT is now at 1134 (nearly 200 points from its Feb low) and nearly 22% up in 2 months our June trade are underwater and our May trades went from decent profits to about break-even or slightly above. If we get ANY pullback of 2-3% in the next 20 days and don’t rise too much above 1134, we’ll be profitable for the year. If we continue onwards and upwards, we’ll be negative by some amount. Again, its short-term pain but as volatility re-enters the market and if we are at any sort of top, that’s when we’ll start making a lot of money in the trades. It’s not unusual to get 8-10% returns in the Rhino if we’re under the tent. A few of those and we’ll be at expected value for the year.

June Rhino M3 Trade Update

Been a while. I’ve been traveling and when I get back its insane catch-up mode and I always tend to leave this blog behind,regretfully. I just got back from a 3 week trip which included a week in Barcelona, 2 weeks cruise in the Canaries and Madiera as well as a quick stop over in London and Toronto.

The trades for June are underwater as the relentless 22% rise in RUT is exactly an environment which does not allow a Rhino to profit much. Been a frustrating year but no mistakes were made and the trades are behaving exactly as they should, they just aren’t profiting. That’s expected. If you look at the SPX chart (RUT is even more pronounced!). It’s an environment which in backtesting or in live, will not make money and should be slightly negative. That’s where we are. In June (as you can see below) any 2-3% pullback will bring us well positive. Just a patient waiting game. The year will end well, I am confident in that as I don’t think we’ll have another 20% run up, and anything else is great 🙂

I was hoping the unsuccessful DOHA and the Saudi threat of selling treasuries would bring the market down more than 1% this AM but it doesn’t look like that will happen. Today, I am looking to add some call BWBs to my June trades to reduce negative deltas and add theta and a tent to the right side of the trade.

This chart says it all, this is just not an environment (since Aug) that would be a good one for market neutral trades. It’s, in fact, probably one of the worst. Patience is key. I am trying to exercise it.