Simply said: Yellen was dovish
I watched the testimony and essentially they don’t anticipate raising the rates in the next few FOMC meetings but reserve the right too if the data supports it. As of now, the data does not support it and they do not want to hinder the recovery process. It’s unlikely that rates will be raised in H1 2015. This sent bonds/treasuries flying. TLT hit 129.5.
The SPY/TLT trade is only down about 2% now. I closed off about another 8-10% yesterday. Just being cautious. I was going to close it Friday or Monday any how. We should get out at break-even or slightly higher. If we have any luck maybe we come out with 10%. Would only take another 2 point rise in TLT.
My Feb RUT MIC is up 5.5%. I just put on a small one this time around (15 units). I’ve made one adjustment (took off some call spreads yesterday during the testimony) It was a conservative move but I felt that the market could move around pretty quickly as it sometimes does during these types of events. My short call had 1.5x in value and it was in my 1.5 week window. I followed the plan. Of course, I closed it right at the RUT peak but a plan is a plan and the trade is still up 5.5%. Any quick up move and I’ll be chilling without worry while if I hadn’t I’d be stressing overnight.
I saw some results from another person (Amy Meissner) doing the MIC trade style. I posted her results below:
She sets it up just a bit differently. She has a much lower ratio of call spreads sold. This would have helped a lot during the period she traded. The thing is, downside is easier to adjust, so starting off with less calls is kind of interesting. She uses 10 puts to 2 calls. I use 15 puts to 5 calls. So it’s a 1:5 ratio vs a 1:3 ratio. I am kind of interested in that or at least exploring using specific kinds of setup depending on the current environment situation. If we’ve just come off a big correction/drop, I’d probably opt for a 1:5 ratio but if we just came off of a large run-up and things were getting over bought on a variety of metrics, I’d probably opt for the 1:3 ratio. Right now, according to sentiment trader, we’re kind of over-bought on a lot of metrics. So I’d be looking at a 1:3 ratio setup, as an example. Each type, whether it is 1:5 or 1:3 has its own style. As long as the plan is set in place before hand, and you manage it correctly. There’s no real discretionary issues.
Her results are quite good and based on REG T margin. All of my backtesting shows around the same overall result 3.5%. Use Portfolio margin, lever it up a bit, and you’re getting 9-10% returns. The idea with that is, use less capital to get similar returns.