jeep trade – Page 2 – Travels and Trades

Aug 23- Trade Update

That was a week for the history books. Oil had its largest weekly fall since ’86. Vix went up 47% in a week which is the highest in all history. The speed of the decline was also extremely unusual. I’ve read that perhaps the market cycles will be more square like rather than Sine like due to the efficiencies in this age (information hits markets instantly). Anyways, this decline reminds me of the up movement in October. These things are happening over night and giving no-one time to adjust. It makes for managing time decay based strategies quite difficult.

The protector portfolio is actually still up just shy of 1% while the SPY is down 4%. The equities were actually still up 2.5% but the hedge is down about 1.5%. So its outperforming SPY by about 5%. Nice. However, this last very swift correction has told me that I have have too much downside exposure. The MIC does not like increased volatility and sharp down moves nor does the protector. These were my leading strategies up until about a few months ago when I added the M3 and Bearish butterflies. Both of these have held up and are still mostly profitable though bruised from their specific highs. I’m leaning too much re risk to the downside and I need to adjust the ratios of the strategies. I’ll probably reduce the Protector to about 15%, the MIC to about 15% and the M3 to 50% and do the Rock trade and opportunistic Bearish Butterflies with the rest.

Like I said above, though, I know exactly how the protector would perform in a sharp down move, I’ve decided I am not comfortable with the downside exposure when coupled with everything else and how it affects my downside risks. Having two strategies go sharply down at the same time is not a great feeling and adds unnecessary stress. So I’ve decided to start working on lessening the ratio of these strategies within my own portfolio. I won’t be doing this reduction willy nilly but timed appropriately. The strategy does well, I mean it’s still up it’s just doesn’t fit well within all the other trades.

The RUT trades are down about 4-5% during that last fall. I imagine at least half of that is stuck in the prices of the options re volatility. Remember, the RVX/VIX are at extreme levels. That means that the options are priced with a lot of premium. The same options we sold. So the trades appear quite down. As time gets closer to expiry this volatility has to flow out and we’ll continue to maintain appropriate risk. Ideally, we don’t correct much more than a few more % before a strong bounce.

The SPX MIC trades are down 9%! This is expected as the SPX was the most dramatic collapse of the two. It fell 3% on Friday while the RUT only fell 1.1%. Any bounce should recover the trade to at least 4% down and we’ll do a larger adjustment then while maintaining appropriate deltas if we should have more down Monday. As we close in on expiry, I’ll be doing my best to get these things back to break-even. I’ve done it 2 times before during a correction. It just takes appropriate risk management and a level unemotional head 🙂

Overall, as of right now, with the options volatility at extremes and thus the option pricing also at extremes, when we look at all Aug (already posted results) and Sep trades, we are down about 2-2.5% overall. Not bad considering the events and also not bad since it is quite likely we will recoup a lot in the Sept trades. The trades weren’t designed really to withstand a furious drop with 80% of the downside happening after hours. Unfortunately, you can’t design a trade to weather all storms.

As I am following market news right now, I see that the bank of China has indicated that they are lessening reserve requirements, S. Korea and N.Korea have de-escalated the skirmish and Iran has requested an emergency OPEC meeting to combat the falling oil prices. This might be the bullish catalyst to spur a furious bounce. We shall see. A bounce would certainly be nice for the protector and also to adjust the MICs.
Update: In an effort to curb the fall in the markets, China is going to allow pension funds to invest 30 % of its assets(546 Bln) in the financial markets and that includes all sorts of financial instruments. Let’s see if the Shanghai composite holds that 3500 level and we see a bounce.

Aug 1 – Trade Plan

I’ve officially added the M3 trade into my larger portfolio. I find it a much more conservative trade than the MIC in terms of risks, but strangely it should produce slightly better results, which is quite interesting. It’s also a lot less stringent on timing of adjustments and more forgiving in general. From a direct comparison to just the mechanics of the trade vs the MIC, it is a better trade overall. The edge for the MIC is my experience managing it. Either way, it’s a nice strong compliment to the MIC. The M3 is a trade John Locke developed when he was at the Sheridan mentor program. He’s since branched out on his own. It’s 10 bearish butterflies coupled with 1 long call thats DITM as to have no time value. It’s a market neutral time decay based trade. It’s got very little upside risk, and the downside adjustments usually occur when the trade is already up money and when the butterfly is close to its max value for that specific time in the trade. That’s neat.

Theoretical backtesting of the MIC in a strictly mechanical way produced an average of 3.3% a month since 2008, where the M3 produces an average of about 5% per month. However, with active management of the MIC and use of several indicators, I gather I am closer to 4%-4.5% over time.

For a neat look as to how well the M3 handles any market environment, in 2011 if you had put the trade on at the top of the market and had it on through the huge 63 point down day (what was that 8% down day?) and all the way to the bottom (~200 points??) and its subsequent rebound, the trade still came out at a win of the target 10%. That’s a resilient trade. This was managing the trade by checking only once per day at 3pm. That’s it. No intra-day adjustments besides that. Even during that 63 point down day, it was still up money.

Come September, I’ll start posting my trades and adjustments.

Jul 22 – Trade Plan

We had another RUT down day yesterday so I entered some more Aug MIC since the prices were good enough. It’s pretty damn close, and I don’t usually enter the trade this close (32 DTE) but the prices were decent and I am going to keep my profit targets on that part of the trade a bit lower. The futures are down again and I might enter a final part today bringing our allocation to 50% for the month.

I closed about 75% of the SPX MIC put credit spreads when it touched 213. It appears it was great timing as the market just fell a bunch since then. Yesterday I sold more to get the delta’s in line and to replace the ones I bought back. Trade is looking great.

The RUT MIC is doing fine as well. I think it’s up 3-4%.

All in all, we are just holding our ground. The protector alpha shorts got a bit over-run and I had to adjust a few days ago – Only to have the market reverse 🙂

My bearish butterfly for Aug is up about 20% (the return is calculated a bit differently than the MIC returns).

Aug Kevlar trade is up nicely

Aug M3 trade is up 5-10%

All in all, sitting at all time highs and getting ready to enter the next trades.

Jul 11 – Trade Plan (Results)

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.

Jul 10 – Trade Plan

Yet again, another huge range yesterday. Opened to go up to about 207.3 only to fall back down to 204.4. you can see the hourly SPY chart for an indication of this environment. The VIX was approaching 22 and again had an inflationary effect on my MIC trades. For a non-directional trader that has to manage risk, it can be quite a difficult environment. However, every AM, I look at the futures and its consistently going according to my previous end of day plans.

Yesterday, the market fell and I evened out our deltas a bit as I started peeling off some of the trade (I took off about 9 units of 15 put spreads on the RUT MIC right at open). The market proceeded to fall and fall and as it went down, and because I peeled off about 9 units, I had to remove the corresponding debt spreads (insurance I bought to protect the insurance I sold). I thought I was getting good timing as I was taking these off while the market was falling away from where I closed the 9 units. Unfortunately by the end of the day, the market had fallen so much that we ended up approaching our downside adjustments and that meant that the debit spreads I sold would have been worth way more. I could have let the market keep falling and not sold the insurance, but I felt it wasn’t appropriate risk management. If the market should bounce, it’d have hurt the trade and let’s be honest, its volatile as hell right now and I really don’t wanna pick sides intra-day within a channel. I’d rather have been more neutral than lean significantly. Luckily, the futures are up about 23 points right now and that will make for a great day to roll off the July trades.

Right after the markets closed, Greece presented a plan that includes most of the austerity measures European leaders demanded and combined with an amazing China open, that put our futures up for the night. I hope it holds for another few hours so I can get out of some of the SPX when it opens at 4am NY time. Can’t wait to get out of this trade. I had to actually work for my money this month 🙂 But despite the crazy end of trade volatility, we’re going to do well enough on this thing.

I’ve got an M3, Bearish Butterfly and Kevlar trade on-going right now. I love the resilience of the M3 and Kevlar and the returns of the Bearish Butterfly. Strong theta based trades and a great addition to the MIC. They’re similar but with their own advantages/disadvantages. Soon come, I’ll be working on getting the M21 trade going but its quite a bit more complicated and I need a month of concentration.

Jul 9 – Trade Plan

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.

Jul 8 – Trade Plan

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.

Jul 7 – Travels

We’ve made it to Copenhagen.

Like the city and its vibe quite a bit but its damn expensive. Seriously.

Berlin was a very bizarre city. I really have no idea how to quantify it or my experience there. I really don’t. We happened to stay in a vegan neighbourhood which was awesome! That was a total fluke as well. Glad we stayed in that part of town, it happened to be the best part, super artsy, lively and kid friendly. At first it was intimidating, the characters there are bizarre and it looked like we were in gangland with all the spray paint. After a day, you realize it’s harmless. Overall, I can’t see myself ever returning to Berlin. It was not a favorite.

I had the unfortunate experience of watching a man die. It was really messed up. We were walking to our segway tour and a man was on the ground with a worker outfit getting CPR, his legs were twitching and stopped and they seemed to give up on the CPR with shrugs and looks of hopelessness. Very eery. The thing I remember most is all of the bystanders faces. Just blank. I don’t know what happened but I’d guess maybe electrocution or heart attack.

We toured the Berlin wall, saw the holocaust memorial museum which was the most impactful of its genre. I’ve been to a concentration camp and other sites but this one was next level with its presentations of individual cases/experiences. Very impactful. Highly recommended everyone sees that some day. What an atrocity.

We drove and ferried from Berlin to Copenhagen and arrived in good time.

More to come

Jun 30 – Trade Plan

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.

Jun 29 – Travels

We’ve arrived in Berlin, our first official “big city” stay. We’ll be here until the 6th at which point we’ll depart for Copenhagen. A week after that will be Stockholm and a week after that will be Helsinki.

I’ve got a shit-ton of updating to do tomorrow on this blog. I’ve been busy with catch-up of all sorts in business that has put a big limiter on free time outside of the obvious traveling/experiencing.

Pictures from Wurzburg and Nuremberg below: