mic – Page 2 – Travels and Trades

Aug 13 – Back in Action

It was a rough go the past 2 weeks with more sporadic travel, driving and hotel stays. This put me in a constant catch up mode with both work and the market and I had little time to update the blog. I ~~should~~ will be back to regular posts and updates from here on in, probably every day.

We’re now finished the “road trip” part of the “sabbatical” and are in London, UK where we will trade in our Tesla for an american version for use in the Cayman. Tesla HQ is accommodating me in this respect and I’ll end up with a new P85D (a 3s 0-60 car) for not a whole lot more when considering the differences in the price of the Tesla in UK vs USA. It all worked out.

The market was nuts yesterday. That was a tough tough go but I am confident and proud in how it was handled. The market fell 1.6% only to rebound into the green for a 3% round trip in one single day all the while the entire market has moved 5% in the entire year! Not an easy environment for a theta based market neutral group of strategies. In fact, it was or should have been one of the toughest days a trade like that could experience.

For the M3s I added 1170 butterflies to hedge the downside and on the bounce (around RUT 1195 – an area I expected the bounce to stall) I took off some 1230s. Of course, the market did something I haven’t seen and the SPY ended up closing green on a <1.5% red day and the RUT just slightly red sitting around 1210 after touching the 1180s. Ah well, my entire account balance didn’t move to much by the end of the day (down maybe 0.5%) but the adjustments surely cost me. The size and intensity of the adjustments were nominal and probably the best case we could have expected if a rebound this size should have occurred. Can’t help but wish you were psychic and could have waited 🙂 With a fall that intense, you have to manage your risk and it is what it is.

The AUG MICs were mostly closed on Monday (thankfully). Some straggling parts to close out today. Will post the results soon. All positive.

The SEP MICs had debit spreads and bearish butterflies added to them on the down move yesterday and are probably around break even so far for the month.

Come Sept 1, I’ll start posting all my trades and adjustments as they occur.

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 29 – Trade Plan

The protector Alpha is up 3% for the year vs SPY ~1.3%. We got hurt a bit on the last whipsaw. I had reluctantly rolled my 211 short puts to 213.5 when the market was at around 213 for a loss having missed the big upswing and thus losing on intrinsic value. The market moved very quickly and I just couldn’t stay up on it (overnight gaps etc). THEN the market decided to suddenly reverse falling to 206 leaving our 213s with no extrinsic value. Talk about whipsaw. I then rolled to 211 to get a bit of extrinsic now it’s on its way up again. I do believe this is a bounce into fed Wednesday and that we may stall or reverse hard but I’ll be sure to quickly roll if we come near 210.5. Not a great environment for rolling the shorts. That and the big loss NEM had (was actually -15%) has put our PA account at just about 3% for the year. Leveraged 7x = 21% or just about 3.5% a month for the year. This is better than expected given the market this year. This is a bullish strategy and has its place in our portfolio. It does well when the market does well yet is completely hedged on the downside. It’s not the big returns you’ll see in the market neutral options strategies but it’ll help in big bullish years. Maybe those years are behind us in the next 5 year time span? I don’t know.

My balance moved up 5% yesterday after the fall in volatility. Again, it shows how the mids and stated option pricing moves around so much in high volatility environments. It’s like the volatility was just sucked out of my accounts yesterday. It wasn’t delta losses or actual losses, it’s just that when the volatility floods out the MID pricing gets tighter and more accurate especially in the SPX. This can affect your stated balance (AND margin calculations quite a bit). Any new traders utilizing portfolio margin should be aware of this. You can go to bed with PM stating 100k liquid only to wake up having it show -100k and be forced into liquidations. It’s happened to me in my early days running MICs. You end up buying back risk at a premium during the first 15 min of market open. Not pleasant. There are tricks to reduce margin during these 15 min but that’s a subject of another post.

Some early results:

Aug Bearish butterfly: Up about 15%

Aug M3: Up about 8%

Rock Trades: up about 4%

Jul 29 trade plan

So we got that relief rally and the buy zone at 1210 on the RUT seemed to work out. On the way up I added some hedges and balanced my delta. I did this while driving through the Swiss alps enroute to Arona, Italy. I sometimes shake my head at my lifestyle. So bizarre what technology allows in terms of personal freedom.

I gotta admit though, the last few days were a bit hectic. On Monday, pretty much every trade (I have 9 on) hit delta or Greek trend limits and needed adjusting and man, it took all of my concentration. Every indicator I use suggested a near term bounce and that meant my adjustments were reluctantly and more conservatively made. I spent about 3-4 hours on Monday managing my trades and setting them up for a potential incoming bounce all the while managing my risks. Because of the volatility, the option pricing (mids) were all over the place. My balance was fluctuating the size of an expensive car. I’m used to it by now. But it can defiently scare a new trader into closing out trades prematurely.

By EOD today my account is at All time highs. I’m happy about that. All the trades are sitting perfectly and soon I’ll start closing off August ones at profit targets. I even think a few September ones may soon be reaching targets. My September M3 is up about 5 percent already. Every trade is sitting nice (maybe not so much the protector) but all the options trades are. I’m feeling like I am about 60 % where I want to be re this trading thing that I am doing. I am now actively working on a lot more trade due diligence ( trade plans, post trade back test and analysis –> where’d I deviate from plan? Why? How did it work out? Etc etc.) and alongside of that I am continuing to learn more advanced options strategies that are far more risk averse.

So I write this almost two months into our road trip, and having some regret not actively updating as much as planned. Every day felt like a scurry with never ending catch up with obligations in my business, trading, new courses I’m taking (m3, bearish butterfly, m21 and APM2) seeing each place we visit and making sure to keep up my fatherly duties. There simply wasn’t much time for updating. I will make up for it this week. I’ve been all around Europe now on this road trip and I’ve come back to where I started. Why? Because it’s our favorite place and we kept talking about it the entire trip, so why not just come back? We are in Arona, Italy near como. We pulled in the driveway to be greeted by the b&b owners the two dogs, a goose that thinks he is a dog and a cat. All tagging along with each other. And it feels like home.

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 – Trade Plan

Well, don’t have much to say on the markets the past week. It was what it was. China was in a crash and Greece votes “Oxi”. The markets closed well yesterday despite this and the theta locked up in both MICs started to seep out yesterday. The after hours action was pretty intense with SPY reaching 207.5.

The MIC trades are up 3.5% which is amazing given the events. I had adjusted probably 6x on the way up and down and we were victim of some whipsaw. Was by far, not an easy month. I am going to slowly close the trade out this week and I expect to reach around 5-6% when it’s all said and done. Any big events can obviously change that but I think we can handle it by careful managing of the deltas and given that we aren’t holding through next weekend, all we have to do is carefully manage it throughout the trading week. Who knows though, any big scare, and I’ll probably be quicker in taking off this close to expiry. 3-5% is nothing to sneeze at with the moves we’ve seen.

The SPX trade has risk to the upside that I have to alleviate this AM via its debit spreads (the insurance I bought to offset the risk on the insurance I sold). I am reluctant to do too much to the upside given the volatility and the headlines still present. I am going to carefully monitor and probably just start slowly rolling off the trade as soon as today.

The RUT trade is up more than the SPX trade. It wasn’t as affected by the whipsaw. Slowly taking it off. I am relatively delta neutral right now with this trade.

For August, I’ve got an M3 trade on, a Bearish Butterfly, an MIC trade, a long term GS Calendar and finally a Kevlar trade. Starting to diversify my theta based trades but man does it take some planning.