Category: Trades

Jun 29 – Trade Plan

Wow.  That was probably one of the biggest down days I’ve experienced. It was the worst day this year thus far. A 46 point drop in the SPX futures.  Neat.  First 2% decline since Oct 2014.

The increased volatility is hurting the positions a little.  I was quick to start balancing on the early morning bounce from the futures lows.  I added 32 units throughout the AM of debit spreads to hedge my 22 units of SPX MIC. The thing kept falling and the VIX is up 35% this means the insurance (credit spreads) we sold are now getting expensive to buy back. Our positions are packed with volatility premium and they (at the moment) are hurting a bit. The good thing is that there is only 17 days left and time decay is high. That premium will suck out of the positions on any stall or bounce quite quickly.  The trade could do better (even much better) than expected but right now (as is usual in a big drop near the end of the trade), our paper P/L is sobering.  I’ve seen this type of thing many times before, I’ll need to be vigilant in adjustments and risk management.  Hopefully the worst is over.  I’ll close the trade sometime next week when we’re about 5-10 days to expiration (DTE) as I usually hold the trades a bit longer when we’ve got a big volatility inducing drop around this time in the trade. There’s a ton of juicy premium waiting to be sucked out by the time vacuum and we’ve got so much room to the downside (we sold the 1980/1940s and 1950/1930s on the SPX and we’ve still got 90 points to the downside with only 17 days left. Still, the SPX trade is hurting the most as it started the week delta positive while the RUT started borderline max delta negative.  However, even though our RUT trade went from borderline limits of delta negative to just slightly positive delta, the position P/L has fallen (on paper) due to the massive increase in volatility. It moved in the direction we wanted but it came with an amount of volatility that hurt the trade.

On Friday, I entered a few bearish butterflies (timing was impeccable!). These bearish butterflies will soon compliment the MIC portfolio. They’re based on the same concepts and do well in any market despite the name. Though, they do prefer down movement.  I also sold a a lot of longs on the Alpha portfolio in an attempt to reduce it. Obviously good timing again.

A bounce is likely as soon as tomorrow. The daily RSI of the SPY is <10 and the daily RSI of the VIX is >90 and was up 30% in a single day.  Too much too soon. The SPY Futures are about 6 points away from the 200d moving average as well.
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Jun 23 – Trade Plan

The RUT has been on a tear breaking to all time highs (1293) while we entered at 1210-1220. This has put pressure on our RUT MIC trade and it’s sitting at break-even right now. I’ve been very diligent removing call spreads as we move up and I am happy we’re at break-even given the large move up which this trade hates. We’re in only 2/3rds unit as I couldn’t get a good entry for the rest.   We’ve got about half the call spreads off now. We still have some upside pressure but I expect the RUT to cool off around 1295-1300. I don’t doubt that by the end of the year, we’ll hit 1350 but not right now.  The big up move is likely due to the negative headlines and increased short pressure which tends to fuel these V recoveries.

The SPX has been lagging while the RUT is leading.  The SPX MIC trade is doing well up about 2.5%. As with the RUT MIC, we’re only 2/3rds entered this month.  I just couldn’t find good entries after that fantastic last month.

Overall both trades combined are sitting at about 1.5% with 14-20 days left in the trade. I wouldn’t expect much more than 4% for this month.

The protector alpha portfolio is doing fantastic due to some great picks in the healthcare/insurance sector. There’s been buyout rumours which have fueled huge runs in AET, CI etc.  I held CI which had a 30% run (just sold) and I currently hold AET and UNH.  The protector is up about 5% for the year vs SPY up 2.6% and we are fully hedged! I leverage this at about 6-7x because of its low risk fully hedged nature.  So for that, I am up 30-35% on equity less whatever the margin costs are.

So far the year is going very well, my account is at all time highs and I am expanding my options education. I never thought I could be so challenged w/ options as I am with the new material I’ve been learning via John Locke (M3, Bearish Butterfly, Rock and specifically the M21 trade). These are all non-directional theta based trades that are more or less based around the same concepts the MIC is but quite a bit more complicated.  Looking forward to implementing these strategies in the fall as a nice diversification to the MIC and protector alpha.

 

Jun 12 (Trade Update)

It’s been a while for the trade updates. They’ll be more regular now that we’ve settled into our routines while traveling abroad. I’ve not got to put more time into work, cut out the regular beers and get back at it 🙂

I’ve closed the RUT and SPX MIC for a total gain of 6.22% combined. The SPX MIC did quite well having been closed at 7.73%, I nearly had 8.2% but the huge 25 point up move 2 days ago caused me some grief. The RUT MIC did modestly well at 5.31%. We were roughly 2/3rds RUT and 1/3rd SPX.

We’ve got about 1/4th allocation live on the July trade which is up 3.6% already!  I’ve been waiting for a good entry point for the rest of the allocation but just haven’t been able to get it. We were tied into the June trade until 2-3 days ago and the market has been on a tear since. I don’t want to enter on up-days when the volatility is low.  However, time is ticking as we’re about 36 days till expiry. I’ll see what today brings. We might only get half on this month but we’ll start the August trade earlier. I don’t want to enter an uncomfortable and mediocre trade just to be exposed. I’ll be looking to enter Friday, Monday and Tuesday latest if the market conditions are right. If it works out, it works out, if not we’ll go in a half position and look to enter August options earlier on a down-day.

The market is back (and stalled again) in the range of 2100/2120. I don’t have much else to say. We’re waiting for this market to get out of its range. It’s a weak time of the year but that doesn’t say much.

The protector is inching on its own all time highs. I’ve reduced some position to make way for new strategies that fit more into the MIC style (modified Butterflies and bearish butterflies with rule sets).  I’ve been learning from John Locke @ SMB. These strategies are next level.  His work makes my work on MIC look like I’m selling covered calls 🙂  Very excited to continue learning and backtesting these strategies (M3, Bearish Butterfly, M21 and Rock).  They’re all theta based market neutral strategies (just like the MIC) but with complicated adjustments and rule sets which make them much more conservative (less risky) while providing similar returns. They are a nice way to scale diversification. I’ve finally found some ways of diversification that I am comfortable with and capitalize off what I consider myself to truly understand and am good at. I had explored diversified strategies in December/January and just couldn’t get into it (you can scroll all the way back through this blog to see what I mean). I had explored momentum strategies, SPY/TLT pair trades etc. Just not into having to rely on market conditions for success. I’ve always liked the market neutral basis of the MIC and I am very glad to have found complimenting strategies that fit within this parameter and that can hedge each other. I am especially excited to have my jaw dropped while learning off of someone else’s brilliant take on the same stuff that I’ve been doing for years.

May 28 – Trade Plan

There’s that upside energy I mentioned in the last post. The market rebounded to the 2120 area with a big 1% move up.  There were no sellers left.   That’s a big hit to the bears who had all that they needed for a full blown correction. Supply and demand is the rule, and the supply dissipated and the sell off ended.  The tells were in the big bearish attitude which pointed to the market having a lot of pessimism which means less long exposure and less sellers going forward into Wednesday. Once you get a big sell off like that and a rebound that surpasses many of short stops, you get a short fuelled V-rally. Again, this is especially pronounced when there just isn’t many pressured longs selling, the law of supply and demand. That’s just right now though, things change quickly, it doesn’t mean we won’t revisit the lows in the upcoming days.  On Tuesday, the TRIN was over 2 and usually that means the lows will be retested in the short term.

New note: I just read Urban Carmels report and he’s got a whole report about the TRIN and Tuesday/Wednesdays action.  He’s basically saying that we can expect the lows to be revisited. In 2012/2013, there were 10 instances like Tuesday with strong bounces, all led to more selling. In the last 3 years, 20 instances were TRIN spiked over 2 and 90% revised the lows.  Caution is warranted for longs perhaps.

http://fat-pitch.blogspot.com/2015/05/summary-yesterday-stocks-fell-more-than.html?spref=tw

 

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Look at that chart, what a difficult market to trade. BIG gaps everywhere and lots of V-shaped recoveries. These past 5 months have shown a true battle of bull/bear, a market with relatively equal buying/selling pressures.

The RUT MIC stayed the same at about 4.5%. I removed about 7 1100/1120 put credit spreads for between 25c and 42c as the market rose I did this to release some margin and also to basically start taking off some of the trade.  The delta is at about -20 which is a pretty big change from Tuesday when I was getting ready to adjust on the downside! I will adjust at about 1262. My hope is that we get till next week before that happens (soak up some good time decay without any adjustments). The theta on the trade is about $53 per unit. I think the best case scenario is about 6.5% for this trade.

The SPX MIC is sitting at 5%. I haven’t done anything to it in a week.  The delta is at $0. Time decay at $100 per unit per day.  I think best case for this trade is about 7.5-8%.

 

May 27 – Trade Plan

The market cracked that important 2120 area and proceeded down quickly (as expected if it broke that area) and it even briefly went through the next support at 2100 only to close at about 2104.   So we’re now about 1.5% off of all-time highs but the attitude and sentiment are very bearish (much too bearish when we’re just 1.5% away from ATH) which usually lends itself to a bounce as it typically means many people are under-exposed to the market (already sold or unexposed = less sellers going forward). AAII Bullish sentiment is at 5 year lows, Stocktwits stream is quite low etc etc which usually means that the worst of the selling is likely over. We’ll probably extend a bit lower through 2100 but I’d expect up momentum soon.

My plan?  I’ll give the downside on the RUT until about 30 delta to adjust and the downside on the SPX to hit 25-27 delta before adjusting.  Not a whole lot of plan 🙂

I added a 1270 calendar to our RUT trade on Thursday as a slight delta adjustment for any upside risk. Other than that, there’s been no adjustments since Thursday. The MIC trade is sitting at about 4.5% which is fantastic given yesterdays waterfall decline and increased volatility. I gather without that increased volatility the trade is sitting at 5-5.5%.

The SPX trade is sitting at 4.2% and hasn’t been touched since Thursday. It’s sitting at about 7-10 points away from a downside adjustment and I’ll monitor that closely. If we can get a slight bounce and end the week anywhere between 2095-2140, we’d be sitting very nicely with the trades.

The Protector Alpha is down about 0.7% yesterday (as expected) with a decline like that.  A new thread appeared on the main forum/community that I am a part of, and it is a discussion talking about new methods for the protector.  I am quite excited by the developments and will start putting some thought into it.

As for the Paris trip:

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May 21 – Trade Plan

We’re consolidating between 2120 (support) and 2130 (resistance).  We had hit 2135 during the fed release but retreated back into the range. This is a tight range that we’ve been holding for 6 days.   I’m not really sure which way the odds favour. Time will tell.  My guess is that we’ll have a shallow pullback then an up move towards 2150-2160. Mostly this surmising where the market goes is just for novelty. I don’t really use it all that much practically, but I do enjoy it.

The positions are sitting nicely with the RUT MIC now sitting at ~3.5% and the SPX MIC sitting at ~3.7%. That’s a nice gain from the day before.  It appears we started to see some accelerated time decay yesterday ahead of the long weekend.

Yesterday, I spent some time testing out a 9 day no touch condor and had some decent results. I’m going to do 3 years worth of backtesting but so far It had a 2.9% weekly return (after commissions). A 78% chance of making some money and it was closed with a loss of 20% or more and a gain of 11% or more (after commissions).

The protector alpha is doing well. A bit ahead of SPY which is nice. If we had used the regular ETFs instead of the equities we use now, we’d be behind by a good amount.

Ash and I leave tomorrow for a 3 day (sans kids) Paris trip. I’ll post a trip report on this blog.

Trade Plan – May 20

Not a whole lot to report.  Both MICs are now sitting at around 2.7%.  I made some adjustments yesterday when it hit the bottom of the ranges. Sold 1 more put spread for each and closed about 2-3 calls spreads.  Got the deltas a bit more reasonable for any potential push up. I’ve updated the sidebar with results.

The market consolidated today and it consolidated above the 2120 resistance that was tested so many times this year.  This type of consolidation tells us that most stock holders are holding off for higher prices (not much selling) and sidelined money aren’t chasing just yet (not much buying).  So basically, if it holds above this area we should see the sidelined cash and shorts succumb which equals more buyers in a market where there is not much selling  (supply/demand) = up we go. All bets are off if we have a sustained move below 2120 though.