Trades – Page 29 – Travels and Trades

Trade Plan – May 19

As per my previous post, the market seems to be punching right through to 2150. There’s little overhead resistance as anyone afraid of these price heights sold weeks ago. Sentiment is still bearish but price is price, so it’s best to follow that.

Urban Carmel believes all gains will eventually be sold within the next couple of weeks. Cobra believes the same. These are the only two technicians I really follow (mostly out of interest and not practicalities).

Summary of their positions:

The RSI made a new high and likely we should see a small pullback and then higher highs. Typically, before a top can be considered, we have to see a new high without a new high in RSI. He goes on to say the triangle usually means last push up in wave theory and usually is the final flag and as well, its “sell in may” time. Both use different evidences but come to same conclusion:

A new high followed by a pull back erasing all the gains since last week.

My plan?

On any pullback I will get my delta’s closer to 0 or slightly positive to protect myself from a big push up towards 2150/2160.

If there is no pullback and we go straight there, I’ll manage my deltas as I have been – by taking off call spreads.

The June RUT MIC is up 2.3% so far (it was up about 3%) but the huge move up yesterday put pressure on the call side. Our delta is still ~27 which I’ll reduce more today. Yesterday, I took off 6 of 35 call spread units. For some reason or other, I hate taking off call spreads and that’s gotten me in trouble before. So now I make sure to be pretty diligent in adjusting. I think I could have been a bit more diligent yesterday by taking off another 3 units to halve my delta.

The SPX MIC is about 2% as well. Not really pressured for adjustments yet though. I made no adjustments yesterday. Wasn’t pressuring our adjustment points.

The alpha portion of the protector is up about 5.8% and the hedge is down about 2% putting is at about 3.8% for the year (just a bit above SPY but we’re fully insured/hedged). Gotta love that.

May 15 – Trade Plan

There it is. All time highs as SPX breaks 2120. At this point, it is likely we continue upwards. If it was going to sell it would have done so on negative headlines last week (same headlines really for the past few months). There’s a ton of scary news out there and all the would-be sellers have sold. We’ve been hanging around this area for 4 months. We’ve tested 2120 umpteen times and resistance can only hold so long. You get locked in this cycle when sidelined cash is reluctant to buy near resistance and with sellers locking in profits as it approaches the same resistance. What will happen is both these groups (the ones with cash and the ones who sold), will finally succumb and buy (once it is clearly past resistance). So once it clearly breaks, I think we’ll have a pretty big up move towards 2150.

What am I doing with my trades? Again, not a whole lot. I only use my opinions to sway a little bit re adjsutments without breaking my rules. My deltas are pretty far negative right now so I’ll probably just balance them a bit more in the next few days rather than waiting for a delta of -30 I’ll probably start adjusting sooner at -20.

As for the protector alpha, I am eagerly awaiting 2150 so I can roll up my long insurance. It’s doing well, up about 4-5% for the year (I levarage 6.5x so 35% or so).

May 13 – Trade Plan

Yesterday was interesting. The market sold off quite a bit and on the bounce I sold 3 units of call spreads with the intent to sell the equivalent put spreads on the next leg down. I did this because:

1) the downward strength was strong and selling some call spreads on the bounce even out our deltas a bit.

2) I was hoping to enter the equivalent put spreads on the second leg down at a better price.

The latter didn’t really happen. So I had to sell them a little higher. An ode to the pains of trying to market time. You’ll notice I only do that with super small units 🙂 Sometimes it works out and sometimes it doesn’t. Of course, it was really minor and I’d only do if it actually benefited the trade as a whole (which it did re #1).

Right now, during my off time, I am backtesting 9 day iron condors (without much success yet) and the Friday butterflies (so far promising). I wish I had more time 🙂 There is so much back testing to do.

May 12 – Trade Plan

As per my post on the 8th of May

“There is three reasons why the market is likely to pull back.

1) VIX opened and closed above its Bollinger band. From Cobra: 81% chance of market revisiting the Apr 6 lows

2) The RSI made new lows and hasn’t show positive divergence. Down momentum is strong

3) The last down leg exceeded the 100% measured move which usually means another leg is likely.

What’s my plan? I’ll probably adjust slightly on any big bounce to make sure my deltas are zero to slightly positive.”

We did have a big bounce but it was so big I actually couldn’t adjust in favour of any perceived pull back, in fact it was so large, that I had to adjust a bit on the other end! Yesterday we started to see the pullback and today the futures are down almost 20 points from yesterdays close. There it is I guess.

Will a large gap down affect any of the current June trades? No, not really. The RUT trade will actually end up exactly at delta neutral and the SPX trade will end up at about delta -10 to -15 from +10-+15. The volatility will increase making everything expensive and anyone trading these types of strategies have to expect their broker balances to dip. Not to panic, it’s mostly superficial. It’s increased volatility which piles into the options you sold, making them more expensive to buy back. As well, during panicky days the mids get large and you’ll tend to see wild swings in your net liquid. I’ve seen my balance swing by 50k from open o close with no movement in the underlying. It’s all re volatility and inaccurate mids. As long as you adjust at the appropriate delta, all of this volatility will seep out as time goes on and you’ll end up fine.

Oh, the March trade did 5.7%, didn’t have the best luck closing what was left yesterday.

As for the protector alpha, I lowered overall exposure just a bit more yesterday. Good timing apparently.

May 11 – Trade Plan

With Friday’s upswing, the account has reached all time highs again.

The MICs are all all now profitable for June, which, given the crazy whipsaws, is nice to see. I’ve had to make significant adjustments across the board. Another big whipsaw will surely start to hurt the trade a tiny bit.

The Protector Alpha is at highs as well. I think it’s up about 4% for the year. Which is great considering its a fully hedged portfolio of equities. The hedge so far is costing nothing when comparing our overall portfolio to that of the market. Can’t complain.

I’ve been reading about Jeff Augens weekly butterfly strategies and have been backtesting them through the weekend. I’m most interested in the extremely short duration short butterfly. It’s put on at 1PM on Friday and closed in the last half hour of trade. The results are promising. You’re taking advantage of pricing distortions in the last 30 minutes where all options theory goes out the window. It’s an extremely high volatility trade with losses in the 40-70% range and wins in the 80-120% range. Seems to be coming out at about 10% over the last 6 months. Will update here as I further backtest a variety of equities. So far I’ve been looking at AAPL. I’d like to get 2 years of backtesting for about 5 equities before putting on any test trades.

The past 3-4 years, all I’ve done is look for new trade ideas that fit my personal trading/risk profile. I’ve been down 100s of paths and only have found a few worthwhile. My bread and butter is the MIC and Protector. So you can say, that those are the ones that made the cut. I’d love to have some shorter time frame trades added into the mix. I’ve been down this path (weekly butterflies) but abandoned it when I got stupid in my rookie days with AAPL credit spreads.

May 8 – Trade Plan

There is three reasons why the market is likely to pull back.

1) VIX opened and closed above its Bollinger band. From Cobra: 81% chance of market revisiting the Apr 6 lows

2) The RSI made new lows and hasn’t show positive divergence. Down momentum is strong

3) The last down leg exceeded the 100% measured move which usually means another leg is likely.

What’s my plan? I’ll probably adjust slightly on any big bounce to make sure my deltas are zero to slightly positive.

May 7 -MIC long put idea

I’ve been giving thought to changing the way we buy long puts. Usually we purchase 2x long puts with the same expiry as the trade. Usually its closed for negligible value. The average cost is about 4,500 a trade. It’s our black swan insurance and its part of the business. Caught without it during a flash crash or other similarly crazy event and you’d have catastrophic losses. However, the thing is, there has to be a better way, and I think I’ve got one.

Disadvantages of the normal method

1) Theta on the long puts is high, they’ll likely be worthless @ time of closing the trade

2) Since the extrinsic is low and gets lower as the trade goes on, volatility has less and less of an effect.

My suggestion is to purchase year out puts about -20 delta and sell 25% against each trade period to offset the costs.

Benefits of new method

1) You have way more extrinsic value so any increase in volatility will have a much more positive effect

2) Theta on the long puts are drastically reduced

3) You end up paying for the insurance over time thus saving the trade about 1-2% a month!

Just need to try and backtest different parameters and see if this thing could work.

May 6 – Trade Plan

Yesterday was a solid down day and I used it as an opportunity to enter in more units of June MIC. I’ve got 40 units total on right now with entries all over the place.

The market has had 25+ Fugly days but nothing thats really carrying on much past a day. It’s 1-2% up and 1-2% down. Trendless within a larger bullish trend. It’ll resolve one way or another.

The thing is, you rarely have triple + tops and the more we consolidate here the more likely we bust right through that resistance @2120. The more times it knocks the more likely it’ll get through. The season is bad, the indicators suggest more likely down than up but we either have to move down soon or we’re likely to clear up and create new all time highs. I think this will resolve in the next few days especially around Fridays NFP number.

May 5 -Trade Plan

We’re mostly out of the May MIC trade and sitting at around 5.8%. I’ve got like 10-15% of the trade still on and might be able to eek a bit more out of it. Maybe 6.2%?

The June trade is now about break-even. Expected after the recent ups and downs. It’ll continue to gain in time decay as we go forward this week. I would expect to see it at around 1-2% next week if we have only modest movements in the market.

Weekend Post

So pretty much Thursday didn’t happen? SPY rebounded and is poking at near all time highs after a pretty significant drop. RUT/IWM had a much softer bounce. The market for the first 4 months, has only gained 1%. The trailing P/E is 17.5x (pretty high) and from Fat.Pitch, if the market continues to trade at this P/E and anchors itself to EPS growth (2%) the market can chop for many more months. This should be a good period for the MIC trades.

I did use the bounce as an opportunity to even out the deltas a bit in the June trade. We’re just slightly delta positive with the next adjustment point at 1210 and 1265 respectively (RUT @ 1228). If we have more upside on Monday, I might sell a few more call spreads to get the delta closer to 0. Then wait for a down day to add more full trades.

The May RUT MIC is sitting pretty at 5.5% and we’ll likely be able to complete it around 6-7% early next week. Downside is actually welcome as we’ve got a lot of debit spreads and a wide range. We pretty much have no upside risk and we can manage anything but huge gaps down. There is some chance of a big month (8%)

The Jun MIC is sitting around a 1% loss but that’s completely normal this early in the trade and with this much volatility. By Monday it should be at 0. The most desirable situation is closing out May trade sometime early next week then having a second leg down which would give us the opportunity to enter more JUN MIC at better prices.

I currently use a ratio of 3:1 for puts to calls spreads. I might up it to be more like 2.8:1