john locke trades – Page 3 – Travels and Trades

March Unwind – Nearly there

Today was a much better day for unwinding the positions and the subsequent P/L. I have about 15% of the position(s) left. I’ll probably close most of it out tomorrow. They are fairly benign right now–> Really flat. March expiration is finally approaching an end. How relieving. All in all, I am profitable for March (will know by how much once I finally close everything). I was trading quite large since December (a total of about 100-150 units of 5/-10/5 rhinos) and went through a 20% down move in the RUT followed by several 8-12% bounces. So, having had big money on, I got to experience some of the worst conditions while having the stress of a large position. A nice stress test. I mean, since Dec 31st (when I put it on at RUT 1140) it’s been pretty much the worst environment for trading these things, but they ended up doing OK. My maximum balance swing related to equity was about 12-15% in total and always during the highest volatility days. Of course, I am utilizing portfolio margin, this is why I mentioned the swing relative to equity. A few days after a high volatility day, RUT at same price, my balance would be right back to normal. Those are the effects of volatility on option pricing. Anyways, I can deal with that and I pretty much have a skin of steel now. I never felt totally uncomfortable through all of this despite the volatility and that’s a big change from the old modified iron condor days–>especially Aug 24 (I was extremely uncomfortable that day)! Glad I don’t trade that anymore. It must be a very challenging year for condors (well all trades are having difficulties, I see a lot of M3 traders doing poorly right now).

I did learn things I probably won’t do again, first and foremost, I will always close the Rhino structure if it gets challenged rather than trying to hedge it. As well, I’ll probably use upside BWBs as adjustments as opposed to calendars. I didn’t like how the call calendars reacted these past few weeks and I’ll be backtesting some of this later this week.

The bearish butterflies were a beautiful trade this month. They did fantastic. I just closed out most of them for a big profit. I had continued to put these on as hedges all the way down. What I’d do is put them on patiently after every modest bounce and I’d always get fantastic pricing on them and they were resilient on the way back up.

Other than that, I am waiting for a good day to get into the May trades. I didn’t like the pricing on Friday.

EDIT: I closed off my 1040 call calendars for 10.35 today when RUT was at 1040. I paid like 9 something for them at like RUT 1015…really?? I made $1 on it? Not exactly a great hedge to the upside. Anyways, I really got to look at calendars. Right now, I am just going to start using BWBs. It could have been because I put the calendars on late in the month.

Feb 26 – Updates

This move up from 950 to 1040 (~11%) in the space of ten trading days has put a damper on both the March and April trades. Especially the 4.5% move in the space of the last 2 days. I am back where I started about 10 days ago, break-even for the year. I guess it’s not a bad result considering the moves and volatility. Just 3 days ago right when I was taking off my call spreads, I was up significantly (5%-6% of equity) and now I’m hovering around $0. Is what it is and the market sometimes does not makes it easy. Any pull back in the next 2-3 weeks will benefit the April trades and we’ll be right back up. I haven’t checked yet, but most of the pain is definitely in the April trades and March theta has offset some of the negative deltas as of late.

April Trades

So for the April trades, I am just about at my delta limits and am looking to buy a modest amount of call BWBs or call calendars to bring the deltas down just a bit. NYMO is extremely over bought, the RUT is sitting at heavy resistance near its Oct and Sep lows, it’s moved nearly 100 points and the volatility in the market is high = I will be a bit more patient with adjustments to the upside. Though it’ll hurt a bit if this turns out to be an Aug 2014 style run to the upside. Any move down to RUT 1035 today, and I’ll be putting more of them on, if it runs from here (1038), I’ll be slower to add as I await some exhaustion and for Monday/Tuesday to see where we stand.

March Trades

This has been some terrible timing for our 21 DTE removal of trades week. Sitting quite health last week to have a 4.5% move right into our most unpreferred area of both the Bearish butterflies and the Rhinos that remained. I had kept removing trades through the last 7-10 trading days but not enough to prevent some pain. I’ve got these deltas under control for now and it looks like I will wait till Monday/Tuesday to get the rest off. Taking off those damn call calendars at RUT 1008 after it touched into the 990s was a huge regret, especially now, that RUT is at 1039! That hurt a bit.

Frustrating week.

April – Rhino #1

Here is the risk profile of one of my April trades. Nice and flat with some room to the downside. It’s not a typical Rhino since I’ve entered different tranches at different times (though relatively close). I’ll be removing tranches if we pass about the shorts to keep the risk in check. My first tranche is 990/950/900. If, at 2:30pm, we’re at 940, I will remove this BF and add another positioned below.

Feb 12 – Been a while

It’s been a while since I last posted. I will have to change that starting now. The market has been a bit of a bitch but for the year, I am slightly positive with a lot of potential in the trades I am in now. I am extremely happy with that result and felt like the last 6 weeks were my best weeks in trading in regards to risk management and overall trading skill. I feel great about it. I am managing quite a bit of money and the stress of management sometimes can overwhelm but I kept my composure throughout the entire run of volatility and followed my plans to the “t”.

I took the big bounce today as an opportunity to remove most of my “edge case” rhino’s (ones that are a bit past the shorts) and flattened my T+0 lines. I feel good about the positions and we’ve got at on of room on each side with little upside risk and about 5% room to the downside before adjustments. I probably don’t have to do to much for the rest of the month.

I entered some April trades as well, but I positioned them lower to give myself a lot of downside room re the volatility as of late and the upside has little risk as well since the cost of the Bfs were quite low (~$2.30 as compared to the regular $3). The last 6 weeks were stress and some of my earlier positions were obviously compromised but we have ended up in a position of great T+0 flatness and a slightly positive result for the 6 weeks. I can’t ask for more then that and I am loving the potential in the remaining March trades. I am eagerly awaiting the upcoming theta release and am looking to close around 21 DTE (another 2 weeks) for a nice profit!

Throughout the volatility I used bounces to purchase bearish butterflies as a hedge to the Rhinos. This worked really really well. My BB hedges are up more then the Rhinos and I am starting to unwind these.

Dec 17 – Trade Plan

Interesting few days. We’ve got that 25 BPS rate rise and the market went up quite a bit only to fall the next day back to where it started. Not much to say nor do I really have market opinion right now.

I am like 90% cash as I closed a lot of the Jan and only had about 25 units of Feb Rhino on. I will enter March Rhino in about 10 days and I entered an SPX like Rhino trade which requires a lot less adjustment. The T+0 line is a thing of beauty.

Other than that, it’ll be a quiet few weeks until I can ramp back into the trades. I started this blog about a year ago trading Modified iron condors, the protector and some trend-following strategies and I am ending the year as pretty much only a butterfly trader. It’s been quite the journey with an immense amount of learning fuelled by dramatic ups and downs. I feel a million times more comfortable and confident as a trader and I’ve come to learn the value of appropriate risk management. Looking forward to a big year in 2016.

Dec 12 – Trade Plan for the week

I am mostly in cash going into this week (65%). I have some Jan and Feb Rhino trades but I am not fully allocated by any means. I am going to wait until after the fireworks that will be OPEX and the Fed meeting before entering more of these. After such a harsh down move and the potential for wild volatility in either direction, it’s just not worth it. Any large up move will bring challenges to the Rhino. In fact, If we had a quiet week, I’d have removed most of January Rhino trades @ about 5% profit.

However, I will be selling put spreads @ 15 delta (same strikes as you would for an MIC) on any big weakness on Monday or Tuesday. The strikes will likely be way way OTM with the surging VIX and it should give us a perfect risk reward trade. If, after I sell these, the market continues to push sig. lower, I’ll manage by buying bearish butterflies along the way and perhaps some debit spreads. I am looking forward to taking advantage of a waterfall event this time around. We should have a down Monday as the stat is 95% of the time we have a 1.5% or greater move on Friday, you’ll have a lower low on Monday.

Oil was down 11% this week and since the high yield market is quite exposed to oil, there is credit concerns. Selling was extreme on Friday and that usually means further weakness. However, breadth is at extremes, the NYMO is at extremes, and VIX gained 63% this week. Those types of extremes usually mean a bottom is soon coming and we’re entering a bullish period. My bet is more pain on Monday/Tuesday, followed by a rebound.

Dec 11 – Trade update

I removed several 1160 BWBs for between 6.1-6.55 credit (I paid about 3.20 for them) so I closed them for a nice profit and cut my downside risk in half. I also added some 1100 bearish butterflies on each bounce as an additional hedge to the downside. The Jan Rhino’s ended the day at a delta of about 20 per unit. I am comfortable with that. We’re uber oversold on all levels. NYMO is reaching extreme levels and though I expect a down day on Monday, I think we’ll bounce off the SPX 1980-2009 area by Tuesday once we reach that extreme NYMO level.

When volatility is high and we’ve got additional room to the downside, I like to buy Bearish butterflies as a hedge to my existing positions since they can be quite cheap.

I only had Jan and Feb Rhino trades on during Friday’s fall and we ended the day neutral with no gain or loss (well ~-1200 according to my IB statement) but that’s negligible. Gotta love that. The RUT has moved from 1205 to 1120 (85 points) in a very short timeframe and the trades are all up money.

Dec 9 – Trade Plan

I am trading from the boat today with a few friends. I pretty much neutralized the December trades yesterday. The December trades themselves are very profitable, it’s been a great month. I was a bit pissed off yesterday when I made the worst timed adjustments ever, I literally adjusted when RUT hit 1151 (the absolute low!) and had it rebound literally 30-60s later up to 1159. Annoying. If the trades weren’t so high gamma and close to Expiry (9 days), I’d have waited till 2:30pm but the deltas got high and I can’t trust OVs model yet (which spits out too delta negative). Probably a few k in adjustments right there.

The January rhino had 10 call calendars taken off to lessen the positive deltas. This was the first adjustment of the trade. I entered another 1170 Feb Rhino. I’m almost 75% cash right now as I unwind December. I’d normally just jump in a Feb Rhino but the looming Dec OPEX and potential rate hike in 7 days has me wanting to wait until the fireworks are over. It’s only another week or so.

As the months have gone by since Aug, I’ve been peeling more and more of the protector off and I am down to 25% of what I was, I was hoping for a normal santa rally to get the rest off, but so far it’s been mostly a volatile range. I’ll keep it on until early Jan and, if I see opportunity for options trades and it requires my margin, I’ll remove it at that time.

Dec 7 – update

I started the day pretty delta negative and took off a few 1140 BFs around 10 min into market open (i regretted this later) based on prices I had calculated as good from the days previous. Usually you can get exceptional fills in the first 15-30 min of market open but only if you really know what the price should be as spreads tend to be larger. I don’t usually do this as I wait for normal adjustment times, but this time around, I had put in orders at prices much higher than on Friday. They got filled. Though I corrected some negative delta’s, the RUT started to fall quite a bit (about 1.5%) and that increased volatility had me in a bit of a scurry removing portions of the trades and keeping things relatively balanced. Ended up at EOD better off than we were @ open or at close on Friday. Unwinding the large M3s that I had on is much more complicated than the Rhinos.

I got about half off today and will be removing the rest through the next few days. The trades are all more profitable then they were on Friday, so all is good. I ended the day fairly delta negative again. I’ll need to get more BFs off tomorrow to get it balanced out but likely it’ll just be a day of peeling off the December trades once and for all. All of the trades were very profitable.

I read some neat things today:

1.
“…since 1994, more than 80 percent of the equity premium on U.S. stocks has been earned over the twenty-four hours preceding scheduled …FOMC… announcements”

“…without the indirect boost of FOMC meetings, the S&P today [would] be at the same level it was 20 years ago!”

and

There is 1.1 Trillion of options expiring 2 days after the FOMC meeting. It’s the largest LEAP month ever. Typically price can sometimes pin to where the most open interest is. In this case its 1800 which is 200 points downwards. Neat.

http://www.zerohedge.com/news/2015-12-07/beware-massive-stop-loss-jpms-head-quant-warns-unexpected-downside-catalyst-looms-ne

Dec 4 – I need to post more

Through the thanksgiving week not much was happening on my end. During that week, I avoided adjusting in what was a low volume up grinding market and didn’t have much to post. Though I should have, I have tons of thoughts and ideas that I could record here. Laziness. I also need to work on the structure of the posts and the content therein. I had started posting my graphs and adjustments previously but then OV had the catastrophic modelling changes and I had to switch to an old VM and re-enter the trades anew. This meant the graphs were not from entry and were inaccurate re P/L etc.

So yah, my intent was to get out 21 DTE but it was during thanksgiving week and the fills were poor. This was a bit stressful as the market grinded higher and higher putting pressure on my M3 trades. So I delayed exiting the trades and awaited some relief from the constant up move we saw (which is typical of a low volume holiday week). I was going to get out this week, but on Monday, due to the structure and safety of my trades, I decided to aim for Thursday instead (to pick up theta). Well, Thursday was a blood bath and volatility sky rocketed and though I sort of ended up exactly where you’d want to be in the graph, my P/L was nowhere close to what the models would suggest as Vega was a big issue with the massive increase in volatility. If the market stays exactly where it was but you get a decrease in volatility, then your position will gain its value. This happened on Friday, and in a drastic way (several %!). That’s one tricky thing about trading these things, the promised land isn’t always as it was promised re the models.

Today rolled around and the SPY regained all of its losses. By EOD, the trades have been relatively neutered and are doing fabulously. We should be out fully by Tuesday.

So on Thursday I ended up adjusting on the down move, buying some OTM puts, removing call calendars and call BWBs as we went from 1190s to 1160s right quick. My plan was to wait for a quieter day with reduced volatility to close the trades thus probably holding the trade into Monday/Tuesday of the following week. As I mentioned above, I couldn’t have been better positioned in the model but my P/L was literally $0 for the day despite the model suggesting massive profits. The theta was huge positive and vega huge negative, so as time passed and as volatility dropped, we’d see big recoveries on the trade. I had some reasons to believe the sell-off wouldn’t continue (see market recap section below). Then Friday rolled around and we had the biggest up day (sooner than I expected but) in all NFP Fridays in History I do believe. I mean, we went from 210 to 205 in SPY on Thursday only to from 205 to 210 on Friday. Intense (and challenging!). Volatility collapsed (fear left the market) and the trades sky-rocketed in value exactly as the model would have suggested. I adjusted and closed portions of the trades on the upside and we’re doing great re P/L. On Monday/Tuesday, I’ll finally get out of these M3 trades that remain for December (And quite profitably).

I’ve only got Rhino’s on for January and February. They are my bread and butter trade now. Love ’em.

Market Recap

A few weeks ago we’ve been slammed with very negative headlines that should have sparked sell-offs if we had weak hands in the market. We had the Paris attacks, WW3 nearly started with the downing of a Russian Jet by a NATO alley, we have 80% odds of interest rate rise in Dec which could cause liquidity losses equivalent to QE2 (600 Billion?) and still the market just brushed them off. The dip buyers in Aug/Sep are thick skinned (obviously) and if they didn’t sell in these headlines, its hard to image where they would. When the market shrugs off bad news and rallies, well, it’s hard to figure what type of event will cause a sell-off especially going into the Santa rally period. For that reason, I had suspected maybe a dip to the 1170 area but no more.

On Thursday, some big news came to of ECB, which caused currencies to go psychotic and brought about a big equities sell-off bringing the rut from the 1200 area to the 1166 area quickly. The exogenous nature of the news and the unknown effects of such big currency moves, did have me quite worried about my previous plan of expecting a dip to max 1170. I probably over-adjusted because of that. The TRIN wasn’t confirming the down move either. The thing is, in the market, when you’re a seller, you only get one vote and that’s it. You sell. That Thursday, we ran out of sellers, the one small group of over zealous traders that had weak hands are now gone and have no vote on Friday, what other weak hands were there after that day? Who had not sold on Thursday but would have sold Friday? We ran out of sellers and short interest was high, that is why we rallied off modest NFP news. I should have weighed that more. It’s all it took. Now we’re back to ~210 on the SPY. We have strong thick skinned hands in this market and we’re probably poised well for the Santa rally that everyone so expects.

The one thing that counters this is the terribly (sickly) breadth only 37% of NYSE stocks are above 200 day moving average while market is at all time highs (that’s not good),the bullish percentages are weak, smart money is not buying huge and we’ve got more distribution than accumulation suggesting a topping phase.

As for February trades,

I entered more at close today (1190/1150/1100) BWBs. I’ve got some (1200/1160/1110s) already active. That’s it.