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.
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.
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.
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.
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.
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.
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.
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.
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.