T&T – Page 35 – Travels and Trades

Mar 13 – Trade Plan

Every day is interesting, isn’t it?

Markets have had a huge bounce which is obviously good for the majority of our trades. The protector is up and we’re mediating our SPY/TLT losses a bit (at 15% now).

The protector is up as it should be.

The MIC trade is approaching an adjustment zone. Not ideal as we adjusted on the way down just a few days back by adding 18 1200/1180 debit spreads and it appears we might have to take those off if we hit 1243-1245 on RUT. It hit 1206 (we adjusted at 1208) and it bounced to 1237 yesterday. Part of the game. The trade is up 1.33% to date with theta at about 1700 a day.

Mar 12 – Trade Plan

The SPY both opened and closed below its daily Bollinger band. This suggests more downside ahead as the momentum is strong. The bullish percentages are also quite negative.

http://stockcharts.com/freecharts/candleglance.html?$BPNYA,$BPCOMPQ,$BPOEX,$BPNDX,$BPSPX,$BPINDU,$BPFINA|B|0

An explanation from a respected technician @ the cobra forum (uempel)

Bullish Percentages – for those who might not know: BPs show the percentage of components of some index (e.g. SPX has 500 components) which are on a P&F buy signal. The percentage change of a BP indicates the general direction of that specific index: if more and more components are on a P&F “buy” the index should move up. And vice versa: if the BP goes down most likely the index will tank too.

Only problem is that BPs are not capital weighted. Whereas most indices are – the exception being the DJI. This means that even though BPSPX is down 1% the SPX index might be up – this could happen when heavily weighted stocks such as appl or xom are sharply up a few percentage points.

Today’s market at the close:

BPCOMPQ -0.87%, BPNYA -1.64%, BPSPX -2.18%, BPOEX -12.86%, BPNDX -1.37%, BPENER -13.64%, BPINDU -4.35 – only BPFINA is flat.

Though we’re getting oversold, it all suggests we got some more downside to go, or at the very least, we haven’t seen the bottom yet, but its probably close. The target could be the 150 DMA at 201. That’s where the last downside move finished. Does this change anything for me or my trading plan? Not really. I may do slight adjustments on a bounce today as I did Monday and there is no reason to touch either the MIC or the Protector so what am I left with? Just the few straggles of other trades I have going on (SPY/TLT) etc

The alpha protector did pretty good today, it was positive the entire time even while spy was declining at the end of the day. The individual issues in the alpha section were out-performing the broad market. It put the entire trade positive for the year. I am obviously very happy with the protector results thus far. It’s not really a trade as it is a nicely hedged long portfolio that is measured on years. It’ll perform in all market types. I expect the alpha protector to do 6-10% in bearish years, 7-11% in neutral and just under perform SPY in big bull markets like 2013.

The protector draw downs are an interesting subject. If you start the strategy and the market moves up, the delta on your long put starts going below 50 pretty quickly. In this case we bought at 205 and we reached 212. Unless we rolled the long put 205 to 212 the gains are more or less not protected, we’re under insured on the gains we’ve had to date. So as the market falls back, we’ll see larger drawdowns from peak until we reach about 205 when the delta is back to 50%. As it goes further and further below the long put strike, the more and more the delta will increase and our portfolio losses will be matched by gains in the long put. We typically roll the longs at about 6-7% in gains so we were due to roll at about 217-218.

Mar 11 – Trade Report

So yesterday was an interesting day.

SPY is both negative on the year AND it was a big 1.65% down day. During these types of days I like to analyze the resilience of our trading strategies, especially, the a protector portfolios.

So let’s recap: SPY opened the year at 206.38 and it closed the day yesterday at 204.98. It’s down 0.68% for the year.

The equities (alpha portion) is actually up about 0.4% on the year and the hedge is down about the same. We’re essentially break even on the Alpha protector portfolio and the market is down nearly a percent. Better than expected. Had we used straight RSP we’d be down about 1% (0.68% + 0.4%). Note that over the course of the year, the hedge would pay for itself and we’d consider ourselves up 0.4% on the year. Factor in dividends etc and it’s even more. We can expect the trade to do well in bear and neutral markets . Having only been in the trade for a little over 2 months and being break even while the market is down is fantastic. The trade under-performs for its first few months typically as the hedge is far from paid for.

The momentum portion which we had running for a bit ended break-even.

The SPY/TLT pair trade for March is currently down 17% vs SOs 41%. We’ve got about 7% of the position left (201/196 and literally a few 205/200s and 206/201s) with a few TLTs. Maybe we can get it down to about 15% loss. Monitoring. The Feb trade was up 10%. So we’re down overall on the SPY/TLT trade.

The MICs have all done v. well. Glad to have refreshed and realigned my outlook on the MIC. Looking forward to managing this and the protector as my main strategies going forward.

So in conclusion for this very volatile year the results after a huge down day that took the markets negative for the year:

Protector: 0%

SPY/TLT: -7%

Momentum: 0%

MIC: TBA

Mar 10 – Feeling OK

Looks like a bad day a’ brewing for the markets.

I spent the last few days sick in bed really contemplating my plan going into this week. Having read a lot of really good analysis (like the one I posted earlier), I planned on adjusting quite a bit on any bounce move with the presumption of another leg down. I did just that, not in such a way where I was trading discretionary but in a way to start moving towards getting out of several trade types I no longer want to to do and to position my overall portfolio in an appropriate way (overall deltas etc). I am feeling pretty good on this huge gap down today. I had entered a small amount of April TLT/SPY about 2 weeks ago, I closed out the majority of that yesterday having become sick of the trade and having taken advantage of the bounce in SPY and I also closed off all but maybe 3-5% of the March SPY portion (a small handful). I also adjusted and rolled my protector/anchor spy appropriately. All in all, feel like I used all information to weather this small correction. We probably got the TLT/SPY March trade down to a manageable 15% loss as compared to SOs 41% loss!

The April MIC is obviously affected by volatility right now but we’re managing the trade like a boss. I had entered 15 debit spreads yesterday on the bounce to get the delta closer to about +10. Today I entered another 15 on the fall (I definitely over paid a bit this AM but it was falling fast). I paid 7.00 for 1200/1180s with RUT@1208.5 It’s now 1209.23 and the MID is 6.80.

Current Greeks

Delta: 23

Theta: 83

Vega: 370

The trade is currently positive by about 1%.

Soon come, I’ll probably just be managing protector and MIC trades with the occasional earnings trade. Keeping it simple. Keeping it rule based. The SPY/TLT trade is out for me as is momentum. Don’t get me wrong though, momentum based strategies (or trend following) is a very very good strategy, a place where 99% of the population should put their energies. I put a shit ton of time into learning about it, read about 5-6 great books, been following and listening to a lot of great podcasts etc. It’s got its place but I am a leverage guy, I like to leverage and I can’t sustain even minimal draw downs. So it’s just not for me. I’d highly recommend it to just about anyone that, well simply put, is not me. I leverage, I manage and I understand risks. It’s got buy and hold crushed. You’re getting 14-16% returns and you’re getting max drawdowns in the 12% range. Rotational momentum strategies is the place to be if you’re a regular investor/trader who wants to do minimal trading (once a month. The momentum strategy I followed would rotate between the top 3 of the following ETFs

TLT, VNQ, LQD, GLD, VEU, VWO, IVV, VB, IEF, DBC, BWX, JNK, IJS, IVE, EFV

I stole this from Steady Options. That’s the idea of the returns of the above trend following. 14.55% avg CAGR with a 9.47% Max draw down over the period. It’s solid.

Mar 9 – Trade Plan

Update:

Premarket : TLT is up to 124.7 from its low of 122.97 on Friday and its close of 123.3. SPY is up to 207.88 from it’s low of 207.1 on Friday and its close of 207.5. That should bode well for the closing of the SPY/TLT trade.

Wow, what a day on Friday, every thing was down, even our hedges! Literally, the only thing that did well in my portfolio was the MIC. I lost on the EU, CAD, TLT, and equities. I am posting a blog from Urban Carmel who is probably who I respect the most as a technician. Check it out, it’s a very well-balanced technical look at the current market situation.

http://fat-pitch.blogspot.com/2015/03/weekly-market-summary.html?spref=tw

The official SPY/TLT trade at SO is down 40%. Mine is down about 19%. I will remove most if not all on any bounce. I don’t expect downside past the 50 DMA at ~206.5 without a bounce first. I have maybe 16% of the trade left on and the portions left on SPY are mostly OTM but inflated because of volatility. I’ll be monitoring and removing pieces as we go through this week. I am hoping to get out at -10 to -12%. I have 196/191s, 205/200s, 206/201s and small amounts of 207.5/202.5s in SPY and I have 126/121 127/122 in TLT. I’ll remove the trade in entirety if SPY falls below 206 and if TLT falls below 122.8. Those are my cut-offs.

Mar 4 – Trade Plan

So far for the April MIC I have about 17 units on. I’d like to get it up to about 30 for the month. I’ll probably add two more tranches on down days to take advantage of the increased volatility.

170 1140/1120 put credit spreads

45 1110/1090 put credit spreads

26 1120/1100 put credit spreads

19 1100/1080 put Credit Spreads

85 1300/1320 call Credit Spreads

5 1230/1220 debit spreads

4 1220/1210 debit spreads

3 1210/1190 debit spread

1 1210/1200 debit spread

I need to put on another 4 debit spreads to get the trade setup properly.

Futures are down quite a bit as of writing this. TLT is slightly up. I’d like to get out of this pair trade for good. It’s down about 9% right now.

Mar 3 – Trade Plan

TLT has fallen about 2% yesterday from its Friday close sitting at 126.89 from a close of 129.5 on Friday. We closed most of the TLT portion of the SPY/TLT trade on Friday during the rise and we’re left with about 25% of the TLT portion. Not a great day for TLT but the SPY portion made up for some of the loss on the TLT. I gather we should still be able to get out of this thing at break-even or slightly below. We’ll see. TLT has about a 30% chance of double-bottoming at 126. Markets are getting over bought on many indicators so we may see a bit of strength in TLT as we start to stall in the markets and as participants start to accumulate TLT as they usually do during these prolonged topping or perceived topping patterns. After consecutive ups, SPY may spend a few weeks in a range. During this phase, TLT generally does go up because more and more people start to expect a pullback (during bull markets) buying bonds to hedge an expected pullback is a better way than to short SPY directly. Going to give what’s left of the trade a bit more time. SO hasn’t closed their trade either (100% of it). I’ve closed 70% of it.

I closed most of my MIC from February. It did well. Happy with it and the new parameters.

The MIC for March is doing well. RUT isn’t really moving all that much which is great for the trade. No adjustments required. I did enter a small amount of call spreads at 1243 yesterday and added the corresponding put spreads after it fell a bit at about 1237. As well, when it rebounded to 1242 I put on the debit spreads. When I leg in I do it with very tight stops and only small portions. If RUT proceeded to 1246 I’d have immediately added the put spreads.

Feb 27 – Trade Plan

That “almost” 3 point fall in TLT and red close for SPY put the pair trade at -7% for the month. I did manage to close probably 30% of the trade during the rise the past few days.

I am closing the trade either today or Monday/Tuesday latest. I’ll probably take most of TLT off it it falls another 0.5 points. We’ll gauge the market. The most well respected people I follow are looking to get into TLT as a slight hedge. So I am a bit more OK with allowing the trade to go on a bit. Steady options is also still in the trade. So I’ll use all of that info as a gauge but the most likely thing is taking the trade off in parts.

Feb 26 – Trade Report

The SPY/TLT pair trade is now at break-even. The trade went from around -23% to ~0% thanks to Yellen. Both the equities and bond market rallied the past few days sending the pair trade into break even status. We’ll likely come out with a slight profit. I’ve been closing portions as it rallies, it’s conservative, but we want to have it closed by Monday latest anyways. No harm in reducing exposure. I’ve closed some at 128.5, 129.5, and 130. I am not a huge fan of the trade itself mostly for its future prospects and the unknown ongoing correlations with SPY. There are times when they both go down. I have this feeling that SPY/TLT may not necessarily be negatively correlated in the next few years. Rates are super low, spy is at all time highs, it feels like there’s more tendency for downwards movement for both. Who knows though, I don’t know enough about it and won’t pretend to. Probably another reason why I will continue to reduce my allocation whilst increasing the MIC allocation.

Feb 25 – Trading Report

Simply said: Yellen was dovish

I watched the testimony and essentially they don’t anticipate raising the rates in the next few FOMC meetings but reserve the right too if the data supports it. As of now, the data does not support it and they do not want to hinder the recovery process. It’s unlikely that rates will be raised in H1 2015. This sent bonds/treasuries flying. TLT hit 129.5.

The SPY/TLT trade is only down about 2% now. I closed off about another 8-10% yesterday. Just being cautious. I was going to close it Friday or Monday any how. We should get out at break-even or slightly higher. If we have any luck maybe we come out with 10%. Would only take another 2 point rise in TLT.

My Feb RUT MIC is up 5.5%. I just put on a small one this time around (15 units). I’ve made one adjustment (took off some call spreads yesterday during the testimony) It was a conservative move but I felt that the market could move around pretty quickly as it sometimes does during these types of events. My short call had 1.5x in value and it was in my 1.5 week window. I followed the plan. Of course, I closed it right at the RUT peak but a plan is a plan and the trade is still up 5.5%. Any quick up move and I’ll be chilling without worry while if I hadn’t I’d be stressing overnight.

I saw some results from another person (Amy Meissner) doing the MIC trade style. I posted her results below:

She sets it up just a bit differently. She has a much lower ratio of call spreads sold. This would have helped a lot during the period she traded. The thing is, downside is easier to adjust, so starting off with less calls is kind of interesting. She uses 10 puts to 2 calls. I use 15 puts to 5 calls. So it’s a 1:5 ratio vs a 1:3 ratio. I am kind of interested in that or at least exploring using specific kinds of setup depending on the current environment situation. If we’ve just come off a big correction/drop, I’d probably opt for a 1:5 ratio but if we just came off of a large run-up and things were getting over bought on a variety of metrics, I’d probably opt for the 1:3 ratio. Right now, according to sentiment trader, we’re kind of over-bought on a lot of metrics. So I’d be looking at a 1:3 ratio setup, as an example. Each type, whether it is 1:5 or 1:3 has its own style. As long as the plan is set in place before hand, and you manage it correctly. There’s no real discretionary issues.

Her results are quite good and based on REG T margin. All of my backtesting shows around the same overall result 3.5%. Use Portfolio margin, lever it up a bit, and you’re getting 9-10% returns. The idea with that is, use less capital to get similar returns.