October 2015 – Page 4 – Travels and Trades

Oct 5 – Trade Plan (General)

It’s been a very challenging 5 weeks. It started with the Aug 24 correction which was followed by weeks of big 5-10% moves in the RUT as we approached the ever important fed announcement. On Fed day, the RUT tags 1194 only to correct back down to 1078 (nearly 10%) in a matter of 5 trading days only to now bounce about 4% into Monday. Managing theta based market neutral trades through these kinds of moves is a test of patience and resilience.

On Friday, the RUT was down 1.7% and closed the day up about 1.4%. This AM it looks like it’ll open another 1% higher. That’s a 4% move to the upside in a matter of hours. Quite impressive. Likewise, the SPY futures tagged 1885 on Friday and is sitting at 1957 right now. That’s nearly 75 points in a handful of trading hours.

The extreme upside movement will give some problems to our October trades. My plan is to close a bunch of 1060 BFs and get my T+0 line as flat as I can to the upside and start closing down the trades throughout the week. The upside move is pretty extreme and quick but that’s usually the way. It was touching lows and now its going to blow past 1120. When it’s this close to expiration it can cause some issues on the upside with a sagging t+0 line as volatility floods out. I don’t like adjusting near the open, but I think I have to nip this in the bud and make sure we’re not exposed on the upside for any further run. The RUT is one of the lagging indices and probably has more room to run.

The November trades will likely have a bit of a sag in the right side of the T+0 line that we’ll need to fix. Nothing major.

Hopefully the Protector Alpha can start catching up again, it’s been underperforming the last month.

Oct 2 – October M3 Updates

Wow. So the market opens up and gets to about -1.7% then proceeds to close at about +1.4%. This is why you wait till 2pm to adjust 🙂 At 2pm, most of our deltas were just fine. The market was hovering around 1093 and all is good. We were at ATHs for each of the trades. The market then starts screaming around 3:15pm up to 1113. This huge rise so close to DTE puts pressure on our upside deltas and as volatility is falling out of the trades, our T+0 line starts sagging on the right side of the graph. I had to make a flurry of adjustments to get the deltas in line and to protect from a potential gap up on Monday. The Trades are still at all time highs for the P/L but they’re a bit vulnerable to a big up move on Monday.

Oct 2 – Nov M3 Trade Update

Nothing to do today. The trade is showing that it’s up 8500 now. We’ve got tons of range on each end. Probably won’t have to do much for the next few weeks and we’ll let Theta do the work for us.

A high value day

Days like today happen every so often especially when we’re about 12-17 days from expiry, all of your time decay based strategies suddenly increase in value. I notice that most of the ‘time decay’ you get closer to expiry happens in spurts and does not occur consistently day to day. Days like this are sometimes called a high value day amongst theta based traders. Every month I find myself pointing it out to my wife and showing her the increases in P/L across he board on one single day. I try to explain it as market makers having to start getting rid of the time value in the options once we start approaching expiration day. I gather its when they think its more of a ‘risk on’ environment than risk off. Perhaps this means that the next week or so will be positive or at least less volatile? This happened with my MICs and now today I saw it happening with my M3 and BB trades. I’d be chugging along at a pretty static P/L and then in one day, all of a sudden, it’s worth a lot more. Anyways, interesting.

All of the Oct trades are up a good amount of money and its probably time to start winding them down and getting in Nov and Dec M3s.

Oct 1 (November M3 Trade Update)

Not much to say. Trade requires no adjustments. Yesterday night the futures ramped up hard (about 1%) and today we saw all of the gains dissipate and the RUT is hanging around 1090 again. The trade is up ~5k on 250k planned capital. Being farther out makes this trade quite resilient. I am eyeing up an early entry on December M3 (77 DTE) we can get the BFs for about $7 and we can do a 30 lot with 1 call. Large downside protection and we can scale out of the BFs as time goes on and if we have any upside issues.