Our core SPY strategy—with tighter risk-management rules—was back on track in December, despite headwinds from a short but fairly sharp pullback, followed by a sharper rally and breakout to new post-crash highs, and a corresponding drop in implied volatility late in the cycle:
- SPY December/January Double-Calendar #1 – Closed for a 30.6% return on capital at risk.
- SPY December/January Calendar Spread (Adjusted) – This position served its function as a downside hedge, with the loss of 19.7% of total capital risked within acceptable limits, considering that it allowed the other two positions to reach our target profit range without adjustment.
- SPY December/January Double-Calendar #2 – Closed for a 20.9% gain on capital risked.
The average return per trade was a healthy 10.6%, which yielded a Model Portfolio return in excess of 7.5%.
Our one January SPY position (Jan/Feb 124 call calendar) ended the session yesterday with an unrealized gain of about 5.6% and virtually no directional bias:
Our December Supplemental Trades portfolio hasn’t fared as well, closing yesterday afternoon at an unrealized Model Portfolio loss in the neighborhood of 10%. We’ve kept some trades open in an effort to squeeze as much premium out of our short contracts as possible, but experience shows that the risks of hanging on until minutes before the bell on expiration Friday outweigh the odds of significantly improving returns. We’ll be unwinding this portfolio in a series of trades this afternoon.