Investors are notorious for chasing performance. If a mutual fund or advisor or trading strategy has done well recently, chances are much greater that traders will commit money to that strategy or...
The unrelenting August rally put some pressure on the call side of our iron condor positions. However, we were able to close out the month with flat-to-positive performance for the newsletter trades due in part to our ability to stagger trade entries based on volatility and delta exposure and to size positions on a risk-adjusted basis – both techniques that we teach on the members area of the site. We are nearing the end of the September expiration cycle and…
In the August cycle we again disproved two misconceptions: 1) that a market-neutral approach can’t perform well in a trending market, and 2) that a positive-vega strategy won’t profit in an uptrend.
By combining position-level adjustments with portfolio-level risk-management, we outperformed the market in terms of our average return per trade, and booked a model-portfolio return (which is based on a cash allocation sufficient for three trades, including adjustments) that would earn most fund managers their…
We began putting more emphasis on a portfolio-level view of risk-management in the July cycle, entering multiple trades on a single underlying and looking at the overall position, as well as each individual trade, in deciding when and how to make adjustments. Our return for the month wasn’t stellar, but considering the fact that the market traced out an 8% correction before recovering abruptly in expiration week, we think our 3% average return per trade showed that the…
Describing a strategy as “market neutral” isn’t saying much: consider two portfolios, one comprised of carefully proportioned long and short equity positions, the other comprised of short out of the money option gamma. Both can be described as market neutral in the sense that neither portfolio expects or wants to profit from overall market direction. Similarities end about there. I raise this point because one of the orientations that many traders think of when they hear “market neutral” is the…
Our positions for the June cycle were like Dr. Jekyll and Mr. Hyde. In general, it was another difficult month, in terms of falling implied volatility and, in the case of our IBM trade, an uptrend culminating in a whipsaw—but we still managed to break even: hitting the target profit for our SPY position made up for our IBM loss. And even though we underperformed the market for the month, we’re still outperforming handily over the long-run.
Last October, we were particularly proud of our ability to keep subscribers focused on managing risk and staying in cash before the turmoil really started. Not content to rest on those defensive laurels, we’ve continued to make gains through 2009, and are now back to levels whereby even an investor who traded blindfolded last year would have made up the lion’s share of any Fall losses. By contrast, and despite their recent triumphal advance, equity indexes are still down over…
In Part I, our Performance Comparison for May showed an average return per trade of 6.40%, with a model portfolio* return of 5.13%—compared to the S&P 500's gain of 1.53%. Here are the trades that got us there:
We’re a bit behind on Calendar Options reviews, so we’re making this one a double-header— quite apropos, as it turns out, because the story is much the same for April and May: A strong market uptrend and steadily falling implied volatility continued to work against us, but we still came through each cycle with a profit. That makes three straight months in which we’ve shown that a market-neutral income strategy using calendar spreads can work in trending markets, even when…
While the market indexes don’t look impressive based on the numbers below, it’s worth noting that the S&P 500 made a trough-to-peak run of 11% during the May expiration cycle, which was enough to cause concern for any insufficiently hedged traders. For us, the key is always to keep our aggregate directional bias to a minimum while collecting the volatility risk premium if and when it exists.
Performance Comparison
S&P 500: 1.53%
Dow Jones Industrials: 1.69%
Russell 2000: -0.74%…
Wednesday, October 7, 2009
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