...I'll get to the “and” later.
First, a respectable comeback from last month's loss gets us off to a good start for the second quarter. For April we booked a Model Portfolio return...
One point I emphasize over and over—no doubt to the annoyance of veteran subscribers who’ve heard it hundreds of times before—is how crucial risk-management is to achieving high risk-adjusted returns. Keeping losses small, and locking in profit when you can—not when you have to—are among the keys to profitable trading over the long-term. I harp on the risk-management theme again in this post because the December and January cycles provided a perfect example of how these principles work well for…
The Bucking Gamma Bull—long-time subscribers to Calendar Options and Condor Options know it well. But we have a lot of new members this month, so let’s review what the phrase (coined by Jared) means and why it’s important to net option-sellers like us.
“Gamma” is the rate of change in delta with respect to underlying price. If delta is constant, gamma is zero, in which case your P/L curve would be a straight line (stocks are the easiest example to…
Our September/October double-diagonal trade did exceptionally well, yielding a 35.4% return on capital at risk, over a period of just three weeks. And by adjusting our upside butterfly hedge as the market sold off, we kept hedging losses under 18% of total dollars risked.
Altogether, Model Portfolio return for the month was about 5.68%, compared to 6.06% for VTY and 8.23% for the S&P 500 Index. Considering the fact that SPX swung wildly across a greater than ±4.3% range, with…
It’s been tough going these past three or four months, largely as a result of increasing market volatility similar to the July 2007 through April 2008 period that preceded the fall 2008 crash. But another factor has become an equally strong headwind of late: a pattern of front-month implied volatility rising more rapidly than back-month throughout the weeks preceding our target expiration. No matter how low IV is when we enter positions or how much front-month vol exceeds back-month, our…
Before getting in to the gory details of our March Supplemental Trades loss, I want to illustrate just how unusually volatile IBM turned in recent weeks. The chart below (click to enlarge) shows the price of IBM over the past two-and-a-half years (blue line), overlaid with its 10-day Average True Range and the 20-day slope of that ATR. Because it incorporates intraday volatility as well as volatility of day-to-day closing-price movement, I use ATR to gauge how emotionally a stock…
Last week we booked a 6.34% Model Portfolio return for June, compared to a 2.74% return for the S&P 500 Index and a 4.35% return for the CBOE S&P 500 Volatility Arbitrage Index. For the record, here are the details:
SPY June/July DD#1 (98/103/113/118): We closed this position for a 7.36% return on capital at risk.
SPY June/July DD#2 (103/108/116/121): We exited this position in our target return range, for an 18% return on capital at risk.…
With the final numbers now in for our comparison benchmarks, we can officially log superior performance for May in conditions under which, according to “conventional wisdom”, a market-neutral strategy supposedly can’t do well. By following the latest improvements to our trading rules, we stayed mostly in cash and, for the one position we did put on, made vega-neutral adjustments to compensate for huge moves in the S&P as volatility shot back up to historically high levels. These same rules have…
With a day and a half of time decay, plus a slight drop in volatility skew, we ended the Tuesday trading session with a small gain despite the $0.80 lift in SPY and the decline (again, slight) in average IV for SPY options since we opened our first December position with a bearish bias yesterday morning. In the final seconds of trading today, the SPY Dec/Jan 108 put calendar was trading around $1.06, giving us a paper gain of 0.95%.…
A steady decline in implied volatility through the first week of the new year weighed on our positive-vega calendar positions, narrowing their profitability ranges and pushing down their unrealized gain/loss. Although the January cycle saw a drop in intermediate-term price volatility, the period was dotted with short-term whipsaws, which our vega losses made more difficult to tolerate without adjusting. With the combination of dwindling IV and fits of short-term volatility working against us, the average loss for our two trades…
Wednesday, April 25, 2012
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