Like our iron-condor strategy, Calendar Options is a version of techniques used by professional traders to generate income regardless of market direction. It complements the iron-condor portfolio by providing market-neutral trades that can benefit from rising implied volatility.
Calendar Options is a non-directional strategy—i.e., its goal is to produce positive returns whether the market is up, down or flat over the course of a given period (month, quarter, year). The aim of the strategy is to generate income by selling…
It’s going on a year now since we introduced butterfly spreads into the Calendar Options strategy, giving us a way to hedge delta and volatility risk, and another adjustment strategy to add to our trading toolbox. A standard butterfly combines two vertical spreads, one credit and one debit, that share the same short strike—and expiration date. But there’s nothing in the options rule book that says we can’t buy one long leg at a later expiration (or both…but that would…
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…
As I sat in my office late into the evening yesterday pondering what, if any, really useful market analysis I could give members, I got stuck. “Unpredictable”, “news-driven”, “risk-on-risk-off”,…we already know all that. I began to write about the pretty uncanny resemblance of yesterday’s intraday chart of SPY to a chart of the S&P for the month of November, but the charts speak for themselves:
…for what it’s worth. Fractal patterns can be found…
In what the headlines are trumpeting as the best week for the market in three years (some have claimed it’s “one of the best weeks ever [emphasis mine]”, our current risk profile has suffered more from the plunge in implied volatility than from the move in underlying SPY shares. While that might not sound like a good thing, it means that we’ve been managing delta risk prudently and, considering how far IV has fallen, vega risk as well.
IV for…
After a flat Friday, our unrealized loss on total capital at risk, as of the closing bell, had narrowed to about 2%. Since we’re keeping a tight rein on risk and are almost 2/3 in cash right now, the current paper loss as a percentage of our Model Portfolio is less than 0.7%.
Members who’ve been with us for a few months or more know that it isn’t uncommon for our portfolio to be showing an unrealized loss at this…
The S&P is showing signs of an impending technical breakdown—which could well turn out to be a bear trap. Whatever solution Europe seems to have for its sovereign debt problems has repeatedly failed to pass muster under scrutiny. In other words, we’re still facing a great deal of uncertainty despite the three-day drop in implied volatility through yesterday’s close. IV is up again today, and the volatility term structure isn’t looking especially attractive for calendar spreads.
In the “current” environment…
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…
As if it weren’t clear enough by now, the chances of making an adjustment trade today are slim. On the other hand, SPY is approaching the high point of our current P/L curve, and with only three trading days left in the cycle, I can’t think of a better reason to lock in our October profit.
I’ll start sending out the trade alerts (or an update) shortly.
Thursday, March 1, 2012
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