A mostly bullish week triggered a signal to unwind our downside October butterfly hedge Friday in the final 45 minutes of trading, only to reverse that signal within the subsequent half-hour. With SPY now back well over $117 in pre-market trading this morning, it looks like we’ll be going through with that adjustment today. Note that we’re planning to roll the butterfly into an iron condor, which will require approximately $500 in additional margin per contract.
As of Friday’s close,…
We’re hedging downside risk with the following butterfly position:
Day limit order
Buy to close 1 SPY Oct 113 put
Sell to open 2 SPY Oct 103 puts
Buy to open 1 SPY Oct 93 put
for a net debit of $2.34 or better.
Note that the 1 contract specified for the wings of the butterfly represents half the number of contracts in each leg of our core double-diagonal position.
Analysis: As stocks continue to get…
A sharp sell-off in the last 15 minutes of Friday’s session left the S&P with a 2.5% loss on the day and tipped key technical indicators bearish again. A close below 1120 would have the bears crying “head-and-shoulders breakdown”, and a breach of 1100 would suggest that there’s more damage to come.
But while it’s important to be aware of where the market could be headed, our main focus, as direction-neutral option-sellers, is hedging risk…
As those members who follow me on Twitter (@volatilitytrade) and/or Facebook (Volatility Trader) already know, I’ve been taking my summer vacation this week (or trying to, at least). Fortunately, SPY has made its way back to exactly where we want it to be for our September positions ahead of the weekend,…so this week’s update will be brief and to the point.
At mid-day, our unrealized return was 0.5% of total capital at risk, or about break-even…
We’re hedging our upside delta risk with the following trade:
Day limit order
Buy to open 1 SPY Sep 135 call
Sell to open 2 SPY Sep 128 calls
Buy to open 1 SPY Sep 121 call
for a net debit of $2.54 or better.
Note that the 1 contract specified for the wing strikes represents half the number of contracts allocated to our current September double-diagonal position.
Analysis: We’re taking a conservative approach with this…
Now for a delta adjustment… This “adjustment” is actually a partial closing order, but because we’re hanging on to the portion at the 116 strike, this position—i.e., the Aug/Sep 116 call calendar that remains—is officially still open. To the point, we’re placing the following order:
Day limit order
Buy to close 2 SPY Aug 124 calls
Sell to close 2 SPY Sep 124 calls
for a net credit of $1.40 or better.
Note that 2 contracts represent…
It’s been another wild week, as the market tries to find a bottom amid one string of bad news after another. Through disciplined adherence to our strategy rules, though, we’ve managed to keep risk under control without sacrificing a great deal in terms of profit potential. On the other hand, our unrealized return is quite another matter.
As of this writing, our August portfolio is showing a loss on total capital at risk in the 20% range. Model Portfolio return,…
To keep up with the relentless selling, we’re rolling the DC #2 portion of our position at 122 down to 116, as follows:
Day limit order
Buy to close 4 SPY Aug 122 calls
Sell to close 4 SPY Sep 122 calls
Buy to open 4 SPY Sep 116 calls
Sell to open 4 SPY Aug 116 calls
for a net debit of $0.12 or better.
Note that the 4 contracts specified above represent the…
SPY recovered a bit after the last trade notice went out, but it’s resumed its fall now and confirmed our risk-management signal. With SPY August implied volatility now over 30%, we’re selling (vol) into that spike by opening the following butterfly hedge:
Day limit order
Buy to open 2 SPY Aug 125 calls
Sell to open 4 SPY Aug 119 calls
Buy to open 2 SPY Aug 113 calls
for a net debit of $1.55† or…
Now we’re rolling our position at 136 down to the 122 strike, with the following order:
Day limit order
Buy to close 2 SPY Aug 136 calls
Sell to close 2 SPY Sep 136 calls
Buy to open 2 SPY Sep 122 calls
Sell to open 2 SPY Aug 122 calls
for a net debit of $1.03 or better.
Note,again, that 2 contracts represent our entire position in the 136 call calendar.
Analysis: This afternoon’s…
Monday, October 10, 2011
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