From early March through last Friday, there were really only a few ways to make any profits in the S&P 500, and looking at which strategies have been working gives us a good sense for the character of this market. First, let’s take a look at price action over this period. SPX went basically nowhere:
Fig. 1. S&P 500 Index, March 6 – April 18. Source: CBOE
Now, trading strategies can be classified according to the source of their risks/returns, meaning…
A few weeks ago, his thoughts about the world were of no consequence to anyone outside of Greece. Now, the leader of one of Greece’s political parties can move markets with a strong word or two. Democracy is a random gamma-generating machine.
Alexis Tsipras is the leader of Syriza, the anti-austerity party that finished in second place in Greece’s election on May 6. Syriza is expected to finish in first place in the upcoming June 17 election. On Wednesday,…
As of about 1:10pm Eastern, our portfolio of open positions was showing an unrealized loss of approximately 2.7% on total capital at risk, for a Model Portfolio return of about –1.6%. Delta is neutral, and vega is up slightly from Friday, at about 6.4% of capital at risk. Considering the fact that we’ve been through one of the steepest four-month sustained drops ever recorded in the VIX (perhaps the steepest, depending on how you measure it), our continued ability to…
Last week SPY-options implied volatility dropped by almost 15%, which, along with the share price climbing above the center of our risk curve, was a drain on both unrealized return and projected profit at expiration. However, following the strategy rules for managing volatility risk with our entry trades is paying off: at Friday’s close, the unrealized return on our February trades was up from the week before. In post-session options-trading, we were showing about a 3.8% unrealized return on total…
Leaving aside the newly opened February/March Double-Calendar, our portfolio of open positions is currently showing a return (realized and unrealized) of approximately 5.4% on total capital risked. That represents a Model Portfolio return of about 3.3% after accounting for the cash we kept in reserve for hedging our January portfolio and entering February trades.
As the trading week drew to a close Friday afternoon, our January positions had a slightly bearish net delta…
With SPY near $127, we’re neutralizing portfolio delta and selling some additional premium by rolling the short December 125 calls up to the 128 strike, with the following order:
Day limit order
Buy to close 2 SPY Dec 125 calls
Sell to open 2 SPY Dec 128 calls
for a net debit of $1.76 or better.
Note that the 2 contracts specified above represent our entire short position in the Dec 125 calls.
Analysis: Given the moderate,…
As our portfolio vega and (negative) gamma grow (the latter to a decreasing degree each day, because the short strikes are spread out far to either side of the current underlying price), so does theta—the profit we accrue from decay in the value of our short positions. Let’s look deeper into that statement:
Calendar-spread vega (change in net value with respect to implied volatility) increases with time, accelerating into front-month expiration.
Short-gamma positions—ones that lose value at an increasing…
As suggested earlier, we’re repeating this morning’s butterfly trade, only bigger this time:
Day limit order
Buy 2 SPY Nov 125 puts
Sell to open 4 SPY Nov 119 puts
Buy to open 2 SPY Nov 113 put
for a net debit of $1.28 or better.
Note that the 2 contracts specified above for the wings represents double the size of this morning’s trade and the same number of contracts initially allocated to each leg of…
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…
We’re opening the following position to hedge our upside delta and vega risk:
Day limit order
Buy to open 2 SPY Oct 130 calls
Sell to open 4 SPY Oct 124 calls
Buy to open 2 SPY Oct 118 calls
for a net debit of $2.81 or better.
Note that the 2 contracts specified above for the wings represent the number of contracts allocated to each leg of our core, double-diagonal position.
Analysis: The resulting risk…