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…
For anyone who didn’t place this order yesterday, or wasn’t filled, we’re officially closing our remaining March IBM position this morning, as follows:
Day limit order
Sell 1 IBM Mar 160 put
Buy 2 IBM Mar 155 puts
Sell 1 IBM Mar 150 put
for a net credit of $2.60† or better.
Note that the number of contracts specified above represents our entire position in IBM March Butterfly Hedge #3. Also note, again, that as a Supplemental…
Risk-averse members who want to stop out of our IBM Supplemental Trades this afternoon may consider the following butterfly order:
Day limit order
Sell 1 IBM Mar 160 put
Buy 2 IBM Mar 155 puts
Sell 1 IBM Mar 150 put
for a net credit of $2.28 or better.
The number of contracts specified above represents our entire position in IBM March Butterfly Hedge #3. Also note, again, that as a Supplemental Trade, this order will…
Last week we closed our remaining March SPY positions, booking a 26.8% average return per trade for this cycle. Here’s the breakdown:
SPY March/April Double-Calendar #1 – Closed for a 35.44% return on capital at risk.
SPY March/April Double-Calendar #2 – Closed for a 3.82% return on capital risked.
SPY March Butterfly Hedge – Closed for a 41.18% return on capital risked.
In Model Portfolio terms, we logged a gain of 16.48%—not quite the 18% return we were…
For the third time this cycle, IBM has thrown us a damaging whipsaw. As noted yesterday, anyone with enough capital could add a downside hedge here (e.g., the IBM Mar 155/160/165 put butterfly)—but we can’t assume everyone has such deep pockets. So what we’re going to do for now is roll two-thirds of our calendar hedge at 170 down to the 160 strike, as follows:
Day limit order
Buy to close 4 IBM Mar 170 puts
Sell to…
After the previous closing trade, our IBM portfolio delta bias still exceeds our upper risk-management threshold. I expect today’s bullish reaction to IBM’s investor conference on Tuesday to settle out in coming days, with IBM testing support at $166, and possibly even $164. In light of the whipsaw risk, we’re using a calendar spread (long vega) to hedge the upside this morning:
Day limit order
Buy to open 6 IBM Apr 170 puts
Sell to open 6 IBM…
We’re reducing upside risk in our Supplemental Trades portfolio in two steps. First, we’re closing the 150/160/170 hedge position. The following order will take some patience, as it anticipates a retracement to IBM $166.50:
Day limit order
Sell to close 2 IBM Mar 170 puts
Buy to close 4 IBM Mar 160 puts
Sell to close 2 IBM Mar 150 puts
for a net credit of $3.38 or better.
Note that the number of contracts specified…
Despite—to some extent, because of—continued volatility in the markets this week, we’re having an outperforming month. We’ve locked in a 35% profit on one position, and our combined realized and unrealized return on total capital risked has increased to nearly 24%. We ended the week with a Model Portfolio Return in the vicinity of 16%.
Heading into next week we’re almost precisely delta-neutral, although our portfolio gamma and vega are growing. If called for (our projected risk-management price thresholds at…
Yesterday’s breakout in IBM turned out to be anything but. So, for the first time, I’m publishing an adjustment trade for dealing with whipsaws when the whipsawed position is a butterfly hedge. We’re rolling down the bottom half of March Butterfly Hedge #2 with the following order:
Day limit order
Buy to close 4 IBM Mar 170 calls
Sell to close 4 IBM Mar 165 calls
Buy to open 4 IBM Mar 150 puts
Sell to…
March implied volatility in IBM options is still a bit high for a calendar entry, so we’re hedging the upside with another butterfly, as follows:
Day limit order
Buy to open 4 IBM Mar 175 calls
Sell to open 8 IBM Mar 170 calls
Buy to open 4 IBM Mar 165 calls
for a net debit of $1.02 or better.
Note that the 4 contracts specified above for the butterfly wings represent the same number of…
Monday, March 21, 2011
2 Comments