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…
Tuesday, January 15, 2013
The Condor Options newsletter portfolio returned 21% in 2012, versus 17% for the S&P 500. The strategy also beat the S&P 500 in the final quarter of the year, giving back 1.1% versus the SPX loss of 2.05%. We also bested the CBOE Volatility Arbitrage Index (VTY) for the year by about 3 percentage points. The purpose of the strategy is to profit from the volatility risk premia that are priced into options. While the volatility risk premium is a consistently…
Tuesday, September 25, 2012
The Condor Options newsletter portfolio returned 6.31% in the third quarter of 2012, marking another new all-time quarterly high for the strategy. The strategy has produced a total return of 134% since inception, compared with returns of -4% for the S&P 500 over the same period and -38% for the CBOE Volatility Arbitrage index. This quarter, we lagged the market slightly but outperformed our benchmark index easily. September saw a modest drawdown as the rally pushed against the short strikes of our…
Monday, August 13, 2012
Financial markets change along with the real economies on which they depend. This maxim applies to investing strategies and options markets, too. For example, the “fire and forget” approach to option selling that some traders favored in the pre-crisis world is no longer tenable (if it ever was). Risk appetites have shifted, order flow is moving into different products, and the cast of influential market agents is composed of different actors. As detailed in the attached video, here are some…
Tuesday, July 31, 2012
Here’s a question we received recently from a client, asking about the relationship between the vertical spreads we trade in the ETF Trend Options strategy and the iron condors associated with our core product: I have been trading these ETF Trend Option spreads for a while now. Some of them wind up as de facto put/call condors. Can you explain the fundamental differences between your regular iron condors and these de facto ETF condors? Except for the…
Sunday, March 25, 2012
Probably. First, some context. Here’s the one-month volatility risk premium in USO options since 2007. Think of this as an estimate of how richly or cheaply priced options on crude oil are, relative to the actual historical volatility of the asset. Any ratio above 1.00 indicates that option buyers were willing to pay a premium above the value of the volatility subsequently exhibited by crude oil futures. As you can see, the ratio is usually greater than one.…
Friday, February 24, 2012
The jargon of options trading sometimes turns people off, and maybe “volatility skew” is one of the biggest hurdles. So I’m going to explain the concept in a straightforward way, and then explain why volatility skew is something you should care very much about. Volatility skew usually refers to the difference between the implied volatilities of options at different strike prices in the same expiration cycle. For the majority of stocks and indexes, options with high strike prices have low…
Saturday, January 7, 2012
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…
Friday, January 6, 2012
We’re closing the put side of the January iron condor we rolled from our Dec/Jan double-diagonal, to free up margin for a February entry trade later this afternoon. Day limit order Buy to close 2 SPY Jan 114 puts Sell to close 2 SPY Jan 107 puts for a net debit of $0.04 or better. Note that the 2 contracts specified above represent our entire stake in the Jan 107/114 put vertical portion of this position.
Friday, December 23, 2011
The iron condor we rolled into from December’s double-diagonal, combined with the January/February double-diagonal we entered this week, has held up well in the face of Santa Claus Rally 2011. SPY is up nearly 4% on the week, and the VIX has dropped more than 14%—very hostile conditions for a less robust calendar-spread strategy than ours—but at Friday’s close we were still showing an unrealized gain of almost 2.4% on total capital at risk and a Model Portfolio return of…
Jared Woodard is a registered commodity trading advisor who specializes in trading volatility as an asset class. With over a decade of experience trading options, futures ... Read More
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Tuesday, April 23, 2013
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