Now all we’re left with is our initial trade in this series, which we’re closing with the following order: Day limit order Buy to close 2 JNJ Dec 65 calls Sell to close 2 JNJ Jan 65 calls Buy to close 2 JNJ Dec 62.5 puts Sell to close 2 JNJ Jan 62.5 puts for a net credit of $0.88 or better. This order flattens out our last open calendar position, leaving us with a…
Thursday, December 16, 2010
Our second move is to enter simultaneous orders for the positions with the highest delta risk (in opposite directions): Order #1 Day limit order Buy to close 4 JNJ Dec 65 calls Sell to close 4 JNJ Jan 65 calls for a net credit of $0.13 or better. Once again, note that this order closes our position in CS#1, but we’ll still have open contracts in the 65 calls from the 62.5/65 double-calendar. Order #2…
Thursday, December 16, 2010
We’re starting out the process of unwinding the remainder of our JNJ portfolio by closing the most volatile position (i.e., the one with the most negative gamma), as follows: Day limit order Buy to close 2 JNJ Dec 62.5 puts Sell to close 2 JNJ Jan 62.5 puts for a net credit of $0.75 or better. Note that this order closes our remaining position in CS#3, but it does not liquidate our entire stake at the 62.50…
Thursday, December 16, 2010
Our core SPY strategy—with tighter risk-management rules—was back on track in December, despite headwinds from a short but fairly sharp pullback, followed by a sharper rally and breakout to new post-crash highs, and a corresponding drop in implied volatility late in the cycle: SPY December/January Double-Calendar #1 – Closed for a 30.6% return on capital at risk. SPY December/January Calendar Spread (Adjusted) – This position served its function as a downside hedge, with the loss of 19.7% of total…
Tuesday, December 14, 2010
JNJ continues to defy gravity this afternoon as the healthcare sector leads today’s rally. We’re further reducing our bearish delta bias and, more important, slashing gamma, by selling half of our stake in this position: Day limit order Sell 2 JNJ Jan 62.5 puts Buy 2 JNJ Dec 62.5 puts for a net credit of $0.65 or better. Note, again, that the two contracts specified above represent half of our position in this trade (not half of…
Tuesday, December 14, 2010
Much as we were looking forward to demonstrating ways we can turn a losing butterfly hedge trade into additional profit, it’s too near to expiration for any risk-management approach other than unwinding our positions. First, we’re reducing our upside delta exposure by taking off ¼ of the butterfly hedge. Because there’s no bid under the Dec 57.5 puts, we have to use a ratio spread order, as follows: Day limit order Sell 1 JNJ Dec 62.5 put Buy 2…
Monday, December 13, 2010
We’re between a rock and a hard place today with our JNJ Supplemental Trades portfolio, and it looks like our best option for paring risk is to close out part of our position at the 62.50 strike. We’re entering the following order as the session draws to a close: Day limit order Buy to close 4 JNJ Dec 62.5 puts Sell to close 4 JNJ Jan 62.5 puts for a net debit of $0.55 or better. Note…
Tuesday, December 7, 2010
This week’s Santa Claus surge, and corresponding collapse in implied volatility, is keeping us near the breakeven point as we approach expiration week, and putting even more pressure on our JNJ Supplemental Trades. Here’s where we stand as of 11:15 Eastern this morning: SPY Portfolio – Our current unrealized loss is about 1.4% of total capital at risk,and we have a net Model Portfolio delta of about 1.8%. Our delta in proportion to capital at risk is approximately 2.4%.…
Thursday, December 2, 2010
Yesterday JNJ closed above the $62.25 adjustment price threshold given in the analysis for Monday’s hedge trade. That price level was based on the simple idea that we can close a hedge position once the underlying is back above the price that triggered the adjustment and the hedge position no longer has positive theta. Since then we’ve been looking at an alternative— neutralizing the hedge-trade delta by adjusting the position rather than closing it, thereby turning a losing hedge…
Monday, November 29, 2010
With implied volatility for out-of-the-money JNJ January puts near 17%, instead of adjusting a calendar position down to a lower strike we’re going to use our Supplemental Trades portfolio to demonstrate the butterfly hedging strategy currently under development. Note that the order below presumes participation in all of our currently open ST positions, and we’re determining position size by the number of contracts needed to offset about half of our current portfolio delta. The delta of the butterfly is about…
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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Thursday, December 16, 2010
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