Last week we booked a substantial profit on both of our core trades for the February cycle, with only a small loss on the hedge position. Here are the results for each trade: SPY February/March Double-Calendar #1 – 8.54% gain on total capital risked; SPY February/March Double-Calendar #2 – 19.75% gain; SPY February/March Calendar Butterfly Hedge – 0.52% loss. The average return per trade was about 9%, and the relatively small size of the hedge position meant that…
Monday, October 24, 2011
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…
Thursday, October 13, 2011
Wealthy investors continued to put more money into hedge funds this past quarter—even as those elite funds lost an average of 3.4% in August and 3.7% in September—while the Calendar Options newsletter portfolio, by contrast, saw a return to its historic growth path despite a level of market volatility not seen since 2009. Although we have yet to fully recover from a record drawdown in the second quarter, our process of continually refining the strategy—with our primary focus on risk-management—produced third-quarter results that handily outperformed the benchmark strategies we use for comparison.
Friday, August 26, 2011
It’s been tough going these past three or four months, largely as a result of increasing market volatility similar to the July 2007 through April 2008 period that preceded the fall 2008 crash. But another factor has become an equally strong headwind of late: a pattern of front-month implied volatility rising more rapidly than back-month throughout the weeks preceding our target expiration. No matter how low IV is when we enter positions or how much front-month vol exceeds back-month, our…
Friday, July 22, 2011
June and July brought the longest sustained period of elevated 10-day realized volatility since March, making it a challenging month for short-gamma market-neutral income strategies. Nevertheless, by keeping a diligent eye on risk and letting time decay work for as long as reasonably possible, we ended the month with a net profit. SPY July/August Double-Calendar (Adjusted): Closed for a loss of 57.50% after 20 days; SPY July Butterfly Hedge (Adjusted): Expired at a loss of 3.47% after 23 days;…
Wednesday, May 25, 2011
There’s no denying it—we had a rough month in May. Under the circumstances, our 8.48% Model Portfolio loss was well within our tolerance for a one-month drawdown, and a vast improvement over prior losses under similar conditions before we updated our risk-management rules—but, as long-time members know, we never take a loss lightly. Nevertheless, at this point I don’t see any reason to modify our strategy. Our track record, based on a combination of real results and backtesting, indicates that…
Thursday, December 23, 2010
The strategy changes we’ve been developing and testing since last month’s drawdown are proving to be enormously beneficial. We’ve completed backtesting from October 2009 through December 2010, and the difference between what I’ll call the new “Vega-Hedged Strategy” and the existing strategy’s historic performance is astonishing. Our average quarterly return for the past 15 months was 7.95%, and the standard deviation of returns was about 10%. The Vega-Hedged strategy, with delta-based risk-management triggers, showed an average quarterly return…
Monday, September 27, 2010
Our September KO Supplemental Trades went very well, with an average return per trade of 8.99% on total capital risked and a Model Portfolio return of 6.08%. Even so, a few members wrote in to say that they felt overwhelmed by the frequent e-mail that resulted from opening and managing a full portfolio of Supplemental Trades in addition to the core newsletter portfolio. Our new practice of sending advance Trade Notices no doubt contributes to Inbox Overload Syndrome as well,…
Monday, September 27, 2010
We closed out our September positions for an average return per trade of 18.17% over an average trade duration of fewer than 12 days, and our Model Portfolio return for the month was 4.56%. That kind of performance over a period characterized by a strong uptrend and falling implied volatility says a lot about the robustness of our market-neutral, long-vega, strategy. But long-term results are what’s more important, and our September profit brings us into the black for the quarter.…
Tuesday, May 25, 2010
With the final numbers now in for our comparison benchmarks, we can officially log superior performance for May in conditions under which, according to “conventional wisdom”, a market-neutral strategy supposedly can’t do well. By following the latest improvements to our trading rules, we stayed mostly in cash and, for the one position we did put on, made vega-neutral adjustments to compensate for huge moves in the S&P as volatility shot back up to historically high levels. These same rules have…
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, February 14, 2012
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