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…
In what the headlines are trumpeting as the best week for the market in three years (some have claimed it’s “one of the best weeks ever [emphasis mine]”, our current risk profile has suffered more from the plunge in implied volatility than from the move in underlying SPY shares. While that might not sound like a good thing, it means that we’ve been managing delta risk prudently and, considering how far IV has fallen, vega risk as well.
While our portfolio hasn’t changed all that much since the last time we added up our net position at each strike, we have some closing orders to place before expiration, and this would be a good time to make sure account positions are in line. For each base-position unit traded, we currently have the following open positions:
+2 SPY Nov 111 puts
+3 SPY Nov 113 puts
–3 SPY Nov 117 puts
–3 SPY Nov 119…
The S&P is showing signs of an impending technical breakdown—which could well turn out to be a bear trap. Whatever solution Europe seems to have for its sovereign debt problems has repeatedly failed to pass muster under scrutiny. In other words, we’re still facing a great deal of uncertainty despite the three-day drop in implied volatility through yesterday’s close. IV is up again today, and the volatility term structure isn’t looking especially attractive for calendar spreads.
In the “current” environment…
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…
A mostly bullish week triggered a signal to unwind our downside October butterfly hedge Friday in the final 45 minutes of trading, only to reverse that signal within the subsequent half-hour. With SPY now back well over $117 in pre-market trading this morning, it looks like we’ll be going through with that adjustment today. Note that we’re planning to roll the butterfly into an iron condor, which will require approximately $500 in additional margin per contract.
As of Friday’s close,…
With SPY implied volatility spiking to its highest level in six weeks, we’re entering a (short-vega) butterfly to hedge our delta bias, as follows:
Day limit order
Buy to open 2 SPY Aug 135 puts
Sell to open 4 SPY Aug 129 puts
Buy to open 2 SPY Aug 123 puts
for a net debit of $1.73 or better.
We’re allocating a dollar amount to this trade equal to the allotment for each regular calendar-spread position.…
I back-tested our July trades, with various alternative scenarios, hoping to find out whether there’s anything we could’ve done differently to improve our return. The critical point, not surprisingly, was the July 7th false breakout, which triggered two bullish adjustment trades and then reversed hard (SPY lost nearly 3% in three days), crushing the adjusted position. So were those adjustments mistakes?
Here’s the dilemma: Our latest risk-management criteria, which back-tested beautifully and worked well in the first quarter (but fell…
With SPY up $2.00 this afternoon, we’re opening a second August/September double-calendar, as follows:
Day limit order
Buy to open 2 SPY Sep 138 calls
Sell to open 2 SPY Aug 138 calls
Buy to open 2 SPY Sep 135 calls
Sell to open 2 SPY Aug 135 calls
for a net debit of $1.78† or better.
Note that we’re using the calls for both strikes in this double-calendar. And, as usual, 2 contracts is our…
Last week we closed our June positions, with a few good results—but they were offset by some disappointing losses:
SPY June/July Double-Calendar #1 (132/137): Closed at a loss of 69% after 34 days;
SPY June/July Double-Calendar #2 (128/134): Closed with a gain of 24% on total capital risked, in 25 days;
SPY June/July Calendar Spread (137): Closed at a 96% loss in 17 days;
SPY June Butterfly Hedge #1 (127/131/135): Expired with a gain of 16% on total capital…