At Friday’s close, our open SPY May/June 131/135 double-calendar was about at breakeven, and delta as a percentage of capital at risk was roughly 2.3%. Our portfolio (position) vega was approximately 5.5% of capital at risk. In short, we’re very well-positioned for the coming week. The plan is to enter a second May trade this week, but only if SPY climbs above about $134.40 or falls below about $130.60. We still have more than four weeks until May expiration, so there’s…
Monday, April 11, 2011
As one might expect, our one open position has changed little from the time of our late-afternoon entry trade—so this week’s Update will focus on the April positions we exited Friday. The results were less than stellar, but taken in context, they were very much in line with expectations for a cycle in which we came off a 7% market correction with the steepest rally since September 2010. Traders have a saying that we want to take profit when we…
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…
Tuesday, December 21, 2010
Our sole January position (SPY Jan/Feb 124 call calendar) held onto its gains yesterday and was mid-priced around $1.13 near the close, which represents a 15% unrealized return on capital at risk. The position was showing a base-position delta of about –4.8, or 1.2% of capital at risk. Now that we’re setting risk-management thresholds based on delta (more about this below), as position/portfolio gamma grows over time, our adjustment triggers move closer together. Currently our upside threshold…
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…
Thursday, December 2, 2010
We’re opening the following position for December expiration: Day limit order Buy to open 2 SPY Jan 127 calls Sell to open 2 SPY Dec 127 calls Buy to open 2 SPY Jan 122 puts Sell to open 2 SPY Dec 122 puts for a net debit of $2.25 or better. Note that 2 contracts per leg is our base-position size for double-calendars. Trading whole-number multiples of the base size ensures that adjustments will not…
Monday, November 29, 2010
Our two open December trades ended the session today with a small combined net profit: SPY December/January Double-Calendar (120/126) – Mid-priced around $1.84 at the bell this afternoon, this position has recovered to a paper loss of about 6%. Its base-position delta of 26.2 equals approximately 6.7% of capital at risk. SPY December/January Calendar Spread (118 Puts) – This position ended the day with an unrealized gain of 7%, at a mid-price of $1.38. Its negative delta bias of…
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…
Tuesday, November 23, 2010
Veteran subscribers have been here before, though not quite on this scale. Some confluence of outlier events near expiration—in this case, QE2 exuberance, followed by Euro-debt crisis, followed by anticipation of an Ireland bailout, a better than expected Philly Fed report and a successful GM stock sale—sends our calendar-spread portfolio into a tailspin. I’ve been reviewing the sequence of market moves that led to the November loss, as well as the actions we took in response, and will continue to…
Friday, August 13, 2010
As noted in last night’s Update, we’re reducing our delta exposure in the Supplemental Trades portfolio by rolling half of our position at the 135 strike down to 125, as follows: Day limit order Buy to close 2 IBM Aug 135 calls Sell to close 2 IBM Sep 135 calls Buy to open 2 IBM Sep 125 puts Sell to open 2 IBM Aug 125 puts for a net debit of $1.04 or better.…
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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Sunday, April 17, 2011
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