The past week was every bit as challenging as we expected—and more…only it was the return of stark reality to investor sentiment rather than continued blind bullishness. Our Supplemental Trades portfolio was hit with a sell-off in energy shares steeper than any week except one in the past year. We canceled the planned adjustment to XLE Friday afternoon when the share price plunged from its opening surge back down to the prior day’s close (before recovering some late in the…
A couple of years ago, a member told me he feared becoming a member of “The Daily Adjustment Club”. I think of that phrase every time extreme market swings force us to adjust two or three days in a row, and I’ve made minimizing trading frequency a goal for each new refinement to the Calendar Options strategy. We’ve been successful in reducing trading frequency overall, but the market will always have rare periods where it whips back and forth to…
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…
Before getting in to the gory details of our March Supplemental Trades loss, I want to illustrate just how unusually volatile IBM turned in recent weeks. The chart below (click to enlarge) shows the price of IBM over the past two-and-a-half years (blue line), overlaid with its 10-day Average True Range and the 20-day slope of that ATR. Because it incorporates intraday volatility as well as volatility of day-to-day closing-price movement, I use ATR to gauge how emotionally a stock…
Yesterday’s breakout in IBM turned out to be anything but. So, for the first time, I’m publishing an adjustment trade for dealing with whipsaws when the whipsawed position is a butterfly hedge. We’re rolling down the bottom half of March Butterfly Hedge #2 with the following order:
Day limit order
Buy to close 4 IBM Mar 170 calls
Sell to close 4 IBM Mar 165 calls
Buy to open 4 IBM Mar 150 puts
Sell to…
Despite consistently low IV, our March trades are doing well—but first a review of the February positions we closed out over the past week:
SPY Feb/Mar Double-Calendar #1 – We closed this trade on Monday for a 35.81% loss…but our strategy rules made sure we had plenty of offsetting hedge positions.
SPY Feb/Mar Double-Calendar #2 – Our other position entered in the earlier part of the cycle produced a 4.88% profit.
SPY Feb/Mar Double-Calendar #3 – Hit the upper…
Monday morning’s adjustment trade reduced the negative net delta bias of our February positions from about 3.7% of total capital at risk to less than 0.5%, with a negligible increase in gamma and vega. At the closing bell, the net delta of all our open SPY positions (including the March/April double-calendar) was marginally positive, at about 0.3% of capital at risk.
As the P/L curve above shows, this morning’s surge in SPY and the past…
Since most of last week’s activity entailed closing out our January trades, and our February portfolio gamma is still fairly low, the Weekly Portfolio Update took a back seat to managing our trades. Now that the smoke has cleared, we can take a breath and assess our current status, starting with the January results:
SPY January/February Calendar Spread #1 (124 calls) – We closed this position the week before last for a loss of 19.39% on capital risked.
SPY…
As stocks resume their march higher today and implied volatility threatens another visit to 12-month lows, our portfolio P/L has slipped a bit since last week. This is the status of our open positions as of 1:35pm est:
SPY January/February Calendar Spread #1 (124 calls) – This position was mid-priced around $1.11, giving it about a 13% unrealized return on capital at risk. Base-position delta bias was –45, or –11.5% of capital at risk.
SPY January/February Calendar Spread #2…
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…
Monday, May 9, 2011
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