From early March through last Friday, there were really only a few ways to make any profits in the S&P 500, and looking at which strategies have been working gives us a good sense for the character of this market. First, let’s take a look at price action over this period. SPX went basically nowhere: Fig. 1. S&P 500 Index, March 6 – April 18. Source: CBOE Now, trading strategies can be classified according to the source of their risks/returns, meaning…
Monday, January 23, 2012
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…
Thursday, December 15, 2011
As discussed in this afternoon’s trade notice, we’re rolling out the short legs of this position by selling a double-diagonal, as follows: Day limit order Buy to close 2 SPY Dec 128 calls Sell to open 2 SPY Jan 127 calls Buy to close 2 SPY Dec 113 puts Sell to open 2 SPY Jan 114 puts for a net credit of $2.45 or better. Note that 2 contracts represent our entire short positions at…
Tuesday, December 6, 2011
With SPY near $127, we’re neutralizing portfolio delta and selling some additional premium by rolling the short December 125 calls up to the 128 strike, with the following order: Day limit order Buy to close 2 SPY Dec 125 calls Sell to open 2 SPY Dec 128 calls for a net debit of $1.76 or better. Note that the 2 contracts specified above represent our entire short position in the Dec 125 calls. Analysis: Given the moderate,…
Tuesday, November 15, 2011
As our portfolio vega and (negative) gamma grow (the latter to a decreasing degree each day, because the short strikes are spread out far to either side of the current underlying price), so does theta—the profit we accrue from decay in the value of our short positions. Let’s look deeper into that statement: Calendar-spread vega (change in net value with respect to implied volatility) increases with time, accelerating into front-month expiration. Short-gamma positions—ones that lose value at an increasing…
Tuesday, November 1, 2011
As suggested earlier, we’re repeating this morning’s butterfly trade, only bigger this time: Day limit order Buy 2 SPY Nov 125 puts Sell to open 4 SPY Nov 119 puts Buy to open 2 SPY Nov 113 put for a net debit of $1.28 or better. Note that the 2 contracts specified above for the wings represents double the size of this morning’s trade and the same number of contracts initially allocated to each leg of…
Monday, October 3, 2011
We’re hedging downside risk with the following butterfly position: Day limit order Buy to close 1 SPY Oct 113 put Sell to open 2 SPY Oct 103 puts Buy to open 1 SPY Oct 93 put for a net debit of $2.34 or better. Note that the 1 contract specified for the wings of the butterfly represents half the number of contracts in each leg of our core double-diagonal position. Analysis: As stocks continue to get…
Thursday, August 11, 2011
It’s been another wild week, as the market tries to find a bottom amid one string of bad news after another. Through disciplined adherence to our strategy rules, though, we’ve managed to keep risk under control without sacrificing a great deal in terms of profit potential. On the other hand, our unrealized return is quite another matter. As of this writing, our August portfolio is showing a loss on total capital at risk in the 20% range. Model Portfolio return,…
Thursday, August 4, 2011
SPY recovered a bit after the last trade notice went out, but it’s resumed its fall now and confirmed our risk-management signal. With SPY August implied volatility now over 30%, we’re selling (vol) into that spike by opening the following butterfly hedge: Day limit order Buy to open 2 SPY Aug 125 calls Sell to open 4 SPY Aug 119 calls Buy to open 2 SPY Aug 113 calls for a net debit of $1.55† or…
Thursday, July 21, 2011
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…
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
© 2013 Condor Options. Powered by Wordpress.
Tuesday, April 23, 2013
0 Comments