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…
We’re entering the following position this morning for March expiration:
Day limit orderBuy to open 2 SPY April 139 callsSell to open 2 SPY March 139 callsBuy to open 2 SPY April 134 putsSell to open 2 SPY March 134 putsfor a net debit of $2.85 or better.
Note that 2 contracts is our base position for double-calendars. Trading whole-number multiples of the base-position size ensures that adjustments will not result in unbalanced positions. In…
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…
With the January put vertical spread closed, we have enough margin available to open the following position for February expiration:
Day limit order Buy to open 2 SPY Mar 131 calls Sell to open 2 SPY Feb 131 calls Buy to open 2 SPY Mar 125 puts ell to open 2 SPY Feb 125 puts for a net debit of $2.40 or better.
Note that 2 contracts is our base position for double-calendars. Trading whole-number…
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,…
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.
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…
After a flat Friday, our unrealized loss on total capital at risk, as of the closing bell, had narrowed to about 2%. Since we’re keeping a tight rein on risk and are almost 2/3 in cash right now, the current paper loss as a percentage of our Model Portfolio is less than 0.7%.
Members who’ve been with us for a few months or more know that it isn’t uncommon for our portfolio to be showing an unrealized loss at this…
As planned, we’re rolling a portion of our current November butterfly hedge into a delta-neutral iron condor, as follows:
Day limit order
Buy to close 1 SPY Nov 119 put
Sell to close 1 SPY Nov 125 put
Sell to open 1 SPY Nov 132 call
Buy to open 1 SPY Nov 138 call
for a net credit of $1.84 or better.
Note that 1 contract per leg represents the number of contracts we’re long…
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…