Even with the VIX down more than 10% this afternoon, implied volatility for SPY options is still well over 35%. When IV (and thus volatility risk) is at an elevated level, our strategy calls for a vega-neutral, double-diagonal trade. We’re placing the following order for September expiration: Day limit order Buy to open 2 SPY Oct 128 calls Sell to open 2 SPY Sep 122 calls Sell to open 2 SPY Sep 111 puts Buy to…
Friday, August 5, 2011
To keep up with the relentless selling, we’re rolling the DC #2 portion of our position at 122 down to 116, as follows: Day limit order Buy to close 4 SPY Aug 122 calls Sell to close 4 SPY Sep 122 calls Buy to open 4 SPY Sep 116 calls Sell to open 4 SPY Aug 116 calls for a net debit of $0.12 or better. Note that the 4 contracts specified above represent the…
Tuesday, August 2, 2011
Closing the strangle left us with an excess of downside exposure, so we’re adjusting our portfolio delta with the following butterfly hedge: Day limit order Buy to open 3 SPY Aug 132 puts Sell to open 6 SPY Aug 126 puts Buy to open 3 SPY Aug 120 puts for a net debit of $2.10† or better. Note that here, 3 contracts represent 1½ times the number of contracts allocated to our initial, Aug/Sep double-calendar (DC#1; 131/136 put/call).…
Thursday, July 28, 2011
We’re opening the following position to hedge tail risk through the debt-ceiling crisis: Day limit order Buy to open 2 SPY Aug 140 calls Buy to open 2 SPY Aug 120 puts for a net debit of $0.53 or better. Note that the 2 contracts specified above represent the same number of contracts currently allocated to SPY Aug/Sep Double-Calendar #1. Analysis: This is the first time we’ve made a strangle part of our official portfolio, as opposed…
Tuesday, July 19, 2011
Both the S&P 500 Index and the VIX are in limbo—but the sooner we get a trade on the books, the more chance we have to profit from time-decay at relatively low gamma. We have no clear indication of where implied volatility is headed, but the following trade has a risk profile well-suited for current conditions: Day limit order Buy to open 2 SPY Sep 136 calls Sell to open 2 SPY Aug 136 calls Buy to…
Friday, July 8, 2011
We’re hedging our downside risk into the weekend with the following position: Day limit order Buy to open 4 SPY Aug 132 puts Sell to open 4 SPY Jul 132 puts for a net debit of $1.52† or better. Note that 4 contracts is our base position for single-calendars. Trading whole-number multiples of the base-position size ensures that adjustments will not result in unbalanced positions. In addition, in order to come as close as possible to matching our…
Friday, July 1, 2011
The S&P continues to surge as the few traders left on Wall Street return from lunch, so we’re compensating for the upside move by opening the following position: Day limit order Buy to open 4 SPY Aug 136 calls Sell to open 4 SPY Jul 136 calls for a net debit of $1.12 or better. Note, once again, that 4 contracts is our base position for single-calendars. Trading whole-number multiples of the base-position size ensures that adjustments…
Monday, June 6, 2011
We’re continuing to proceed cautiously with our hedge trades: Given that the S&P is deeply oversold on an intermediate-term basis and still hasn’t tested broken support (now turned resistance) at it’s April low, we need to be careful about a whipsaw reversal here. But this doesn’t change the fact that we’re getting two risk-management signals today—our June portfolio is at our maximum allowable loss level and our maximum upside delta bias. We’re putting in the following order to bring our…
Tuesday, May 31, 2011
SPY is about $0.25 shy of our June portfolio risk-management threshold, but well within range for adding a third June position—especially given the fact that the the June in-the-money puts are trading at a huge premium compared to July. We’re placing the following order this afternoon: Day limit order Buy to open 4 SPY Jul 137 puts Sell to open 4 SPY Jun 137 puts for a net debit of $0.82 or better. Note that 4 contracts…
Monday, May 16, 2011
Implied volatility for May increased since a week ago, without a corresponding rise in June IV. This has effectively offset the time-decay we normally would have seen last week, making it difficult to start unwinding our positions as we normally would be doing by now. Both of our portfolios have wide range between risk-management delta thresholds, so from that perspective, we can afford to stand firm and look for a little more time decay; on the other hand, we still…
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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Tuesday, August 23, 2011
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