Theta Positive - Option Trading

Vix Experimental trade (Nov 10th)

Today I started with an experimental trade.

I expect the VIX to be in a trading range 40 - 70 (for the foreseeable future). So I started with Butterfly for December in the VIX 35-55-75.  I paid $6.45 for a 5-10-5, resulting in a max possible loss of $3,225.-.

I have traded the VIX last year for several months by naked selling the puts when we had a vix of 10. My thinking in those days was a Vix lower than 10 is technically hardly possible. Selling the 10put strike naked is a defined risk trade and falls within the scope of my trading style. While the Vix made the enourmous move I stayed away from trading it. As said now I feel we are establishing a range and think it is time to set up a trade.

A few observations.

I bought the Dec 35 call for 13.66. 35 plus 13.66 is 48.66. This call will be profitable if and when the VIX stays above the 48.66. The VIX traded @ 55 when I entered my trade. So the Call trade more than $6 under par. No time premium paid on this strike. In non of the other underlying can you buy a call under par.

The 75 Call I paid $1.29 which is completely time premium.
The 55 was sold for $4.25 completely all time premium.

The analyze page in TOS doesn't work correctly for VIX trades. So I can't show any graphs. I recommend you enter the trade in your Optionvue or TOS paper money to track the results and join me in this expriment.

November 7th

What a strange sell off starting around 3pm, hardly followed by a bounce in the vix. The upward trend line from yesterday low and today low held perfectly 20 minutes later. A lot of volume was committed in this 20 minutes. Market is still very jittery. Today goes in the books as an inside day - which lead you to conclude continuation of the governing trend. The short term trend is down.

I would like to share the follow chart today. I realize I have shared this one before, but I think a revisit at times can be helpful. We are looking at the 20yr monthly chart of the SPY. Double top and a retest of the 2001 low. In 2001 we had a quick bounce of the lows and a retest of the low - this whole setting and testing took 6 months to play out. The message I try to relay is two fold.

a. If 825 (SP500 futures)  is our low don't expect the retest in terms of days/week but allow some time.
b. If you (still) have funds for reinvestment - go slow - allocate every month 5% to the markets; this way if we are wrong and 825 is not the bottom; you are still around for the next time we think we have a bottom.

To finish up; don't read me wrong I am not predicting the bottom here and now. I am proposing a method to get some skin in the "game" at this point - and not to get your head handed if your wrong.

While I am writing the blog we run up in the close - what a power!

November 6th

Scary just yesterday I wrote that a retracement to the 900-910 for the SPX would be healthy, just a couple of hours into today trade - We had 910 print and at lunch time we bounced off 900 level. In the last minutes of the market we broke 900. The Vix in two days of trading jumped up over 20%.

Today I sold the PUT side of my RUT Iron Condor so currently I am short the 370 and the 640; covered by the 360 and 650. Total credit of 2.25 the gaping width between the strike of 270 points.

No market compass on my desk right now - todays low will need to hold tomorrow otherwise .....

November 5th

What a evening, what a night. We live in the middle of Harlem - a great street party - lots of joy and hope.

As for the markets;

Serious weakness is moving in. Seems that yesterdays call to sell calls on most assets was timely.  The Trin and the Vix are reacting with the expected numbers on this move down. No hope can be drawn from those market internals. The only light point is the lack of volume. For a 5% down day volume was relatively light.
If this is a 50% retracement of the last move up; expect to see 900 - 910 in the SPX futures, rather sooner than later.

CHK is contributing to the success of November. I bought some extra CHK in my long term investment account - for the keep. Hopefull one day I will look very smart with that move.

The advise for the non directional December trades is still - go light or don't go at all.

November 4th

Please check the enclosed chart. We all know we are not going up in a straight line from here. As yourself I don't know how much room we have to the upside - but slowly I have been selling some calls. Today's market action is promising for a bit more upward action, We closed right at the top.

Selling some calls on assets you own either for November or December - for instance take calls with a delta of 20. This means that you have 80% chance the stock will be below your call strike. 80% chance is the statistical chance based on the current implied volatility. I recon that in a market which went up 20% in 6 days your 80% chance is a bit higher.

I sold (naked) some DIA DEC Calls 105 - the plan a. the closed them for 5ct or less, b. start buying 100 DIA to compensate for the short delta's if we pass the 10000 mark. After a nice little down period I will sell some DIA puts naked. Remember I do these naked trade in a size which laughable - only at the end of the year it is me laughing - because it added up nicely. With portfolio margin the yield is enourmous. If you have access to Optionvue - do a backtest for a year and see the results for yourself.

The covered calls are sofar contributing to this months profit.
The PCU trade came off at max profit. The PRU trade keeps surprising me - in a positive way - Today we closed above 40. I started to rebuy my PRU's from 28.60 and up. Every time the position delta became short, I bought 100 pru's this morning I bought three badges of 100 at 37, 38 and the last at 39. My average purchase cost for the PRU is little over 35. I am still short the 40 calls and I short a 5 lot Nov Put 35. I will give a complete results report closer to November expiration.

I am off to a big Election Party here in the City. If needed I will pull an all nigther - just want to make sure we getting the right kind of change (the original kind, not the summertime copy cat kind of change).

Nov 3rd

Tight range - 920 to 984. You better make a note in your journal - 64 points is a tight range for the SPX :)

Encouraging market action for the bulls especially in the last half hour. Also intraday it seems that every new low is a little bit higher than the previous low. Today we had no volume what so ever. I still think we need to wait till after the elections before we will see the real market. On the other hand the market will already have priced in Obama becoming president and from recent market action it seems not to be a drag (if a US president has any effect on the SPX).

Today I move in (small size) some non-directional trades. I started an RUT Iron Condor. Normally I would start 49 days out, but as said, I want to see the first day of November before I made up my mind. I got filled on the Calls, I will try the puts again tomorrow - the fish did not want to bite.

One request to you all. Please go vote tomorrow. Let's give the guy of our choice the best support we can. Let's not again have an election decided by a couple of hundredth voters. Even if you live in a dark blue or dark red state and you feel that your vote doesn't add to the national picture; Please, please vote. I might not agree with your choice - but our system only works if we make it work.

have a safe one!