Talking about a liquid product - did you see that the SPY trades close to 9 million shares in the 13:55 5 minute bar. On a daily basis the SPY trades over 400 million share. Incredible numbers.
As I twittered I stopped out of the SPY strangle (95/69) when the VIX broke out of today high. For me the SPY strangle is foremost a VIX/Vega play - Last Friday I had sold the strangle for 1.49, today I closed it for 1.32 - not hugely profitable - but still enough not to call it a scratch.
I reenter a strangle when the low of the day was taken out - so currently the strangle is 91/67 for 1.45.
This trade has slightly negative delta and short vega. So if we go up I will lose on the delta but get paid on the vega - if we go down (against my direction) I will lose on the vega but will get some compensation due to the delta's. In both scenarios Theta is my friend.
Reentering on different strikes gives me the opportunity to recenter - Now I have equal time premium on both side - while in the old one the Call premium had rolled out and was not really helping anymore in the case the market would come down.
Analyzing today volume (intra-day SPY) - you can see low volume till 2pm - after 2pm the market got some conviction.
Those of you with a memory of my covered calls; will understand that CNH did not make me a happy trooper - My current position short FEB put 17.50 are bound to be assigned. We will have to start over again with selling the call on top of the shares. I listened to the earnings call - CNH has two product lines Agriculture (doing well) and infrastructure (not doing well). The covered call trade from Nov till now is down $45 per 1 lot. Selling all the put and call premium over the last months gave a buffer to absorb this set back. After I am assigned I can sell the March 10 or March 12.50 calls without having to fear assignment, since assignment will be profitable.
The butterfly did not move a lot; BTW check the delta's, talking about being market neutral :)
Your trades fascinate me! I have a question about your spy short strangle. Do you set some rules ahead of time as to your stop loss, or when you would get out if things moved against you? For example, nowadays we could see a move up in the vix of 10 points in a day, would you get out then, or do you focus on dollars or sense, or do you go by your gut? Im just trying to get a sense of what goes on in your head because you seem to be a disciplined trader.
Also on your butterfly- as this is perfectly delta neutral and you will most likely lose money the next day as we move, do you consider taking of 1 of the 5 butterflies to take gains, or anything along those line? In this market it seems that if you can simply survive with a profit on neutral strategies you should take gains? Or do you prefer to stay in as you don’t have to worry about this trade…. Again just trying to understand your thoughts as you are doing these….
Thanks! Bobby
Posted by: Bobby B | January 23, 2009 at 10:10 AM