Theta Positive - Option Trading

Mar 26th

Sorry for being absent for a couple of days - just flabbergasted with this uptrend - fight every Iron Condor on the upside, pulling deep down in my mind back to 2007 when every condor needed upside adjustments.

For me only one blessing - this think rocks - I was able to pull some nice day trade off.

I want to share one live trade BGZ I did over last last couple of days - hopefully it give you some ideas.

BGZ
3/19 buy 7 calls 70 Apr for 8.20
3/19 buy 8 puts 65 apr for 6.60

This set up is delta neutral and makes profit if we get a big move.

3/23 sell 3 puts for average 9.40 - locking a profit on the puts 3*2.80 = 840.00 (of course the calls are bleeding). Again at night the position is delta neutral.
3/24 sell 2 puts for 10.90 another 860 in profits.

3/25 close position - sell 3 puts for 8.50 = 570  in profit and sell calls for 4.68 (average) loss of 1760.00. Total profit on trade 840+860+570-1760 = 510

My execution experience on BGZ was not very positive - the MM's don't come to the mid - they want to do business on the ask/bid. Which is understandable for a triple speed times the current market.

I add trades in the FAZ, FAS, BGZ and BGU. All in simulair ways. Nicely profitable altough the QLD has still to proof it worth.

Here is my current thinking - I will employ trade like this when I call a 'market top' or bottom. My TA is good enough to have at least half of the nation to draw the same conclusion. Which means we either make the move, or half nation is disappointed and we make the move in the other direction.

My risk in this trade is two fold - a. theta - I pay for every day the move doesn't happen - b. Vega if the moves doesn't come and the vix drops, this trade hurts. But I anticipate the drop in IV on the tripples will not be as quickly as the drop in IV of the total market. The MM's migth widen the market a bit if they feel less secure on direction.

 

Mar 20th

So far I have not yet re-entered the butterfly. In my overall portfolio I have enough action to the downside. Since a butterfly starts of with short delta's that would only add to my shorts.
I also have been mindful of VIX action since the FOMC day - I was amazed with the built up in the vix while the market was hanging out. For me that was a tell-tail for Friday afternoon action.

I have some plays which are working out nicely;

- short spy since yesterday ($79.00) compensate by short  several PUT 69 APR. My ratio is short 2 put for every 100 short SPY.
- FAZ long straddle (entered this morning)
- BGZ long straddle (entered yesterday - might have paid to much for that one)

I also added DIA butterfly - here is the graph. It is a relatively small butterfly, a little wider than my "standard" rut butterfly.

That's it for today - @4pm EST - I will do a Mentoring Class on the TOS Trading platform for the March Students for Sheridan Mentoring. It will be a beginners class - in two weeks we will do another helpdesk for some advanced Q&A.

Mar 18th

The butterfly went into the FOMC meeting with slightly positive deltas. I created positive delta by reducing the main trade with one butterfly - I removed 1-2-1 for every 10 flies I had in the account. This was enough to "overweight" the 440 April calls and make the trade positive delta and positive gamma.

After reading the FOMC meeting and seeing the market reaction, in the TLT, the Euro, Gold and Vix - I decided that my 330-370-410 fly is centered in the wrong area. My choices were fighting or taking off and re-centering. I have chosen that last option. The loss per 5-10-5 is under $500 -  a re-centered butterfly can easily make good on that amount.

Tomorrow is a new day - I will observe market behavior and decide how to move forward. By my trade plan I will need to sell an IC on the RUT and now I also need to add a butterfly - busy day :)

In the last week or so I have the impression that the MM's are less willing to fill the IC and Flies @ the mid or better. For March I had been lucky and got very good fills - but somehow I sense a difference.

Around the FOMC meeting I have been working with a 'new' trade strategy - I had not used a long straddle often. I set up a market neutral long straddle on the BGU (triple long Large Cap) - I bought 10 calls and 17 puts. That combination was delta neutral and long  gamma. When the market run away I was able to sell the calls in several transaction to maintain a market neutral trade. When we reach the intraday top - I had 2 calls left and the 17 puts had a rest value of 5ct. I closed the calls - and in the retracement I was able to close the puts for 15ct. The put closed for a loss (30ct original) but easily compensate by 90% profit on the calls. I definitely will use long straddle more often in hyperactive trading moment.

Mar 17th

It seems for right now we are in a new period.A rut close above 400 pretty interesting.
Tomorrow FOMC meeting - I can't see Uncle Ben saying anything that is negative for the market. So that leaves the other alternative up, up and away.
Having negated the Monday down turn and a bit, the market is showing its short term hand.

In the butterfly I added the 440 call paid $5, since I sold the other one yesterday for 6.30. I made a little swing trading profit. The trade is not theta positive anymore - I need to start considering to swing the whole trade to a higher level. The delta's are under control - depending the market I might even add little delta to it , to be a bit long during the fomc announcement. That decision will wait till mid morning.

March 16th

Sorry just a picture.

Closed one of the extra 440 calls - (nicely done around the top)

Mar 13th

2nd day in the trade - in what seems a bear market bull run.

I have done quite some research on how to deal with the situation we are dealt.

In my portfolio I trade this butterfly bigger than the 5 lot follow in my blog. So I can easily take half off and re-enter that half on the 380-420-460. This is my current consideration, Monday morning however I have planned a short session with Dan - to ask for his insights.

As you can see Friday I "bought" myself some time I neutralized my delta "extremely" - intraday it became clear to me that a sell off was not going to happen - I wanted to reduce further loses to the upside by neutralizing the delta's.  The price I pay if two fault 1. my theta has dropped significantly and if we fall of a cliff here the down side is not going to give me any reprieve.

So far the hedge of the 440 has worked my average price is 4.03 while these currently price @ 5.65

We will need to see how the futures open Sunday evening/Monday morning. Based on the last hour of Friday trading - I don't expect a down market Monday. But you never know for sure.

Enjoy the weekend,

Mar 12th

Short post - I entered the butterfly and am praying for a couple of down days :(

The only bright spot on the horizon was the rest of the portfolio, which reacted very positively today's action.

March 6th

End of a horrible week - start of an ugly month?

How far can we go? How soon will we get there?

I am looking for a P/E ratio of 10-12 on the SPY to call the bottom. As talked about before never ever started a bull market while PE ratio  were in the 20+ range.

Either earnings go up by themself, or earnings go up with help of inflation. Or the SPY will go down to a level that we have PE of 10 to 12. I don't see another solution.

And in my scheming mind - I am sure the administration knows this too. What do you think they rather have - 3 yrs of a slowly down trending market and a market which goes nowhere. Or a couple of quick drops while the warmth of the old president is still lingering on the chair in the oval office.

If I was a turn around manager assigned with this ugly job - I would say; "give me all the pain now". At least I can proof it was not my personal doing right now. Give it hard and fast - then when we get to a more comfortable zone I will step in and come with a large set of new directives, ideas and proposals. Building is easier done from the basement, from ground level to the 2nd floor is a 100% improvement.

The alternative is venting ideas now - while the unavoidable down turn still has to happen. Before you know it, your ideas get associated with the down turn. Then you are really in a no win situation.

Just a thought on the start of a beautiful weekend.

March 3rd

The blog will be lite now the butterflies are off.

For strangle I twittered - I closed the short puts @3:30 when it became apparent that a late afternoon bounce was not going to happen. I left the calls - because - why not? I sold the on high IV, if we go down the calls will do me good, if we go up the short vega will offset the short deltas - leaving me enough time to reenter some short puts.

Another 9 days and we will be back with a Rut Butterfly, when the last 450 calls come off I will update you will the final March results.

For Sheridan Traders - watch John L.'s March Butterfly Webex - he did a better job managing March then I did.

March 2nd

What a way to start a new month.

I closed the butterflies for March and the Iron Condor for April. The last one at least for now,  I might reenter later this week.
The April IC came off - for most because I could - including some insurances puts, I could close the condor literally for a scratch. Still enough time to reset when the market stabilize a bit.

The butterflies are not yet completely off - but the main risk is off the table. Butterfly II the 360-400-440 came off with a very nice profit. Although that is eaten away by the first butterfly. I am still short some 450 calls, so I can't make full tally as yet. My loss for March butterflies is under 70% what a normal month in butterflies would bring in. Overall I am very happy with my results, this loss is easy to carry without the build up of any mental garbage.

I am very close to closing the books on March - overall March is not as good as Feb - but I can leave the red pen in its cover. I can assure you that was part of my decision making process - not wanting give back what was already rightfully mine.