Theta Positive - Option Trading

May 28th

The butterfly is very closed to the point I will take it off - 20% is a nice enough profit - especially since this is the second butterfly for this month. We already closed the first one with a 9% profit.

As for the market - I think we are going to see a upthrust - why - we had so many chance to go down the last days none of them way really picked up by the bears. I would be surprised if the bull are getting the controls for a bit. Do get me wrong I don't think there is a fundamentally sound reason for the bulls to move it up further - but I am trying to make money and not trying to be a big name economist :)

May 27th

The market is changing its character - as I twittered two weeks ago - I sensed a change in the way the equity market and the treasury are correlating. I think the last couple of days are proof of that change. The treasuries are taken over by their own fear for the deficit and seem uncorrelated to the increasing fear in the equity market.

My long term plays are short dollar, short treasuries, long energy, long commodities. How do I enter these long plays while using my Theta Positive attitude? Very moderately - I won't start with buying the underlying to ride the possible trend - I start with selling naked puts on equities which support this long term view.
For example on EWC. This gives me exposure to the Looney, to energy, short the dollar and long commodities. Same with EWZ.
The EWC JUL 21 put gives 80ct - 80/2100 = 4% for 50 days. If you believe in the correctness the original fundamental assessment then the risk of owning a couple of EWC @ 21 -.80 = 20.20 is not really a problem if the trade goes against you in the short run.

The butterfly is enjoying this period of chop. The biggest danger (for me) is over trading the intraday moves - So far I am doing really well.

May 26th

Hope you all had a good memorial day weekend - I enjoyed mine - I had my first real Philly Steak.  We visited Jim's Steaks on South Street. I had it with Whiz  :)

 

Two graphs - The butterfly and the overall position. Based on the overall position you can see it is time to moderate some delta's. Imbedded in the position is 470 calendar - it might be time to close that one out - since it has become a drag and accounts for 30d short.
As a rule of thumb I wait till we have the 10AM high - and will make a move if we break that high.

May 22nd

Enjoy the long weekend - dream of theta flowing towards you.

May 21st - If paper money was a company -

Non real trading comment - other I hope you have enough insurance to stay with your trade.

Today we saw the presentation of the credit card bill of rights. I embrace some regulation although have to go into the details to see what the proposed law will bring.

But from the outset - some thing needs to be done.

Credit Card as a substitute payment system to cash are a very expensive method. Our consumption is on average 5% more expensive then if we all would pay with cash.

We, who pay our credit cards in full, pay for those who at times leave a big deficit behind. So in general I think it would be great if credit cards would be used by the more solvent and that credit card abuse is stopped. If those savings are forwarded to us the users of credit card in good standing then our retail price will have to come down. Of course I am not so naive to think that any write-off saving will end in my wallet - but in theory it should. Giving credit to less solvent is IMO a. non-social and b. counter productive for the system as a whole.

As for the title of this post - come to think of it if the old fashioned paper money was a company it would be in court against to credit card companies in an big anti trust lawsuit. CC-companies have contracts with retailers that they are not allowed to offer discounts to customer who pay cash or to customers who pay with a cheaper credit card. That in itself in an anti trust issue at least equal to the INTC /AMD case. It is really a pity that cash is not represented by an issuing company :).

In Europe we use credit card for bigger payments - our debit cards have a security limits - so if we need to pay a bigger amount we will reach for a CC. But then here is the main difference at the end of the  month the bank will present you the bill which has to be met in full within 10days otherwise the card is blocked. The credit part of the card is limited to the time period between the purchase and 10days after month end. If you need more credit to run your household you can go to the bank and arrange for an overdraft on your checking account. The average family will have a max overdraft limit equal to their monthly income. This gives the flexibility in cash flow (and not a possibility to create unmonitored credit). An  other source of credit is what we call a personal loan - this is a loan arrangement with a bank or credit facilitator which has fix monthly payment plan. Since this loan is given without the security of real estate or other the interest is higher then the mortgage but lower then the overdraft. People will use Personal loan for bigger investments - like kitchen remodeling, cars and boats. Refi of real estate takes place - but on a very much smaller scales then on the west side of the Atlantic.

And finally the monthly limit of my European credit card would never be that crazy large as the total of my current credit in my wallet.

May 20th

The anticipate turn of the market happened - although after a surprisingly strong open - which weakened kind of immediately. Tomorrow will tell more.

May 19th - Start of the 2nd Butterfly

Back in the butterfly "game" - during the morning hours I got the impression that the market was topping out - if I get the chance then I use that as a trigger to enter a butterfly trade. Nicely centered - no market bias, but if it roles over than the short delta of the butterfly will give the trade a boost.
And as you know I find the butterfly - less sensitive to vega.

May 18th - What worked in May

What worked in May

Earning play - BWLD (still need to eat there, at least once)
cash covered puts AAPL, CHK, CNH, HAL, PCU
Double Diagonals: EEM, IBM, IWM, WMT, XLE
Directional: GLW
Calendar: MCD, SMH
Condor: NDX
Butterfly: RUT

What did not work
Directiononal CERN
Double Diagonal: EWZ (doing it again this month)
Eanrings play: INTC (again), SBUX (need to stop going there, don't like their coffee anyhow)
Condor: RUT

For June I am looking for a more sideways market in terms of IV and market prices. So I will try to moderate my vega exposure. Especially were it is built up from time spreads.
This morning I add a bunch of trades - see my page on http://www.mytrade.com for some details - you will find a butterfly on WMT, DBl Diagonal on Cost and Dia and  a calendar on KO.
BTW expecting a sideways market doesn't mean that my trades are more narrow or more centered then if I would expect a trending market. Most of the trade I enter are without a directional bias.

May 15th - Closed the June Butterfly

I closed the June Butterfly - after only 4 days and a 9.7% profit - taken into account commissions.

So the question to answer is why take it off - and - why not milk it any longer.

During the day I was up close to 15% - that triggers a rule - if up 15% don't give it back and end at zero or even worse. So you need to draw a line if up 15% don't let it go back to under 10%.
I am known to be flexible with my rules - but - come on guy's - we were only 4 days in the trade - to good to be true - plus - next week we still have time enough to enter an other butterfly - after the market has shown on which side of the tight range it wants to break.

I have planned to write a "what worked in May" kind of article over the weekend - depending NY weather - I will post it Sunday or Monday.

May 13th

I was close to getting the butterfly off with a 10% in 2 days - For the whole day I had an order in - the mid came close - but just not. too good to be true.

The greeks look great - especially since I added an extra put. I am expecting this move down to have a little bit more power. Although the vix is not strongly reacting - rather mute move on the vix.