Theta Positive - Option Trading

What worked in June / What did not

Just coming back from an enormous successful option seminar organized by Mentor Dan Sheridan. We had two days full of socializing with Option Geeks and very interesting presentations.

As promised I would post a what worked in June blog.  Here it is

What worked

Butterfly; RUT, WMT
Calendar; IBM, GOOG, XOM, SPX, DOW
Double Diagonal; DIA, EEM, IBM
Iron Condors; RUT
Cash Covered Puts; HAL, CHK, AAPL, CNH, PCU, KOL, MOO
Directional Verticals; CL, ETR, ICE, MBT, POT, SNDA, AMSC, BTU, FSLR,
Expiration Day Strangle; DRYS
Earnings: HNZ
Directional; TLT

What did not work

Calendar; DBA, RUT, MCD
Double Diagonal; COST, EWZ
Iron Condor; NDX
Directional; TNDM, FXP
Expiration day Strangle; AAPL
Directional Verticals; GRMN

With the expection of FXP and TNDM did I manage my losing trade very tight. TNDM and FXP did run away from me a bit.

The lose in NDX condor is approx equal to the average profit on this trade - so I whiped out one month on NDX condor profit.

With the exception of my RUT trades; all other trades are approx equal size.

June 22nd - close of July butterfly

The butterfly for July is off - Friday I closed half for 15% and this morning the second half came off for 20%

If you wonder how in a 5-10-5 trade  I managed to do halves? - The answer is I trade bigger - then I blog in public - this gave me the opportunity to be rather aggressive in my close.

Why did I choose to be aggressive a. an average of 17.5% ain't bad at all , b. The trade is on for only 10 days (did the market give me a present?), c. the market is flat for 2 months now (is a move imminent?)

I updated the result page - I still own you a what worked in June blog post - which will come later this week.

June 18th

Easy cruising for the butterfly up 15% in a week - ain't to bad, right. Especially since you don't need any chart reading skills - you don't have to be right to make this trade work.

Before I close off with the butterfly graph - I want to show you an pairs experimental trade I have entered - a tip of the cap towards Trader E. founder of NYOT.
I had heard of pairs trades before - but was never really appreciative. E is a smart trader and he showed some enthusiasm for pairs trading - that motivated me to delve in again.
I am currently working with the FDX/UPS pair. Before earnings I sold FDX and bought UPS - yesterday when FDX bottomed out - I turned around and currently I am long FDX and short UPS. It couldn't work out any nicer. I am looking at just under 15% profit in a couple of days - for hardly any real market risk. Real market risk here loosely defined as tanking of the broad market. One can expect UPS and FDX to make a similar leg down if things hit the fan. I tried to add the pairs trade chart to this blog but the TOS Flex chart doesn't have a 'Take Picture' option - Start with a hourly line chart and use as symbol FDX-UPS that will show you the move I was able to pick up. Moving down is sell FDX and buy UPS, moving up is buy FDX and sell UPS.

BTW BRK/B has options (since today) - check below for a possible calendar (tongue in cheek)

Below you find my daily butterfly chart.

June 17th

Mid afternoon the market started to signal that it was ready for a little up move but quickly after 3:30pm EST the vix turned around back up and left no doubt.

Hope you were able to following in my TLT afer the twit and the Mytrade message.

The butterfly is hanging in there - mid day it show 10% profit - not bad for 5 days of work.

June 16th

During the day I gave you a couple of tweets - the first one was an observation that the VIX moved strongly up while the market was giving an impression to be will to break out to the upside. One or the other needed to change before a move could materialize. It worked out to be the downside in the market. I truly invite you to keep an eye open to intraday VIX readings they will tell you a lot after a while.

The second tweet was on a BGZ trade. See below - as I saw the VIX and SPX making separate moves I was anticipating a larger move one way or the other. Hence a Straddle in a Triple ETF. With the experiation coming up the ATM contract have an enourmous gamma - making them really effective for a long straddle. See the graph below.

The butterfly is hanging out - no remarks.

For all the NYC readers of the blog - be aware that Option Planet (the educational arm of ThinkorSwim) will have a free seminar on Portfolio Management in the city (June 22nd). If the market allows I will attend.

June 15th

I find it difficult to say anything sensible on market direction at the moment - I am looking downward but would not be surprised if the SPX moves to 1040 first. This covers me for the next 3 months - I will be able to say I told you so Mid September :)
Seriously I think both moves could present themselves with quite some force.

The butterfly is enjoying its existence.

The Start of the July Butterfly

We're back in the butterfly game.

At times I get to answer if the fly is only trade I do - it isn't - at any given time I have over 30 live theta positive trades spread over all the managed accounts. I have chosen to blog on the butterfly since it such a great teaching subject to explain what we main with non - directional - defined risk option trading.

Later this week I will post a What work in June/What didn't kind of blog to keep you posted and to give you some fresh ideas for July.

At the bottom you will find the butterfly graph. First I want to show you a more experimental trade I have going. A multi-month MNX Double Diagonal. Normally we manage the Double Diagonal by measuring the max possible profit on the low end of the curve and we 'll close the trade when we reached 80% of that number. In this multi-month MNX trade I will not close the trade but roll the short to the next month - and hope to establish a situation were on both side of the trade I can reduce risk - by selling closer to the back month longs. We will see how it works out.
I entered the trade on Jun 3rd. The VXN has come down - reducing the trade potentional for the first month. So the "big profit" will have to come from attractive roles. If you move time forward in the analyze page you will see we stay positive theta @ this price level till the 4th of July weekend.
I have a couple of rules going forward - I will role when the front month premium is under 20ct or when MNX get to 161 or 131. Otherwise we will stick with the trade till the Theta turns (nearly) negative.
I will not blog on a daily basis on the MNX trade - but will keep you posted as we go forward.

And a word from the sponsors - thank you all for visiting my Bookstore @ times and for clicking so often on the Google provided Ad's. All in all it is adding up to a couple of Pizza's and a beer a month.

BTW if you are not a Sheridan Trader but want to join us in a Free Webex visit Dan Sheridan

June 11th

I did not yet enter a butterfly - I tried to sell it at the top of the market - but might have entered the order a little to cheap. Tomorrow an other day. I am not too hurried since my RUT Iron Condor for July is already hanging quite short delta's adding a butterfly while the market still trend upwards only adds to the problem.

Today I closed parts of my TLT short position. I had an amazing run in the tlt - definitely a top performer - I would be surprised if we don't get a little bounce here - hence the close of parts of the position. I am still short some naked July 99 calls. My tlt short stock will get assigned and closed out next week. By then I will nearly flat and very much willing to re-enter when the charts show a entry.

That's is for today - hope tomorrow I can share about a new fly.

June 10th

I closed the second fly for this month - taking into account commisions we gain $470 or 8% (based on a five lot).

With expiration next week - I felt it better to close and concentrate on bringing a very good month home.

There is definitely an argument to be held for staying the course a bit longer - the greeks were still under control - but one does what one has to do.

I am trying to get into my first July butterfly - you will be the first to hear it - via the blog and twitter.

June 9th

I am writing this early morning June 10th - market up strongly - My first contemplation was to check the bankruptcy register to find the good news. It seems nowadays that if an icon falls that the market moves up. Sorry  too early - jokes turn lame.

The butterfly is in alright condition - I might just pull it of today - I come away with a small profit even taken commission into account. Always better then a scratch on the face.

The TOS analyze page show a 600+ profit - my administration has it a bit lower  I would my current profit is just of $300 in a 5 lot.