July Results...

Results for July expiration were mixed, making them kinda stinky in my view. It was a choppy month which made it tough for me to trade for some reason. Not because it was hard to read... I don't "read" the market... I just follow my rules... or NOT!!! Check out the Calendar trade.

Condors: +1.3%

Directional Trades: +7.5%

Calendars: -38.4%

Overall ROIC: -.7%

This was one of those months where I had to do some serious self-assessment. What happened with the Calendar? The choppiness and plummeting volatility were not good for it, and after replaying the trade with a backtester I would not have profited even if I had exited correctly. What I did wrong was not honoring my max loss of 25%. If I had only lost 25% (did I say "only"), I would have had a gain for the month. it wasn't a big position so the other trades swallow it up, but it was enough to turn my tiny loss into a tiny gain. Another lesson from the school of hard knocks.

Good Trading...

How do I track a trade in TOS...

A reader asked how to track a campaign of a larger trade, including all the adjustments, within the TOS platform. Hopefully this video will do the trick. Don't forget that if you want to see it full screen click on the screen in the lower right corner once it starts.

Good Trading...

RUT Calendar 6-19 In Context...

As you can see, the Triple Calendar we are tracking this month is moving along just fine. We're now beyond 5% profit on our way to a target of about 15%. Thing are well centered, and once again we are in the do-nothing zone.

I wanted to take a moment, however, to reiterate the Calendar in context of the broader trade scheme. Notice the difference in Theta and Vega with and without the Calendar. I don't have a picture, but it's easy to subtract the Calendar Greeks from the total Greeks and imagine what things look like for the credit spreads alone. VERY short Vega, less Theta, etc.

I have backtested this triple calendar strategy for five years, and have been trading it live for about two years. It's consistently profitable on it's own, but it's also an excellent tool to balance the overall Greeks of the other Delta neutral strategies.

Good Trading...

RUT Calendar Update 5-19

Another day of doing nothing for our calendar.  As I've mentioned prior, the one area that can hurt us on calendar trades (aside from radical price movements of course) is volatility.  When Implied Volatility (IV) drops our calendar loses value.  For many days now we have been treading water, because time decay is working in our favor, but being counter-acted by hefty drops in IV.

You'll notice on the price line above that Vega is 72.  That simply means that if IV drops ONE point, we lose $72.  It has dropped nearly 4 points since we entered, and today it dropped another .5 (half point), so there you go.  With dropping IV  and a calming market, one might ask why I leave the calendar on.  Hmmm... good question... I am asking myself that question, but I think I have a good answer.

I have some regular campaigns that I run each and every month.  I don't run calendars in a vacuum, but rather in conjunction with Condors or Butterflies.  These short Vega trades (the MAKE money when IV drops) balance out the IV risk that I have in the calendar.   Just for grins, I took a snapshot of my total RUT position for the month.  There are few things of note here:

• Vega is -21, rather than +72.  Not zero, but closer.  In light of the falling volatility I like this position being slightly negative.
• Delta is .89... pretty close to ZERO.  In fact, yesterday was SO neutral that for a moment I thought something was wrong.
• Overall, the position is balanced and very profitable.  I am actually starting to exit already.  The Condor components are now half-way removed (we started with 20 spreads), and close to a complete exit. 

I don't know how the overall thing will pan out, but it's all part of a package.  I am much more concerned with how the overall package turns out than I am with just the Calendar portion of it.  If things stay settled I will probably exit the Condor by the end of the week or early next week.  I'll make a decision at that point about whether to exit the calendar.  At this point, with only a $30 deficit and well centered, I like the IV protection it offers and will hang around for a while.

Good Trading...

RUT Condor

While this is not my highlighted trade for this month. I thought I'd do a quick post on the Condor I opened last week. It happened over a couple of days, and I got pretty good fills. It's very early, but things are nicely centered and we're already showing a small profit.

This is just a starting point, and may need adjusting... we'll just play it as it comes. Meanwhile, I will be highlighting a calendar trade this month on RUT. It may be some time in the coming week, or perhaps the week after... stay tuned.

Good Trading...

RUT Update 4-29

As discussed yesterday, we reached a point where it was time to take off the RUT trade we are highlighting this month.  I had hoped for about an 8% overall return, but we ended up with 7% overall.  Still pretty nice for the month.  The main reason is that the market went ripping up today and I didn't quite get as good a price as I wanted on closing the call spread.  Overall, no complaints.

That's it for this one.  It was complicated, but profitable.  Next month I plan to simplify things a bit by highlighting a calendar trade.  It will be a couple of weeks I think, but maybe not.  This is actually something to watch right now... the RVX - implied volatility on the RUT - is resting on the support line we have been tracking for several weeks. 

Good Trading...

RUT Update 4-28

Each month I track and update a particular trade, which this month, was a bit complicated.  We had two overlayed condors on the Russell 2000 (RUT) followed by a triple calendar.   Today we are nearing the end of the campaign.  As you may have noticed if you have been following along, I closed the calendars a few days ago when they hit their profit target, and now is the time to start unwinding the condors.

As you can see, the trade is nicely profitable and it's time to close it down.  I'm not sure how it will all turn out with slippage and all, but it should exceed 8% for the month, which is just fine.  Starting tomorrow morning we'll begin taking it apart and try to minimize the slippage by working the mid-points just a little bit.  This is an area that I think is often overlooked by traders, especially those starting out. 

Many times you come up with a system or approach that seems good on paper or in backtesting, but it doesn't work quite as well in the real world.  Much of that is due to slippage... that little amount that you have to give up to market makers as prices move away from the mid-point between bid and ask.  I don't have a fool proof way of dealing with it; but I find that if I just have some patience and pay a little attention to market direction it's possible to get out without too much damage.  For that reason I'll assess things in the morning (early, when I enter my trades) and try to figure out the best approach to getting out.  I could just enter orders to sell everything at once, but I would most certainly pay a hefty price for that.  I'll report on the final result when I'm done exiting the trade.

Good Trading...

RUT Update 4-23

I know what you're thinking... "What the heck is that thing and what happened to those nifty little pointed tops?"  The RUT picture looks much different than it did yesterday for a few reasons.  As predicted, the Calendar hit it's profit target today and was taken off... hence the missing pointy tops.  Second, the Put spread also hit it's profit target and was bought back and rolled up.  Finally, I've had my eye on picking up a protective put, especially now that we are nicely profitable on the overall trade.  Since there are only 21 days left in the May cycle I elected to pick up a June put, specifically the June 370, to reduce theta a bit.  Hence the little swooping figure on the left side... it's really an imbedded diagonal if you're into labels.

All that said, here's the new picture:

Once again, I don't know where things will go from here, but I have a plan for any movement.  The main thing at this point is to move into the mode of protecting profits.  As I have mentioned previously, once I am up 5% or so, I don't ever want to take a loss.  If this goes south quickly I'd rather get out with breakeven than take a loss once I'm up.  The other trading rule I will be watching for is to exit if there is another adjustment point hit.  The main goal is to see if we can accumulate a few more days of Theta, perhaps into next week, hit our profit target and get out.

Good Trading...

RUT Update 4-22

With all the movement in the market this week you would think there is more to say about the RUT trade I am highlighting this month… not so. There has been no need to make any adjustments so far, and things still look pretty good. As you can see by the picture, we are profitable (currently about 6%) and Deltas are nicely under control.

The only challenge I have is patience, but that’s what it takes in this game. We’ve been in the Condor for about 25 days, and in the Calendar for 11 days. Sometimes the profits come faster when there is only a Condor on and volatility drops quickly, but that can also work against you. On the other hand, when volatility is flatter (caused by adding the Calendar) we really just have to wait for the Theta to tick away. At the current rate, we will be at our profit target in about another week, but that can always be offset by adverse price movement.

One thing to note about the imbedded Calendar… we are very close to the target on that. If price doesn’t move too much and IV doesn’t fall too much (now there’s a trick) we could be taking that portion of the trade off by Friday. This is what SnapTrading is all about… spending most of our trading effort doing nothing. That’s why I like it, and why it fits well into the worker bee’s lifestyle.

Good Trading…

RUT Update 4-20

In spite of a massive, multi-standard deviation move down today, there is very little to report on our RUT trade.  This month we're tracking a RUT Condor/Calendar combination trade that is moving along nicely.  As you'll see by the picture, the massive move down did little more than move us to the middle of the profit graph. 

Sorry that it's not more interesting, but in my mind this is actually good stuff.  I only wish I had picked up a couple of the cheap Puts that I mentioned on Friday.  I was planning to do that today, but they got real expensive, real quick this morning.

The big story for today, in my view, is the RVX.  The index that tracks the implied volatility of the RUT was up nearly 10% today.  You might remember that Friday it closed out resting right on a multi-month support line.  This week was destined to be interesting.  Either it would break through the support and confirm the rally we have seen, or we would get a reversal... as you can see, the latter has taken place.  The massive RVX gain moved it pretty much dead center in this long range-bound channel.

As usual, I don't know what happens next... I'll just manage the trade as I see it.

Good trading...

RUT Update 4-17

This month I am highlighting a rather complex trade on the Russell 2000 index RUT. If you have been following along you know that it started with two overlayed Iron Condor positions, which were then supplemented by a Triple Calendar. There have been a couple of opportunities to garner profit and roll up vertical positions (you can see these below as simulated positions), but it has been mostly a rather benign month.

A couple of interesting things are happening, however, that might keep us guessing or create some adjustments. First, price has been creeping up. It's worth noting that the RUT has broken out of a rather long term downtrend channel... just over the last couple of days:

Second, the RVX - the index which track the implied volatility of the RUT broke below the multi-month support line. These two items have me considering the possibility that this counter-trend rally might be much more extended that I thought.  I don't know for sure, so I'm not making any moves now, but I'm sure preparing (see below).

The good news is that our RUT trade is still in really great shape. It's still profitable - even with the strong upward movement - and we still have some room to adjust if necessary. The four cheap 560 calls have helped us a lot on this trade, and are offsetting the negative Deltas quite a lot. If we continue to rise, those calls will kick in at a greater and greater rate. Meanwhile, here is my plan for the upcoming week:

• I am watching the 360/370 Put spreads very closely. They are getting cheap, and with any more positive price movement I may be in a position to roll them up, and lock in some profit.
• I am also watching the 530/540 Call spreads. If the short 530's hit a delta of 22 I will roll them up as well. This will mean taking a loss, but giving us a new credit and some more room. Since they are currently at 18 we have a little way to go, but it's on the radar. I'm guessing it would happen if the RUT hits around the 485 level.
• For the slightly longer term I have my eye on the 500 level of the RUT. This is my adjustment point for the calendar. If we hit it I will need to adjust the calendar.
• Finally, I have my eye on some fairly cheap Puts to buy as insurance. The calls have served us well, and now that we have moved away from the Put side I can get them for good prices. This will all depend on whether I roll up the Puts or not. If I do it will make a lot of sense to insure the new position a little, in the event of a strong down-draft.

You'll notice that most of these items address further upside pressure.  If things start to go the other way I'm not too concerned.   We'll see lots of dollar signs before anything needs to be done.  In fact if things dropped 20 or 25 points next week it might be time to take the whole trade off the table and count our chips.  That's what's on my mind for the coming week.

Good Trading...

RUT Update 4-16

No time for a lengthly update, but the short version is the RUT trade still looks fine. Deltas are just a smidge short (-19) and it's still profitable. The more interesting thing is the RVX. Keep an eye on the chart. It is currently just touching the bottom of the multi-month channel. This is a significant point of support, and if this counter-trend rally is to continue it will need to be broken. If I had to wager I'd say it will reverse and we may see some down days; but it's also expiration week, so anything goes. More tomorrow (with pictures).

Good Trading...

RUT Update 4-14

This is what "SnapTrading" is all about... another day to sit on your hands and do nothing.  Sort of, anyway.  As you can see, things are perfectly centered, deltas are nicely flat, and thing look great.  Today I did add one thing to the trade... some long calls.  As the market was plummeting this morning, I was able to pick up some hedge calls very cheap, so I sacrificed a little profit to cover myself in the event of a hard rally.  Thus, the sharp upward white line on the right side of the graph.

One of the peculiar things today was the behavior of the RVX.  It's odd to see the RUT getting slammed, down >3%, and see the RVX barely move.  Apparently the demand for hedges and implied volatility is not taking off the with the sharp moves, although it's already pretty high.

Interestingly, it still lies right in the middle of the range.  I'm not really sure where it goes from here, but let me share one other chart with you that I think it relevant.  Below is a daily chart of the RUT:

Take a good look at the multi-month channel that has formed.  The last couple of days have just touched the upper end of the channel and formed a nice evening star pattern.  Who knows where it will go, but odds are the RUT will head back into this channel.  I'll be keeping an eye on it to go lower, at least for the next few days.  But no matter, I'm still set up for either direction.

Good Trading...

RUT Update 4-13

For those of you who are not regular followers of SnapTrader (shame on you), I attempt to track a specific trade real-time throughout the expiration month.  That way those learning to trade some of the basic option strategies can follow along and see how I do it.  Not that my approach is the only way, but generally it's profitable over the long haul.  This month's highlighted trade is really more than a single trade.  It's a campaign on the RUT made up of an set of overlayed iron condors, combined with a triple calendar. 

One might ask why I would make the trade so complicated, and while I've covered this all in past posts, here's the quick summary:

• I frequently split condors into parts, usually two or three, and apply them at different times.  This spreads some of the volatility risk, as well as frequently providing a wider range of strikes.
• Adding a calendar to a condor provides some Vega balancing.  In other words, it mitigates some of the volatility risk that condors and other vertical spreads pose.
• The triple calendar simply provides a wider range of profitability and less frequent management.  Sometimes I can put this on and never adjust it until I take it off.  More frequently it only needs one adjustement throughout the month.

Hence this month's ridiculously complicated trade.  Aside from the quick review, this morning I entered an order to replace the Put spread that had closed after hitting it's profit target.  It was executed right away, so we are fairly well balanced now.  Finally, I'll leave you with the current profit picture:

Good Trading...

RUT ConCalender 4-9

This market is just whacky.  Yesterday I had some email glitches, so I didn't know right away, but eventually I got notices that my Put spreads on the May position had hit profit targets and were bought back.  As a result, you'll notice that things are a bit lopsided.  The Deltas are pushed to -40.98, although once I get the Put side rolled up (hopefully Monday) I think it will be back under -20 or so.  So far, no other adjustments are necessary, but I have a feeling that next week could be really interesting.

You'll also notice some little pointy things across the top of the graph.  I was also able to put on a triple calendar at the 410/450/500 levels.  It seems like it was actually an ideal time for this as RVX reached the lowest portion of the volatility range we have been tracking. 

If you aren't familiar with calendars, they are what we call "positive Vega" trades.  You'll notice that the Vega on the "Live" line in the first picture is -22.  Without the calendars it's -98, so the calendars really help to balance things (get them closer to zero).  Vega simply measures how a position will do if implied volatility rises or falls.  In laymen's terms, this all means is that calendars will will fare better if volatility rises... and since it's in the lower part of the zone, I think it might rise... hence the calendars.

Good Trading...

RUT Condor 4-8

As predicted yesterday, we got a small bounce today; but more important was the continued drift downward in implied volatility.  The RVX is still nicely in it's multi-month channel, and is now in the bottom third.  I REALLY wanted to get a couple of calendars on when IV was lower, so I had some orders in for today.  Unfortunately I didn't get filled at my chosen price.  I'll try again tomorrow and see what happens.  Since I can't sit and observe the trades during the day I rely on forecasting the right prices and trying to get filled favorably on a limit order.  It might be easier tomorrow since the volatility is closer to where I want it.  In other words, prices are okay about where they are now.

As for the rest of the RUT trade, today I got filled on the call side so we now have a nicely balanced condor.  And as you can see, things are well-centered.  I'm looking forward to a three-day weekend of Theta.

Good Trading...

RUT Condor 4-7

Not much to report today on the Condor... it was a nice day to do nothing.  One of the great advantages of trading non-directional strategies like this, is that many times they require little maintenance.  For a few days now, we have just watched as Theta accumulates in our favor.  This is nice for the working stiff... you can just check things at the end of the day, make some adjustments as needed, and not worry too much about it.  Today ended with the current price dead center in our profit graph:

That's about as good as it gets.  You might remember from yesterday that I had an order in to fill out the call side of this trade, but it didn't execute in the strong down-draft.  At this point, I will probably wait until we have an up day, and hope for a good one this week. 

Meanwhile, the RVX in peculiar fashion was down today.  The RVX tracks the implied volatility of the RUT index.  Generally, when the RUT is down the RVX is up, and the opposite is also true.  Today the RUT was down 3.54%... that's huge... and the RVX STILL went down.  This may imply that it's already high (which it is) or that there isn't a lot of concern about it plummeting further.  Probably both are true to some degree. 

RVX continues to trade in the extremely well defined channel.  Here's my forecast for the week.  Tomorrow we may get a little bounce, in which case it will come down further.  If it drifts down for a couple of more days we will be near the bottom of the channel.  This would be ideal for me to put the calendar on before the week is out.  We'll see...

Good Trading...

RUT Condor 4-6

The RUT Condor we put on a couple of weeks ago needed an adjusment this morning.  It was kind of an odd day, but we were right at the adjustment point after last Friday.  With the down move this morning and increase IV, combined with the short term bounce, we hit the adjustment point.  If there is one thing I have learned from the school of hard knocks it's not to mess around with the adjustments (aka "losses").  I had an order in that immediately took this off.  Both sides are reflected in the simulated trades below.

Here you see the current picture.  Things actually look quite good on the campaign.  You will notice a skewed condor picture, as I have not yet replaced the call side with a new position.  I put an order in but it didn't execute mostly because the RUT was down nearly 2% today.  Everything looks great however, and I have replaced the order for tomorrow.  If we get a move up it will execute and we'll have the full condor on. 

Meanwhile, we have a nice profit to be made here.

The RVX remains in the middle of the trading range we have been tracking, even with more than 3% gain today.  It's hard to say how things will go from here, but it seems to like the mid-40's to mid-50's right now.  I am hoping to see a little more drop in the RVX... around 48-49 would be nice.  If that happens I will probably be adding a calendar to the RUT campaign for this month.  This week is the week to do it, however, so I hope it happens soon.

Good Trading...

RUT Condor 4-2

Today was a whacky day.  The market went haywire... which is a little odd considering most of the excitement was around MtM accounting changes, which will essentially allow the toxic assets that are causing much of our current crisis to be revalued... uuugggh!  That wasn't too bad for the Condor, until the last minutes of the day.  This doesn't make a lot of sense, as the RUT closed about $5 lower than the high of the day; but sure enough, here is the email I got:

ALERT ON RUT 100 MAY 09 520 CALL WHEN DELTA AT OR ABOVE .20 is triggered LAST=6.64 DELTA=.20

Here's the strange part... it came in at 1:01pm Pacific Time... Hmmm... wasn't the market closed at 1:00pm?  Perhaps it's a bad print, but maybe something odd happened.  I'll be prepared for an early adjustment just in case.  At this point it will be a simple roll-out I think.

Now here's something else quite noteworthy.  The RVX, which tracks implied volatility of the RUT, ended the day pretty much flat with yesterday... on a day when the RUT was UP NEARLY 5%!!!  In fact, it was UP much of the day, at one point more than 1%.  That's very odd, and worth keeping an eye on.  For that and a few other technical analysis reasons I think the RUT is topping for the short term, but we'll see.  As I say, I'll be prepared tomorrow morning just in case.

Good Trading...

RUT Condor 4-1

As discussed in my previous RUT update, I now have on two layers of Condor trades.  The first 2/3 was put on last week, and the final 1/3 this week.  Things are quite ideal, but the trading month is still very early.  Here is the P&L graph as it sits today:

As you can see, it doesn't get much better.  One of the areas I try not to get fooled by is the probability numbers near the top.  Currently this trade shows about a 96% probability of profit.  The tricky thing is that I will need to make an adjustment far before that point, so it really doesn't mean much.  Estimating the probability of adjusting far more difficult.  Anyway, things are great right now, so we'll just sit on our hands until next week and then take a look at adding some calendars. 

One side note, I am also keeping a close eye on the RVX.  For the past few months it has been trading in a range of mid-40s to mid-50s.  The ideal time to add the calendars is when it's at the low end of the range - assuming we think it will head back up to resistence.  RVX is currently at about the mid-point (52).  This will have some bearing as to when we put the calendar on.

Good Trading...