RUT Calendar Update 8-13

On today's rally my orders triggered to close out the calendar. I am always looking to take these trades off the week prior to expiration, so it was time. I mentioned before that my profit target for this trade is 15%, which we didn't hit; but we did get away with +6.17% for the month. Considering the falling volatility, the massive rally we encountered, and the fact that we had two adjustments behind us, I'm pretty happy with that.

Tomorrow (Friday) I'll post my Featured Trade for September expiration: a butterfly.

Good Trading...

RUT Calendar Update 8-12

Yesterday I mentioned that I had some hope for this trade if we go the "somewhat predictable rally" this week. I had $577 in my sights, as depicted by the price slice in yesterday's chart (it's still there on today's chart as well), which turned out to be the intraday high. I have to confess, I was hoping to get there by Friday, but I didn't expect to see it all in one day.

One interesting thing to keep an eye on is Theta. Today it sits at $119, while yesterday it was at $131. But wait! Isn't time decay supposed to increase as we get closer to expiration? That folks, is the effect of falling implied volatility. In any case, we are now showing a profit - and this INCLUDES all of the adjustments we've made so far this month. While this campaign doesn't look like it will reach our original profit target of 15%, it seems possible we will make it out with something to show for it.

Good Trading...

RUT Calendar Update 8-11

The last few months have been a real wrestling match for Delta neutral trading, and this month is no exception. I feel like there is some hope, however, if we get the somewhat predictable rally by the end of this week. The chart you see today is the P&L graph reflecting the entire campaign for this month, including the two adjustment trades we made in earlier weeks.

As you can see, the "Live" line indicates that we are down about $192, most of which happened today with the move down. The other line shows my ideal situation. If we can get a little rally by the end of the week to around the spot depicted by the white arrow, we will be able to take the trade off with a nice profit of about 8%. Given the two adjustments, this is a great outcome.

On the downside however, I will have to evaluate my options if we reach $550, my next adjustment point. I'm prepared either way, but would obviously prefer the former option.

Good Trading...

RUT Calendar Update 8-10

Our Feature Trade for this month, the triple calendar is making progress. Right now things look fairly good with the key numbers. What you see here is the currently OPEN part of the trade. Don't forget, we made two adjustments earlier in the campaign so this doesn't reflect the overall P&L. I'll try and post that tomorrow, but for now I'm managing the open positions only. The closed parts matter when we calculate our overall profit for the campaign, but not in the day-to-day management.

As you can see, the numbers are generally okay. Deltas are a bit long, but that's okay. My RUT condor deltas are a bit short so this provides a nice balance. And it's actually not far off anyway. I also put boxes around our P&L for today and the current Theta. You'll notice they are very close, which is typical when the price doesn't move much, like today. Our overall P&L, including past trades is about breakeven right now… so If we can hang around in this area, or move to the right a bit, the Theta will bring us to a decent profit before the end of this week. We'll see when the Fed meeting holds for us.

Good Trading…

RUT Calendar Update 8-6

Well, going into the weekend we are sitting okay. Not perfect, but not bad. Deltas are slightly long, but that's probably not bad considering how this market has been going. Generally speaking we have some room on both sides and a BIG week of time decay working in our favor.

One thing I will point out... what you see here is the current OPEN trade. It is not reflective of the total calendar campaign for this month. I probably should have taken a snapshot of that, but well... I didn't. Overall we're just under breakeven for the month, as we've had to make two adjustments. In an ideal world I'd like to see this collect about three more days of Theta and it will be time to take it off with a profit. We'll see what Mr. Market has in mind.

Good Trading...

RUT Calendar update 8-5

I made the adjustment that I referred to on Monday. Even though we had some downward movement I'm glad I did. I have a fairly short Delta position with my iron condor this month, so the positive Deltas of the Calendar adjustment provide a nice balance. The interesting part of today was that the RVX - tracking implied volatility of the RUT - barely moved. Apparently there isn't much fear in the market about this pullback being prolonged.

Busy week, so postings will be sparse.

Good Trading...

RUT Calendar Update 8-3

It's been a stinky few days for the Feature Calendar we are tracking this month. Interestingly, implied volatility has stabilized quite a bit, but the price movement has been horrendous. Tonight I have two pictures to provide an update as to where we are. This first P&L graph shows the current position as it stands alone. As you can see, we are just a few dollars from the upper strike of 570. This is the next adjustment point. If we hit 570 I will move the lower strike calendars from 520 up to (probably) around 600. I will model at the time, but that's probably within a strike.

The first picture doesn't tell the whole story however. You might remember that I've already had to make one adjustment. Originally this started out as a triple calendar with strikes at 490/520/550. On July 28 I removed the 490's and added the current 570 strike which is now the upper end. Naturally we took a loss on the 490 strikes (bought for 7.00 and sold for 4.75), so this picture shows the P&L including that first trade. It's not super pretty as it sits, but it can absolutely be salvaged if the price movement will calm down, even just a little. This is where it gets fun!

Good Trading...

Our Feature Calendar profited today from the uptick in implied volatility, and the downward price pressure. Even though the movement wasn't massive, it worked together well. Deltas are now very close to flat, so we're in really great shape. I feel even better about this since I have it combined with a condor on the RUT which has negative deltas. Overall... looking good.

Good Trading...

RUT Calendar - Here we go again...

Last night TripleSigma, over on OptionsVista.com, made the point that the volatility crush we have seen may soon be coming to an end. No question that it's been extreme and elongated... and of course, who really knows if it will turn around, but statistically we ought to see some reversion to the mean before too long. The RVX chart you see here shows the stong down trend in implied volatility and how far away from the moving average it is... time for a reversal.

With that in mind, I opened up another triple calendar for Aug/Sep. I have the 490/520/550 strikes with twice as may spreads in the center. My plan is to adjust if I should hit one of the outer strikes, or slip away with a 15% profit. If I.V. will just flatten out a bit we should have a nice trade here.

Good Trading...

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...

Really Bad Call...

Tuesday I made a call to stay in my Calendar trade with a fairly strong expectation of a downward move. Was I ever wrong! I guess that's the way it goes some times. We don't win every trade, but that's not the goal. The goal for me is to win more than I lose with a good profit advantage, and to manage the losers so they don't take me for a ride when they come. I haven't had a lot of time to update you on the trade this week (very busy), but the short version is that on Wednesday the market moved sharply higher, triggering my exit for an ugly loss of about 18%... not my max loss (25%), but nonetheless painful.

Good Trading...

RUT Calendar 7-14

Theta is really starting to kick in, but with expiration approaching we are looking for an opportunity to exit in the next couple of days. Here is my current thinking... If you look at the P&L chart you can see that my "stop" exit point for the current double-calendar (breakeven) bears risk of about $250. In other words, that's my loss if price moves all the way to the upper exit point compared to where I am now. There are several reasons that I like this position and am willing to risk the $250 to hang out for another day or two:

• Theta - We are collecting nearly $200/day in Theta now, so that offsets much of the risk.


• Upside - There is still quite a lot of upside in the position both with Theta and price movement. With nearly $800 of profit available, the risk reward is nearly 3:1.


• Odds - This is perhaps the most compelling reason to hang around a bit longer. The odds in favor of a down move are significant at this point. Here's what I mean... I ran a very quick and dirty backtest on the situation for the past 10 years. There have been 42 circumstances where RUT was overbought to the current degree in the past 10 years. In
  85.7% of the cases it was followed by a significant down move. Does that mean we'll get it this time? Nope. But the odds are in our favor.

Hopefully you get the point that this is a decent probability trade. If 80% of the time I won $800, and 20% of the time I lost $250, I would take that trade every day. Further, I think the market is telling me something through implied volatility. In spite of RUT being up big yesterday, and being up another 3 points today, RVX was UP nearly 1%. Hmmmm... someone out there is buying options. Overall, it's a small amount to risk and a good trade.

Good Trading.

RUT Calendar 7-10

As mentioned Thursday, I pulled the trigger on exiting the 520 strike calendar on Friday. This leaves me with a well-centered double-calendar going into expiration week. As you can see, with only four days to go, my breakevens are both just about a standard deviation away. I'm definitely looking for an opportunity to exit at any point this week, but I don't mind picking up a couple of extra days of time premium.

Normally when I manage a double calendar I will not adjust until somewhere past the outside strikes, but before the breakeven. In this case, my plan is to exit either (a) when it hits either strike, or (b) when I reach my profit target. With current Theta at $161 this should only take a few days, unless there are big price movements. There is a great feature in the analyze tab on the ThinkOrSwim platform that allows you to forward test a position. When I walk this trade forward it looks like Wednesday (if we can make it that far without getting Deltas crushed) will be the exit.

Good Trading...

RUT Calendar Update 7-9

Today I have a couple of pictures that I'm pondering. The first is the current position. As you can see, things are leaning far to the left and Deltas are +46. My adjustment point of 470 is about a one-day standard deviation away, which could easily come tomorrow.

The second picture is what things look like if I sell the uppermost calendars at the 520 strikes. Moving to a double calendar with just a week left until expiration gives me more Theta, AND moves my lower breakeven point from 465 to 460. I'm close to closing out the whole thing anyway, so this might just be a first step.

Hmmm... I will see what tomorrow brings. If things hang around, I'll probably make this move. If they move down hard, I've forced to adjust anyway. So, only strong bullish move will keep me in the 520's.

Good trading

RUT Calendar update 7-7

All of the selling pressure in the market the past few days has been very good to our calendar. As you can see, we're now showing a profit. This calendar that I was about ready to write off might still recover. Time will tell.

There is a ton of talk about the classic head-and-shoulder pattern that is forming in many of the major indices, which may be signaling a downward move. That wouldn't be good, now being long deltas, but I'm hoping it doesn't happen too soon. My personal view is that most of the major indices are also extremely oversold for the short term. If we can get a couple of flat days, or even a short term rally, we might have enough profit to take this off for a gain. Meanwhile, I will prepare for the adjustment if we should move down to 470 (my pre-defined adjustment point). That's about 1 1/2 standard deviations... it would be unlikely, but stranger things have happened.

Good Trading...

Just what the doctor ordered...

I said I was going silent for the holiday, but I couldn't resist the update on the triple calendar for this month. Just when I thought I was in for a sure adjustment, yesterday's strong down move was just what the doctor ordered. We moved down 20 points (ish) in the RUT, and Implied Volatility jumped... both great for the trade. Here's the latest P&L graph, which looks spectacular right now.

Good Trading...

The RUT continues to see rising prices and shrinking volatility. The VIX is now in the mid-20's which is almost back to "normal" (whatever that is). All of this, of course is bad for our calendar trade. Today prices flirted with my adjustment point (about 520), but shrank back to 518 before the close. I would love to make it through tomorrow and collect my holiday weekend's worth of Theta, but it's looking more likely that I will need to adjust. If so, we'll drop off the lowest strikes and add them somewhere above 520. Here is the current picture, and I'm sure you can see the problem.

By the way, you're not likely to here from me over the holiday... I've got family coming into town and will be taking a little breather.

Good Trading...

RUT Calendar Update 7-1

It's been a few days since I updated the status of my monthly Featured Trade, which this month is a triple calendar on RUT. At this point, things are going along, but we're not in the greatest position. I will, of course, play by the rules and follow my trade plan for this trade, but my confidence level in a profitable trade is drooping, along with the P&L graph.













As you can see, the current price is to the far right of the tent, and the expiration P&L (the green line) has drooped substantially. This happens when Implied Volatility drops. To get a good idea of what's happened, take a look at the chart of the RVX - the index which tracks Implied Volatility of RUT.

If IV had held up, even a little bit, the P&L graph would look much different. It just goes to show... when you think IV is low, it can go much lower. This can still be a profitable trade, but it will mean that IV cannot go much lower. I'm also keeping my eye on (an alert is set) an adjustment that will be required at the 520 level, which is the pointy area on the far right.

Good Trading...

RUT Calendar Update 6-23

As suspected yesterday, today I needed to make the downside adjustment. Early on RUT penetrated the $490 barrier and required action. Everything executed as expected when the trades were triggered. The adjustment quite simple: Remove the spread furthest away and place a new one on the opposite side, thus recentering the trade. Specifically, I removed the 550 strikes and bought new spreads at $470. As you can see, the P&L graph shows us centered again, although there is a price for the last two days' (especially yesterday's) heavy downward move. We are down a little, but there's lots of time to come back, so we'll continue to manage the trade according to the plan.

Good Trading...

Standard Deviations...

Yesterday I mentioned that the RUT price was currently well inside a standard deviation for a single day, and that I needed to prepare for an adjustment on the Triple Calendar. A reader asked how to figure out how much a standard deviation is for a day, and I thought the best way to answer was in this short video. Hopefully this helps.





Good Trading...