NUS trade results…

For www.CalculatedReturns.com subscribers, NUS reached our limit price yesterday and was executed.  I just noticed that today it reached the limit price and we exited according to plan.

Good Trading…

May 2012 Trading Results Wrap-up

As I write this, the market has just finished it’s biggest downturn in recent weeks.  Many investors are wondering where things will go, and the global economy, eclipsed by recent events in Greece and the broader Eurozone, is throwing up question marks right and left.  Investors don’t like question marks.

Regarding my own model, May was another average-ish month for the MS8 Trading System… in fact slightly below average.  Our overall exposure was just over 15% (meaning that’s how much time we were invested), and we ended the month mainly in cash.  That being said, a profit is a profit and this is still an excellent one.  Below are a few of the key statistics:

Net profit for the month	4.72%
Total number of trades	22
Average return per trade	1.45%
Win ratio	72.73%
Exposure	15.70%
Total time invested	Less than 10 minutes a day!

There was one massively stinky trade in BVSN, which lost nearly 35% of it’s value.  Those are painful, but a trading system is a strategy that relies on the averages working out over the long haul.  Even with that ugly trade we still pulled out a nice profit. 

Below is a picture of the profit distribution of the individual trades.  This is a pretty typical distribution… well… except for that ugly one on the left.

Good Trading…

Sample Trade from CalculatedReturns.com

+7.9% in one day!

Here's a short video showing a trade on POZN.  This trade triggered yesterday and was exited this morning.  It's not trying to communicate that all trades work out this way - they don't.  It's here to show  you what a winning trade looks like and how the price pattern often develops.  I mentally prepare myself for this, because it nearly always gets worse before it gets better.

Covering My Shorts…

No, this has nothing to do with my attire. 

The market made the expected downdraft and at this point I’ve covered just about all of my short positions. Since the Big Short post the S&P has pulled back about 20 points (about 1.5%), and taken most of the market with it.

As discussed in my last post, I only wish I had taken larger positions.  I had some nice short positions, but never got more than about 20% of my cash deployed.  Oh well, still a decent collection of profits for the amount at work… and in only two days.  I can’t complain.

Good Trading…

Puda Coal Bailout…

If you have been tracking the nightmare that is PUDA you will know that this is just the sort of bailout I’m looking for.  My portfolio took a radical hit due to a position in PUDA being completely devalued and then trading halted.  This was all due to some unethical and illegal actions by the CEO, which you can read about here.
The interesting development, is that the CEO offered to buy out all of the shareholders at a price of $12.  This offer, which was proposed a few weeks ago, I never really too seriously.  I’m pretty sure we can’t trust a guy who embezzled half the assets of the company to turn up and give shareholders a 20% return on their investment.  I figured it was just a smoke screen to get attention off his actions.  Interestingly, it seems to have been taken seriously by the board.  They are now proceeding with due diligence as though there is some promise of it actually happening.

“Puda Coal Inc announced that its Independent Committee has retained Cowen and Company, LLC and Morgan Joseph TriArtisan LLC as financial advisors in connection with the previously announced proposed preliminary buy-out offer made by Mr Ming Zhao the Chairman of Puda Coal to acquire all outstanding shares of common stock of the Company. In response to the offer, the Board of Directors of the Company authorized the Independent Committee to review and evaluate the proposal and, if appropriate, negotiate its terms and take any other action in connection therewith.
In a series of conference calls and e-mail communications over the past several weeks with lawyers from Shearman & Sterling, Mr Zhao's legal counsel, the Independent Committee has requested a draft Merger Agreement and information and documentation from Mr Zhao, including documentation relating to all Mr Zhao's transactions involving Puda Coal and its subsidiaries, that will enable the Independent Committee to evaluate Mr Zhao's preliminary proposal.”

It almost sounds like there is something serious here, although I’m still highly pessimistic.  You know, if it sounds too good to be true…  I’m still considering this a loss, but I have no choice but to hold the shares since trading is halted.  For now, I’ll move on and just keep one eye on it.
Good Trading…

Feature Trade... MNX Butterfly

Today I launched a new trade that I will track for the September expiration. I haven't featured a butterfly, yet I carry some nearly every month. Specifically, this one is on MNX, the mini-NASDAQ-100. It operates at one-tenth the value of the NDX.

To start things off we have two graphs. The first shows a basic Butterfly with strikes at 147.5/160/172.5. The one thing I want to point out here, which is a standard characteristic of Butterflys, is the negative Deltas (-48). You can see this expressed in the graph by looking at the steep slope of the white line on the right hand side (under the arrow). It's very clear that if the price moves up our trade will lose value quickly.

To counter this characteristic I have added an extra call at the 172.5 strike for each fly-spread. This drops our Deltas to -17, flattening the equity curve substantally. You can see the line under the arrow is now much flatter.

My risk management for this trade is extremely simple. I will either take it off for a 15% profit, OR a 10% loss. In the past I have used many different types of management including adding more butterflys, adjusting by adding or removing spreads, moving the butterfly, etc. But this simple management approach tends to be easy and fairly effective.

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...

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...

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...

RUT Calendar Update 6-22

What a day! Things are really moving now... The RUT moved down nearly $20, almost 2 standard deviations, and RVX (that index tracking the implied volatility of RUT) was UP almost 10%. This huge movement took a toll on our calendar trade, but massive increase in IV countered most of it.





The main thing we have to prepare for now is the distinct possibility of an adjustment. My adjustment point is $490, and as you can see by the green box on the bottom, we are only a couple of dollars away from that - an easy move for the RUT on any given day. The two green boxes at the top give you some idea of the statistic possibility of finishing on either side of these lines, which at this point is a coin toss.


My adjustment plan is simple: If we hit $490 I will take down the $550 calendar spreads and move them to a lower strike - at this point it looks like the $460 strike looks good. After the adjustment the price will be perfectly centered in the P&L graph. I don't if we'll get there or not, but we're close enough we need to be prepared.


Good Trading...

RUT Calendar Update 6-12

Just a very quick update for the weekend... as you can see, not much has changed on this month's Featured Trade, the triple calendar.  We're just getting started and things have been very quiet, both in price and IV. I will enjoy a weekend of Theta collection.

Good Trading...

Featured Trade for July - Triple Calendar

What's a Featured Trade? Each month I enter and track - publicly - a real money trade that is typical to my trading style. Readers have commented that it's very useful to see how a trade is entered, managed and exited through it's life-cycle. Since most of my trades are delta neutral (or mostly) option spreads, that's typically what you'll see. Hopefully these are useful to those of you learning to trade options - and particularly those who trade options for consistent monthly income.

This month I am bringing back the triple calendar, similar to last month. I entered this morning at 490/520/550. Why a calendar? As I mentioned in previous posts, calendars are long Vega trades. In other words, they benefit when implied volatility increases. I don't have any better crystal ball than the next guy, but RVX - the index tracking implied volatility of RUT - is at a six month low. Could it go lower? Sure. I'm just thinking it won't go too much lower, at least not too fast.

Meanwhile calendars also benefit from time decay, or positive Theta. So if volatility stays in my zone I win through time decay. If it increases, I win through time decay AND IV. If volatility decreases I can still win through time decay as long as it doesn't decrease too fast. There was a perfect example of this in last month's featured trade, where IV dropped substantially, but we still came out with a 9% profit on the month.

The biggest risk that I have with a Calendar, aside from plummeting volatility, is DELTA risk... or price movement risk. This is a relatively delta neutral trade when initiated (delta=6.8 right now), but if price moves too far we can lose. For that reason I chose to put on a triple calendar, sometimes called a "shotgun calendar".

Good Trading...

RUT Calendar Update - EXIT

Today was the final day of our featured monthly trade... I decided to throw in the towell on the RUT Calendar. I suppose "throw in the towell" isn't exactly right, since we garnered a nice profit for the month; but I usually like to see 15% or so before a take it off.

In this case, it seems that things were not going our way. Since we put the trade on, nearly a month ago, implied volatility has dropped tremendously. The market is sucking the value out of the calendar, and it may very well continue to drop. This morning there was just a slight pullback and it made since to cash in my chips. It was up about 10%, but as usual commissions and slippage take a little, so 8.98% was the final tally for the trade. I'll take it.

Good Trading...

RUT Calendar Update 5-30

I apologize for the light blogging this week... I've been traveling and very busy. In any case, that's why I'm a SnapTrader. I don't have a lot of time to manage trades so I've made an effort to design a trading plan that requires very little attention. The currently featured calendar trade for June expiration is a great example of that.

So far this trade has required virtually zero management. In fact, it hasn't even really been close to needing an adjustment. As you can see by the latest P&L graph, we're showing a decent profit for the month... about 8%. Given the massive fall in volatility this isn't a bad showing. I will likely look to exit this coming week unless we see a change. With slippage we can probably get out with about a 6-7% gain. I'm okay with that, For what turned out to be a less than ideal month.

As I mentioned, implied volatility has really plummeted. You might remember that I suggested(uh, hoped) that the RVX - the index tracking implied volatility for the RUT - may be finding a new trading range. Today it looks like, while it's still in my suggested range, it's threatening to continue lower. There are so many reasons to think it should head back up, but as they say... it is what it is. And here's what it is right now:

As I say, there are many reasons to think that the fear driving IV should be significant enough to drive it back up. Perhaps it will... this will be an interesting week to come. Either the RVX further establishes this range or it breaks into the mid-30's. So what do we do with this information? I will use this to establish trades for the July expiration. If it heads lower immediately I will likely enter my Condor on Monday or Tuesday. If not, I will assume we're still in this range and wait for a retracement of IV to enter the Condor. More rationale for that coming in a future post.

Good Trading...

RUT Calendar 5-6

Today was the day I initiated my feature trade for June expiration. This month I will be tracking a RUT Calendar trade throughout the month. The first question one might ask is "Why a Calendar, and why now?" Good question. First let me show a quick snapshot of the RVX chart. Remember that the RVX tracks the implied volatility of the RUT index.

What is really obvious about this picture is that the RVX has broken a significant many-week support line. For a couple of months it has been hanging around the high 40's to low 50's, and suddenly breaks into the low 40's, closing today under 43. I use very few indicators, but the ONE I do use is the RSI. You will also notice that the RSI indicator for the RVX is extremely oversold, resting at 2.8. Now I know you might argue that technical analysis has no place in the patterns of a volatility index, but frankly I would disagree with that. EVERY other time this indicator has been oversold like this volatility has either flattened or (far more often ) increased in the following days.


So why is all that important? Calendars are long Vega trades. In other words, they benefit when volatility increases. I don't have any better crystal ball than the next guy, but I believe its a reasonably good assessment that IV is more likely to level out or increase for a while. In the end, the break of support probably means it will stay below the line and perhaps head lower, but short term I'm hoping for a bit of a retracement and leveling.

Meanwhile calendars also benefit from time decay. So if volatility stays level I win through time decay. If it increases, I win through time decay AND IV. If volatility decreases I can still win through time decay as long as it doesn't decrease too fast.


The biggest risk that I have with a Calendar, aside from plummeting volatility, is DELTA risk... or price movement risk. This is a relatively delta neutral trade when initiated (delta=1.4 right now), but if price moves too far we can lose. For that reason I chose to put on a triple calendar. Some people call this a "shotgun calendar". Specifically, it's three calendars, one each at the 460, 500, and 550 strikes.






By spreading my calendars across the three strikes I am able to reduce my price risk to some degree. It doesn't actually reduce deltas, but it does provide me with a higher probability of winning. You can see by the picture that the probability of profit is about 54%. If things go bad I will adjust far before that, but it's a starting point. In contrast, a single strike Calendar would have only given about a 40% profit zone. That doesn't mean this is better... there are tradeoffs. It just suits me better. I like it because adjustments are less frequent.

That's it for now. The position is on and we will monitor it and manage as needed. The goal will be to garner a 12-15% profit in the end.

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 4-17

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...