Disclaimer: I am not an investment advisor. When I describe my own trading activities, it is not intended as advice or solicitation of any kind.

26 January 2011

Trade Catchup

Iron Condor
This month I did something I swore I wouldn't do: I rode an iron condor position all the way to expiry.  Almost daily I took a good hard look at the position, and just didn't see a reason to close it.  It was somewhat underwater and getting worse as the gamma spiked up, but it wasn't through any of the strikes yet.  I reasoned that the increased loss incurred after the short strike went into the money didn't outweigh, on probability-weighted terms, the near-instant profit up to max I stood to make if it settled where it traded nearly all week last week.  If I had seen an inkling of a bullish follow-through in the Russell (my IC index), things would have been different.

I would have much preferred to get out of the IC early like I usually do, but it was a headache the whole way this month, trending up like crazy and refusing to give me any pullbacks to use for exiting opportunities.  Until the last week before expiry, that is.

With the market sell-off last week, we had a minor RVX spike, which I took advantage of by initiating the March condor position on Thursday.  I never did open a February position - January was keeping me busy, and the implied volatility was crappy.  March is already proving to be better than January, in that yesterday the call spreads inexplicably were priced at only a little higher than half what I sold them for.  I covered a couple of them, leaving most of the rest on.  March's strikes are 690/700/860/870, and they generated 2.35/contract in income when opened.

The big news is that the Collaboration is Good trade fired a buy signal on gold futures yesterday at the close.  Gold has had an ugly 3-week sell-off, and honestly I was starting to be concerned about my other gold positions in GLD, GDX, AEM, and GLD calls.  Gold futures have a $6750 margin requirement per contract, so I was glad this trade was in the paperMoney account, saving myself some sleep. Also, buying a gold futures contract after a 100-point sell-off would be a lot tougher in a real-money account, especially since with a contract size of 100oz, I'm looking at $100 per point per contract.  That's a lot of leverage: 100 oz of gold, with a street value of more than $130,000, for $6750.

Today the position started about 5pts in the red and continued to slide, bottoming out at about -7pts before gold suddenly started to go parabolic on an intraday basis before the FOMC announcement at 1:15 CST.  By the close, a profit-exit signal had fired, and I closed the position with a nice $1100 profit.  It rallied so hard during and after FOMC that it started to encourage me about my other gold positions.  A good hard rally after a CiG buy signal, historically, seems to result in some follow-through.

NeighborTrader, who was running this with real actual money, claimed he was going home to vomit into a trash can after closing his position this afternoon.   Sounds like it's time to increase the size...

Earnings Plays
Microsoft and Starbucks announce earnings this week: Microsoft tomorrow and Starbucks as I write this.  I have a sizable Microsoft position already, so I bought some puts on it as a hedge in case the stock slides after the announcement.  On the other hand, I have no position in Starbucks stock - but I have a natural short position in their products (nerdy trading humor, meaning I drink a lot of their coffee).  The market has been room-temperature on Starbucks for some time (insert more nerdy humor about room-temperature coffee here, if you like), and I recently saw some compelling arguments why a good report should send the stock higher overnight, so I bought some calls.  The conference call is still going on, but the numbers are out: Starbucks beat estimates and jumped its income by 44% this quarter, so of course the stock immediately slumped by 2.5% after losing 1% throughout the trading day.  Apparently they didn't raise their guidance enough to make everyone happy.

Oh well.

How should I root for Microsoft tomorrow?  Should I root for bad news, making a lot of money on the puts while watching my Microsoft position suffer?  Yeah, that's probably the best play, because I can use the profit from the puts to buy more stock at bargain prices.  Microsoft is a money-generating machine, and its stock price just makes no sense.

The most boring trade in my portfolio, the Nasdaq Collar, saw its covered call for January expire worthless last weekend, and I opened a new covered call position for February with a strike of 58.  Ho-hum.

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