Not Frightening
Over the weekend, the Collar trade was assigned on its QQQQ calls, meaning that my QQQQ position was closed out at 58. After the events over the weekend, and the markets today, that ended up being a great trade all by itself (QQQQ closed today at 57.03, down 1.70 on the day).
The QQQQ Collar trade has been one of the few that I have been running with real money, and it has been going for about 18 months now. Over the last 18 months we have had, overall, a pretty significant up-trend to the market; and a limited-profit trade like a collar is going to underperform during strong up-trend periods. Sure enough, I've made some pretty good money in the collar trade: just under 16% in 18 months. But if I had just bought QQQQ and held it, I would have had a much better return: close to 39% over the same period. Despite this drastic underperformance, the trade is a success - it is a super-long-term trade, and in losing years, its losses are much more limited than a simple buy-and-hold. If it had not underperformed, that would be a signal that something wasn't being hedged correctly.
This trade is not without its problems, however. First, there is a great deal of subjectivity about what strikes to use for the covered calls and the protective put - I tried to solve this problem by setting some range parameters. Next, I have been running this trade in an online broker that is geared more toward stock traders than option traders. As a result, its commissions for options are terrible: $10.75 for a one-way one-lot option trade, vs the $1.50 I negotiated with thinkorswim. When I'm doing 14 option trades a year, plus the fairly frequent assignment fee of $25 followed immediately by the need to repurchase the QQQQ outright for $7 flat, it gets expensive fast. Finally, I have noticed that the time value on the about-to-be-front-month options drains significantly over expiry weekend. But since my online broker is very touchy about naked short options, I have to choose between an expensive fee-to-price ratio rolling trade, or letting the premium disappear over the weekend.
Since the collar essentially closed itself out over the weekend, I decided now would be a good time to transfer its required capital to thinkorswim and run it there. I may retain the stock/call/put configuration, or I may run an equivalent position of a simple bullish vertical option spread. If I do that, I lose the calendar component of the 6-month put vs the 6 1-month calls, but I'm not convinced that component is valuable anyway. In any case, I have some research to do before the money transfer settles.
Frightening
Back to fake money, the CiG trade lit up like a Christmas tree today, thanks to those crazy Libyans. S&P futures sold off 28 points or about 2%, which signalled a Buy at the close. I have been bearish S&P for about 6 months (it has gained 300 points during that time) but this is a mechanical trade -- my viewpoint doesn't figure into it. Have you ever tried to make yourself buy something when you don't believe in it and it has just sold off by 2%? It isn't easy.
The gold futures trade last month wasn't easy, either, but it turned out fine; by the law of single-datapoint-patterns, that means this one should be just fine too. Nevertheless, NeighborTrader and I did have some vertiginous fun imagining that we were each managing million-dollar accounts and thus had to buy 100 futures knowing that each point would make or lose $5000. That would make today a $140,000 losing day for that account, had it been long that amount. I think I'm happier in fake money for now.
I also had a preliminary Sell signal setting up in Ten Year Note futures... we'll see what tomorrow brings on that one.
Somewhere in Between
Rounding out the flurry of activity today, the sudden market downturn made the volatility indexes pop about 4 points. Everyone has heard of the VIX, which measures implied volatility in options on the S&P 500. Since my iron condor trade is on Russell (RUT), I use the VIX's cousin: RVX. Anyway, the 4 point pop in the RVX was just what I needed to get a better price on opening an iron condor position, since it is a negative-vega trade. I put on the 760/770/900/910 April Iron Condor, for a credit of $3.25/share. Pretty respectable, considering the low-IV environment we've had the last few weeks. If the RVX is predictive, however, I'll be in for a roller coaster ride this month.
Showing posts with label QQQQ. Show all posts
Showing posts with label QQQQ. Show all posts
22 February 2011
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.
CiG
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.
Collar
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.
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.
CiG
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.
Collar
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.
22 November 2010
Collar Trade for the Month
This weekend was expiry for November 2010 options, and the collar trade was short Nov 53-calls. Since QQQQ closed on Friday at 52.47, those calls expired worthless. I sold new Dec 54-calls this afternoon for 38c/share. With QQQQ trading at 52.70 when I placed the trade, this just barely violated my "at least 2.5% out of the money" rule. But the next strike up (55) would have been 4.4% out of the money and barely worth the commissions, so I felt it was close enough.
Not really anything else to say there... it's a pretty mechanical trade, and there was nothing all that complicated to consider this month.
Not really anything else to say there... it's a pretty mechanical trade, and there was nothing all that complicated to consider this month.
18 October 2010
Assorted Trades
Iron Condor
On Friday, I decided to add a little up-side protection to my December Iron Condor. I'm trying to act when delta starts getting out of whack, and after a few days of stock market rallies the Dec IC was looking at a delta of about -20. Sadly I can't be more precise on this because I forgot to jot it down (mental hand-slap). Anyway, I decided the adjustment that made the most sense was to buy a Dec 760 call. With my IC strikes at 610/620/770/780, this puts the naked-long call just one strike below my short call. This adjustment brought my delta up to about +4 as of now, and didn't hurt the theta too much - still nearly 21. It cost me 9.50, which is a big chunk of change, but I expect it to be the only upside adjustment I'll need to make to this position.
Until I come up with a better solution than Excel, unfortunately I can only display value-at-expiry. Trust me when I say that current portfolio value is a lot curvier and much more attractive than this.
QQQQ Collar
Also on Friday, my October covered call on QQQQ as part of the collar trade expired in the money and I was assigned on the call. Pursuant to the rules I set forth in September, I bought QQQQ back this morning at 51.50 and sold calls against it with a strike price of 53 for 56c. Here are those rules again, since I keep having to search Facebook Notes for the numbers:
1. Monthly calls to be about 3%, and no less than 2.5%, out of the money.
2. 6-month put to be 8% out of the money.
3. No rolling prior to expiry.
Gold Leverage
I am still long-term bullish on gold, and I express that by being long GLD, GDX, and AEM. I also currently have some Dec calls on GLD that are so profitable that I have sold off enough to cover my original investment and the remainder are worth almost twice what I paid for the whole stack. Nevertheless, I'm becoming concerned with the borderline irrational expectations for QE2 lately, so I'm ready to take some profits. I started working a fairly distant sell order on the rest of my GLD calls this morning. Hopefully it will reach my target price and I'll exit there, but I also have a time limit on this trade; I'll exit when that time limit expires regardless of the price action.
On Friday, I decided to add a little up-side protection to my December Iron Condor. I'm trying to act when delta starts getting out of whack, and after a few days of stock market rallies the Dec IC was looking at a delta of about -20. Sadly I can't be more precise on this because I forgot to jot it down (mental hand-slap). Anyway, I decided the adjustment that made the most sense was to buy a Dec 760 call. With my IC strikes at 610/620/770/780, this puts the naked-long call just one strike below my short call. This adjustment brought my delta up to about +4 as of now, and didn't hurt the theta too much - still nearly 21. It cost me 9.50, which is a big chunk of change, but I expect it to be the only upside adjustment I'll need to make to this position.
QQQQ Collar
Also on Friday, my October covered call on QQQQ as part of the collar trade expired in the money and I was assigned on the call. Pursuant to the rules I set forth in September, I bought QQQQ back this morning at 51.50 and sold calls against it with a strike price of 53 for 56c. Here are those rules again, since I keep having to search Facebook Notes for the numbers:
1. Monthly calls to be about 3%, and no less than 2.5%, out of the money.
2. 6-month put to be 8% out of the money.
3. No rolling prior to expiry.
Gold Leverage
I am still long-term bullish on gold, and I express that by being long GLD, GDX, and AEM. I also currently have some Dec calls on GLD that are so profitable that I have sold off enough to cover my original investment and the remainder are worth almost twice what I paid for the whole stack. Nevertheless, I'm becoming concerned with the borderline irrational expectations for QE2 lately, so I'm ready to take some profits. I started working a fairly distant sell order on the rest of my GLD calls this morning. Hopefully it will reach my target price and I'll exit there, but I also have a time limit on this trade; I'll exit when that time limit expires regardless of the price action.
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