My short SPY position had been in the red for most of the past two weeks when I entered this trade to hedge my overall long positions. Because of the drop in SPY today, I was able to make a small profit (~$30) and a window of opportunity to roll my position higher and longer in duration to collect more premium and adjust my overall delta position accordingly.
The market closed at an all time high again! It seems this bull market has legs as investors continued to buy the dips. Along with the market, my personal portfolio hits a new all time high today. As such, I'm continuing to stay on the side of caution in my trading strategy. My trading strategy has been to continue taking profit often, continue to trade relatively small, continue to have a slight short delta as beta weighted against the SPY and continue to buy on the dips and sell into rallies and contraction in volatility and time.
As an option trader, I embrace volatility and use the elevated levels as an indication the options have reached its highest premium. With this in mind, I want to illustrate an example trade on BMY (Bristol Myers Squibb) that I closed today for over $400 in profit. BMY came into the radar on my high IV (Implied Volatility) scan report around Valentine's Day, which I entered the trade with a straddle at $55, slightly delta long as it was trading at around $54 at the time. With this trade, I'm looking for the eventual IV contraction, time decay, and/or the underlying to move upward due to my long delta. Everything worked in my favor but the biggest driver in my profit is the contraction of the IV rank from 100% to less than 30% as illustrated in the plots below. Have a good weekend!
Look at the charts of the SPY and its implied volatility below. It's a really good feeling to see we're at an all time high and volatility continue to creep lower, the bottom graph. Similarly, my net liq hits an all time high this week as well. With that in mind, I continue to take smaller profit by closing on the following positions this week: FB (traded a couple of time this week), KORS (day trade), /CL (oil futures), AMZN and GOOGL (on both positions, I rolled up the long or put leg) and added new positions: GILD, TEVA (sell a couple of contract as it dropped 6% and earning is next week), GPRO, TWTR (after dropping for a couple days after earning), and BMY.
Example on AMZN, rolling up the "put" contracts higher and further out to get delta positive. AMZN has been creeping up since its earning drop last week and a stock I love trading, mostly on the long side for the past couple of years. This along with GOOGL helped to buffer my short delta on SPY and VXX. In the pictures below, I rolled up the 750 put position to 770 put position with longer duration.
Happy Monday! As the market dropped around 0.8% this morning, my overall position delta is now positive which means I'm long the market. By market, I'm referring to the SPY which is what I use to beta weight my positions. At the moment, I'm cautious as we're at market highs so I took the opportunity to close a number of positions for a profit to bring my overall delta toward neutral. With that said, I closed out of QCOM, PCLN, SBUX, UAA, and VSAT. I tend to close my position sooner rather than later for smaller profit in this caution environment. I've been wanting to get back into FB and today I added a position in Facebook. Previously, I was delta short oil futures and it dropped about $0.80 today and now I'm delta neutral in oil futures, exactly where I wanted. It is trading up a bit in after hours. I'll look to add long positions in oil future in the coming days. The other position I missed in my cut and paste is XOM which is still a position I've at the moment. As you can see, I don't have a lot of securities and will continue to be light until opportunity present itself or when volatility pick-up. This strategy can continue to make money as the market continue to grind higher but at the same time will help to limit losing positions on the downturn when volatility spike.
It was a great month as my profit continues to grind slowly upward along with the market. My trades continue to be light as I don't see a lot of opportunity and at the same time, I'm cautious as we're at market high. Today, my "net liq" value hits an all time high in my portfolio. Net liq is short for Net Liquidation value which is defined as the total cash value + commodities option value + stock value + securities option value + etc in your portfolio. With that in mind, I took the opportunity to protect my profit by reducing my exposure by taking profit on a number of underlying. Starting with my oil future contracts, I closed out the front month and next month's contracts with a nice profit. As you can see, I kept on rolling my put contracts upward to get to delta neutral. Every time I rolled up the contracts, I'm taking profit as well in this particular situation. Eventually (today), I closed out my straddles and strangles for either a break even or a small profit. I'm slightly delta short oil futures at the moment with a tight strangle. I'm long XOM which helps to counter the short in oil future a tiny bit.
On my securities underlying, here are my outstanding positions. As I commented yesterday that I would look to add positions in Amazon after the earning shortfall overnight. An underlying equity I've been trading forever. My first trade after getting out of bed this morning was two long contracts in Amazon (selling into strength). Then I added a short call contract in Amazon as I drove my daughter to school. In the early morning, I rolled the short call contact down to get more premium. I wanted to get out of PCLN today but did not get a chance as volatility may creep up in the coming days due to upcoming earning. With GOOGL, I moved my long position up a bit to collect more premium or rather get closer to delta neutral. I got back into VXX as SPY went up (selling into strength). My overall position continues to be slightly delta short as beta weighted against the SPY. As you can see from my trading style, I like to take profit often. Small profit add up to big profit over time.
I managed to place a few trades today. If you've been following my trades, I've been a bit light in my trades. I'm usually very excited during earnings season but this time around I'm a bit cautious and have been on the sidelines as volatility is low and most of the stocks are at all time high. I was tempted but resisted from placing earnings play on Amazon, GoPro, and CMG. All three stocks dropped in after hours, especially GoPro (-12%+). I'll definitely look to scale into Amazon and will wait to buy into GoPro until next week. To summarize my trades today, I've added a long position in GOOGL, closed out of my PCLN strangle, then decided to continue shorting PCLN into next week. I'll likely look to close tomorrow or early next week for a profit, earning for PCLN is on 2/17th. After watching Under Armour for the past week, dropping almost every day, I finally decided to take a long position. ViaSat is a company that I love as I almost went to work for them at one point in my career. So instead of buying the stock outright, I'll sell a couple of contracts to collect premium with a break-even price of less than $59, not a very liquid underlying. I sold out of my VXX again to reduce my overall short delta. I bought into XOM to offset my slightly short position in future oil contracts.
What better way to show my trading strategy than to illustrate some actual examples on volatility spike and contraction. If you follow my trades, I was slightly delta short and today was a good day when volatility spiked in the front month of the VXX, causing my limit order to fill in the VXX. I placed this trade a couple of weeks ago as a way to hedge my long positions. On the contraction illustration, I entered a trade in RAD (Rite Aide Corp) over a week ago when volatility reached 100%. Note that this is not a liquid stock and I typically shy away from it. Furthermore, I usually enter my trade on a third day of a large gap down as can be seen in the chart below. Then wait for volatility to collapse, which is did today dropping from 100% to 40%. Even though the underlying moved against me by a whopping 18%, I'm still making money and it was a profitability trade.
Happy Friday! I have not had time to document my daily trade as my new job demanded a great deal of my time. But I wanted to illustrate a specific trade and its volatility, which is a mean reverting process. Here is an existing short position I have on SPY. I placed this trade a few days ago to counter my long positions so that I'm slightly short delta in my overall position as beta weighted against the SPY. As shown below, even though SPY went up by +0.26 or +0.12%, my short SPY gained about 10% in premium profit. This is because volatility continues to drop as shown in the red arrow below. Typically, in this scenario I'll close my trade for a quick profit and wait for volatility to pop again or other opportunity to arise. Keep in mind that small profits will add up to big fat profit over time. If you make enough trades, you can continue to call your broker to lower your trading fees. But this specific trade, as noted, is used to counter my overall position. Volatility used to scare the heck out of me and would cause me to close losing positions at the wrong time when I first started to learn about option trading. Happy trading....
2016 was a transition year for me as I took a new job and relocated my family to the Seattle area toward the end of the year. I've no access to my mobile phone and little to no internet access in my prior job. To continue engaging in my trades, I rely on commodity oil future contracts which are traded almost 24 hours a day starting on Sunday evening at 6pm Eastern Standard time. This has allowed me to engage in my trading strategy. This is not always optimal as the trading volume tends to be light outside of the main trading hours with the bid-ask spreads being wide. To place my trades, I always use limit orders and sometimes they don't get fill. This is also true for my limit orders in regular security underlying contracts. As such, I did not place a lot of trades in 2016. I look forward to placing a lot more trades this year. My trading continues to be somewhat light as we're at market highs. At the moment, my overall position is delta short as beta weighted against the S&P 500 Index (SPY). I'll patiently wait for opportunities to present itself before scaling into my trades. By opportunities, I'm referring to panic or market uncertainty that will drive higher volatility and thus richer premium contracts. If you can stomach volatility, which is a mean reverting process, you can make money.
Here is a snapshot of my closed positions after the first week of 2017. Note that 100 shares is equivalent to one contract. Most of these positions were placed toward the end of last year, see Open Date column below. This is to illustrate my favorite part of the strategy and that is to take profit and take is often. Some of the positions such as CRM, EXPE, and WBA were in the red since I entered these trades and when they eventually breakevens or made a tiny profit, my limit orders to close got filled. I'm currently going over my trading strategy with a good friend and co-worker, Chi. He is currently applying this strategy on his retirement accounts via covered calls to start.
I took profit on CMG, CVS, and SPY short positions and added GOOGL, LB, and SLB as they all dropped. Even though the VIX shot up today, there is still not a whole lot of opportunity. In oil futures, I rolled down my call legs as the oil futures continue to drop.