Legging out is when you take off the profit cap (and delta hedge) on your vertical spread to pick up pure delta when there is short term momentum in the direction of your position.
So when GLD passed 122, I took off the short 123 puts on my spread, leaving the now naked 125 puts to pick up pure $$$
This makes it so that instead of making a max profit of $500 on the spread, I made $825. The short 123p lost $200 but the long 125p made $1025, which makes $825.
What a day to get me back in the saddle!
Thursday, January 29, 2015
Wednesday, January 28, 2015
It's Been Awhile
My trades haven't been doing much. I had a couple of good trades shorting the VIX and selling SPY puts, as well as a support play on XLE. I'm up about 3%. Other than that, I'm still in the TLT short, but have made an adjustment:
By selling another put underneath the spread, my risk profile makes a transformation...
By selling another put for a credit, I have made it so that even if TLT keeps chugging higher, I now cannot lose money. I make a small $5 profit (per spread, so 5 x 12 = $60). However, if TLT does in fact decline, I will still make as much money as I would have before, so long as it does not decrease past 125. Nifty, right?
TLT has gone somewhat gangbusters because of the USD rally and the deflation fears. Plus, because its really the only thing performing in the past 8 months, fund managers are really piling into it. It looks like it could go full parabolic, just as treasuries did back in 2012.
I'm also tentatively short gold via GLD, as it has seen an explosive overbought move to the upside. Just a usual bollinger band short here, nothing different. +5 Mar 123/125p @ 1.00
And finally, I went short TSLA yesterday by selling calls. It tagged channel resistance and will probably head lower. Earnings are the week of February 17, so this has to move down quickly. But since I'm in Feb 20 calls, I may see some theta decay in my favor even if TSLA sits around 200. -3 Feb 220/225c @ 1.30
I'm going through another period of losing my mojo. The market isn't really trendy right now, so finding overbought/oversold stocks is hard to do. Most stocks are listing up and down, not really tagging any support or resistance levels... except one. I was looking at AAPL last week, ready to sell some high IV puts. I decided against it, however, because AAPL had earnings yesterday, not giving me enough time to profit beforehand. I regret taking it, because it would have been a killer trade!
By selling another put underneath the spread, my risk profile makes a transformation...
By selling another put for a credit, I have made it so that even if TLT keeps chugging higher, I now cannot lose money. I make a small $5 profit (per spread, so 5 x 12 = $60). However, if TLT does in fact decline, I will still make as much money as I would have before, so long as it does not decrease past 125. Nifty, right?
TLT has gone somewhat gangbusters because of the USD rally and the deflation fears. Plus, because its really the only thing performing in the past 8 months, fund managers are really piling into it. It looks like it could go full parabolic, just as treasuries did back in 2012.
I'm also tentatively short gold via GLD, as it has seen an explosive overbought move to the upside. Just a usual bollinger band short here, nothing different. +5 Mar 123/125p @ 1.00
And finally, I went short TSLA yesterday by selling calls. It tagged channel resistance and will probably head lower. Earnings are the week of February 17, so this has to move down quickly. But since I'm in Feb 20 calls, I may see some theta decay in my favor even if TSLA sits around 200. -3 Feb 220/225c @ 1.30
I'm going through another period of losing my mojo. The market isn't really trendy right now, so finding overbought/oversold stocks is hard to do. Most stocks are listing up and down, not really tagging any support or resistance levels... except one. I was looking at AAPL last week, ready to sell some high IV puts. I decided against it, however, because AAPL had earnings yesterday, not giving me enough time to profit beforehand. I regret taking it, because it would have been a killer trade!
Monday, January 12, 2015
Congratulations to THE Ohio State Buckeyes!!!
2015 UNDISPUTED National Champions... My Alma Mater!
And yes, TCU, we could beat you too. Pretty sure we proved our place.
But this is a trading blog, not a sports commentary blog.
To kick off 2015 I've had some good, typical trades in Zillow, Facebook, and the VIX. My other trade, a short position in TLT (20+ year treasury proxy) hasn't done much. It's overbought for sure, here's a weekly 1 year chart:
For most of the year TLT has been within the green and red channel, more or less. However, there isn't a lot of volatility in bonds, and things that are overbought can become more overbought. The spread is in the March options, so there's plenty of time for this short to get going.
And yes, TCU, we could beat you too. Pretty sure we proved our place.
But this is a trading blog, not a sports commentary blog.
To kick off 2015 I've had some good, typical trades in Zillow, Facebook, and the VIX. My other trade, a short position in TLT (20+ year treasury proxy) hasn't done much. It's overbought for sure, here's a weekly 1 year chart:
For most of the year TLT has been within the green and red channel, more or less. However, there isn't a lot of volatility in bonds, and things that are overbought can become more overbought. The spread is in the March options, so there's plenty of time for this short to get going.
Thursday, January 8, 2015
Another Dip, Another Fed Pep-Talk, Another Rally.
I've been saying for a LONG time that the Fed WILL NOT raise interest rates in 2015. They can't! The following quotes are taken directly from a Bloomberg article today:
The same dip and rally has happened 3 times since October:
Also, notice how ALL the volume is on the way down! It disappears on the way back up! If investors really think that the US can exist in this little bubble, safe from the slowdown in China, Europe, and Japan... I have a bridge to sell you.
But don't worry! The Fed's got our backs! Does anyone ever learn?!
That was in Summer 2007. Did the Fed...
Equities
rallied yesterday on relief that Federal Reserve minutes signaled no
change in interest-rate policy and optimism over employment growth.
Most central bank officials agreed their new policy guidance means
they are unlikely to raise interest
rates before
late April and a number expressed concern inflation could remain too
low.
“I don’t think we should be in a hurry to increase interest rates,” Evans said during a discussion with Lars Peter Hansen, a Nobel prize-winning economist at the University of Chicago. Later in the presentation, Evans said such a move to tighten too soon would be a “catastrophe.”
“I don’t think we should be in a hurry to increase interest rates,” Evans said during a discussion with Lars Peter Hansen, a Nobel prize-winning economist at the University of Chicago. Later in the presentation, Evans said such a move to tighten too soon would be a “catastrophe.”
The same dip and rally has happened 3 times since October:
Also, notice how ALL the volume is on the way down! It disappears on the way back up! If investors really think that the US can exist in this little bubble, safe from the slowdown in China, Europe, and Japan... I have a bridge to sell you.
But don't worry! The Fed's got our backs! Does anyone ever learn?!
That was in Summer 2007. Did the Fed...
- Lower the discount rate? Yes
- Lower the overnight rate? Yes
- Give a lot of market pep-talks? Yes
Did the market still drop like a rock? YES.
I'm not calling for an all out crash in the markets... yet. All I'm saying is that the Fed, no matter what, cannot stop a market decline. "The trend is your friend until the trend ends."
Monday, January 5, 2015
Oil is Back to Puking
One of my last trades of 2014 was XLE, and Oil and Natural Gas stock ETF. I got into it to test a new trading pattern, but the fundamentals and overall bear mauling in crude oil offset that.
It looked like oil tried to form a bottom, but it was a pitiful attempt. The selling returned this morning after Friday and Weekend reports of Russia and other OPEC nations still not only refusing to cut production... but now they're ramping it up.
This makes perfect sense... for them. Russia is facing a full blown currency crisis and needs every cent of revenue they can get their hands on. Even in the face of crashing oil prices, they must sell to take in revenue even if it means they take big losses. Think about it: if you took big pay cut at your job (and you cant switch jobs), and you have to pay rent, are you going to quit your job? That wouldn't make any sense.
I'm no expert on the oil market but I really do think this down move is severely overblown. Traders are expecting deflation in Europe and Japan, rising rates in the US and a stronger dollar, and an oversupply and falling demand for oil. Add that all up and you get a panic sell off.
But it's unusual... why so sudden? The supply>demand issue should have meant that oil would gradually come down, not fall off a cliff. The idea that rates will rise in the US isn't new either, and as I've said before, that isn't going to happen. Deflation expectations have been around in Europe for what, years now? Same for Japan.
It's a little perplexing to say the least. But now matter how wrong the stampede may be, you don't stand in front of it. Period. You can't talk sense to a mob.
I think though, that once traders realize that the Fed isn't going to raise rates, that long oil will be a wildly profitable trade. That said, it would be better done in pure commodity options rather than an ETF or stock option play. Some companies may not survive long enough to see the day, because nobody can know when the traders will wake up; it could take all year, who knows?
Just as a visual, the following charts are crude oil and the US dollar (as compared to a basket of currencies)
The two are almost perfectly negatively correlated since about July... so most of this down move in oil is due to the mistaken notion that the Fed is going to raise interest rates, making the dollar stronger. Markets are somewhat self-fulfilling prophecies.
It looked like oil tried to form a bottom, but it was a pitiful attempt. The selling returned this morning after Friday and Weekend reports of Russia and other OPEC nations still not only refusing to cut production... but now they're ramping it up.
This makes perfect sense... for them. Russia is facing a full blown currency crisis and needs every cent of revenue they can get their hands on. Even in the face of crashing oil prices, they must sell to take in revenue even if it means they take big losses. Think about it: if you took big pay cut at your job (and you cant switch jobs), and you have to pay rent, are you going to quit your job? That wouldn't make any sense.
I'm no expert on the oil market but I really do think this down move is severely overblown. Traders are expecting deflation in Europe and Japan, rising rates in the US and a stronger dollar, and an oversupply and falling demand for oil. Add that all up and you get a panic sell off.
But it's unusual... why so sudden? The supply>demand issue should have meant that oil would gradually come down, not fall off a cliff. The idea that rates will rise in the US isn't new either, and as I've said before, that isn't going to happen. Deflation expectations have been around in Europe for what, years now? Same for Japan.
It's a little perplexing to say the least. But now matter how wrong the stampede may be, you don't stand in front of it. Period. You can't talk sense to a mob.
I think though, that once traders realize that the Fed isn't going to raise rates, that long oil will be a wildly profitable trade. That said, it would be better done in pure commodity options rather than an ETF or stock option play. Some companies may not survive long enough to see the day, because nobody can know when the traders will wake up; it could take all year, who knows?
Just as a visual, the following charts are crude oil and the US dollar (as compared to a basket of currencies)
The two are almost perfectly negatively correlated since about July... so most of this down move in oil is due to the mistaken notion that the Fed is going to raise interest rates, making the dollar stronger. Markets are somewhat self-fulfilling prophecies.
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