Update on Positions

Current Positions

• +2 IWM JUL 121c @ 3.50 (leg out), now 5.50 +$400 (-$160 from short call = +$240)
• -7 TLT JUN-26 112/114/125/127 iron condor @ 0.66, now 0.56 +$70
• +1 NFLX JUL 615/620p @ 2.25, now 2.38 +$13

IWM (Russel 2000 ETF)

Current delta on the 121p = ~0.70, meaning that every 1 point move in the stock results in a 0.70 change in the option price. So, if IWM heads up to resistance around 126, the price of the 121p should be around 6.00 and then I will take profits.

NFLX (Netflix)

Text book bollinger short here... rumor has it that Netflix is going to expand into China. Remember, anything "China" sends stocks moving up or down, almost always. I think the stock has gotten a little ahead of itself, practically doubling since the start of the year. Because NFLX is such a high priced stock, so are its options. The ATM puts trade around 35.00 a pop. Because of this, I only bought 1 spread; legging out with a naked put price that large can net serious losses, and gains.

The delta on the 620p is around 0.50... every 1 point decrease in NFLX will result in a 0.50 change in the put price. However, NFLX moves many dollars in a day. 1% of 620 = 6.20, so a 1% day in either direction will make me gain or lose roughly $300. That means I need to be extremely careful when I leg out of the spread. But, a move from 600 to 586, 14 points, nets $700, which is plenty when the original risk of the spread is $225. No need to be greedy, especially since euphoria can drive NFLX much higher.

TLT (20+ Year Treasury ETF)

No need for charts here, the trade is simple. The recent bond rout has caused bond volatility (and hence TLT volatility) to increase. When volatility increases, it is more advantageous to sell premium. TLT's IV rank is 83, or very high. So, the iron condor has a good POP of 62%, a good credit, and should make a decent profit once volatility decreases and some more time passes.

Bond Traders Have Been Calling the Fed's Rate Hike Bluff

I read an interesting Bloomberg article on the way into class this afternoon. From Bloomberg:

The market is essentially calling the Fed’s bluff. Traders are betting that policy makers won’t be able to raise rates this year without disrupting stocks and bonds, something that they’d really rather not do. So either U.S. policy makers will have to risk another market-wide tantrum, or they’ll give in to traders who embrace the idea of these historically low borrowing costs sticking around for longer.

“In the end, the Fed is more likely to ‘cave’ to the market as opposed to ‘fight it’ by hiking when the market does not have it priced in,” Jim Bianco, president of Bianco Research LLC, said in an e-mail. The Fed still sees low rates “as beneficial and does not want to undermine all the work they have done over the past several years.”

I've been saying this and saying this and saying this and saying this through all of 2014 and 2015 so far. The Fed can't actually raise interest rates... forget the 25 bps that they are so afraid of charging to the carry-traders.

Everyone that is leveraged up cannot afford higher interest rates. Ok, probably 25 bps higher, sure. But not a "normal" rates, for sure. That includes the US government, big banks, hedge funds, and even your non-finance corporations can't afford higher rates!