RUT Weekly Calendar Trade #14 (Part 1)

On July 14 with the market at 1269.25, I bought a 1270 calendar for $7.35. I got filled $0.10 off the mark.

Adjustment points were 1258 and 1283. While I felt it was not fun being back to narrower breakevens, last week’s trade with wider breakevens lost!

The market traded sideways for a few days but trading down to 1260 on July 20, I had to roll to 1255. I did not like only getting an additional five points but modeling the 1250 showed significant sag that would make the trade implausible. In retrospect, now with only a 15-point range, this trade itself may have been too narrow and implausible. A slight breeze is all it would have taken to force a second adjustment.

When I looked at the risk graph before market open on Tuesday (July 21), the expiration curve was much lower. That held after the open, too. I think this was more a subjective perception than anything else, though. I had a bad attitude about this trade from the very beginning because of the relatively narrow breakevens. TOS also makes it hard to determine exactly where the red [expiration] curve is at times on the risk graphs because they can vary from moment to moment. In retrospect, I noticed the 10:30 graph looked more pumped up than those earlier in the day. Unfortunately, I feel this negative attitude factored into my trade management.

I’ll conclude discussion of this trade in my next post.

RUT Weekly Calendar Trade #13 (Part 1)

This trade was placed on July 7 around 11:10 ET for $8.40 with the market around 1230. This is the most expensive calendar I had bought to date. That could be viewed as a sign to keep out of the trade in case elevated IV were to subsequently mean revert. A positive horizontal skew was poised to benefit this trade, though, as was seen with trade #12.

I found myself in a quandary on Friday with the market four points from the upside BE at 1254.

According to plan, on a continued move higher I should have adjusted to a double calendar. With real money on the line and facing the reality that a big upside move could land this trade down $250 or more at Monday’s open, I ended up closing half the trade.

This is why trading is difficult. Given the Greece referendum/vote on their financial crisis, I felt I had to act defensively. I figured if the market pulled back in such a way that I could have taken full profit but then couldn’t because I already closed half the trade at a big loss, I would be frustrated. It almost seemed irresponsible to leave on the entire risk or even to try centering the trade as a double calendar given a “market-related earnings announcement” being due over the weekend.

The market did indeed move higher on Monday and I closed the rest of the position at 9:45 with the market around 1261. This trade lost 16.2% in seven days.

RUT Weekly Calendar Trade #12

On June 30, 2015, I bought a 1250 calendar with the market right around that level. I placed the order $0.05 off the midprice and caved $0.10 over two minutes.

My contingent order to close triggered around 1 PM the very next day with the market at 1251.67. The trade made 10.2%.

This is the first time I have seen such a positive skew on the trade. Simply reverting to a normal horizontal skew would have probably hit the profit target; that may have been precisely what happened.

As testament to the horizontal skew, the breakevens were over 55 points apart at trade inception!

RUT Weekly Calendar Trade #11

On June 23, 2015, I bought a 1290 put calendar for 6.65 with the market at 1291.57.

My contingent order to close triggered at 3:11 ET on June 26 with the market at 1281.1. The market traded mostly sideways over the four days:

This trade made about 10% profit.

Weekly Iron Condor Trade #5

On July 1, 2015, I placed my fifth weekly iron condor trade. I placed this order $0.025 off the midprice (10:57) and caved a nickel two minutes later (filled $0.05 off the then mark).

Unlike the last JulWk2 trade, which should have been JulWk1, this position progressed without incident. The market drifted lower and volatility increased but this trade is negative delta at inception so that is okay.

This position made 5.4% in eight trading days.

Weekly Iron Condor Trade #4

On June 24, 2015, I placed my fourth weekly iron condor trade. I placed this order at the midprice (10:41) and caved 0.05 over three minutes (filled 0.10 off the then mark).

The market fell 2.5% over the next five days, which forced me to close the put spread for $2.20. This trade lost ~9%.

I found this trade disappointing because I do not consider 2.5% to be a large market move. This is one or two big down days or perhaps even one really big down day. Volatility definitely hurt me as VIX increased from 12.16 to 17.62. The market was 60 points away from my short strike at trade exit. I could have remained in the trade but another big down day could have halved my margin of safety and forced me to close for a larger loss, etc.

Debating the pros and cons of particular option trades can always be done. No right answer exists. If I hold on longer then I win a greater percentage of the time but my average win/loss ratio is worse.

Bottom line: I have my trading plan and I’m sticking with it. This is most important. I want to understand how this trade does over the long-term so I don’t want to try and optimize any one trade. For any single trade, I can always point at one or two things that would have markedly changed the outcome. This is unfair and unrealistic, though, because making the same tweaks of all other trades would have an impact on them, too… and not all for the better.

Having said all this, I do need to address one trading error. This trade should have been placed in the JulWk1 series but I placed it as a JulWk2! This might be significant as I would expect vega to be higher with more time to expiration.

At trade inception, I found vega to be about -45 for both. Delta was more negative for the shorter-dated position but theta was greater as well. A quick backtest revealed a similar outcome either way.

Weekly Iron Condor Trade #3

On June 17, 2015, I placed my third weekly iron condor (IC) trade. I placed this order $0.025 better than the midprice at 10:56 and caved $0.05 after one minute (filled at the then mark).

The market traded up over the next few days but then pulled back, which allowed the trade to expire worthless.

This position made 5.4% in eight trading days.

Weekly Iron Condor Trade #2

On June 10, 2015, I placed my second weekly iron condor (IC) trade. I placed this order at the midprice at 10:52 and caved $0.05 after two minutes (filled $0.075 better than the mark).

The market traded relatively sideways over the next nine trading days and this trade expired worthless.

This position made 5.4% in eight trading days.

Weekly Iron Condor Trade #1 (Part 2)

I previously described my trading plan for a new weekly iron condor (IC) strategy. I also explained how the put vertical was closed for a loss on June 5, which was the first time I attempted the strategy. I threw the challenge flag and after further review, THE CALL ON THE FIELD WAS REVERSED!

I can assure you that does not happen too often.

Unfortunately while I lived to see another day, the contingent order to close was again triggered at 1:30 PM on Monday. This order was based on a spread midprice > $1.70. Once I received e-mail notification for the trade just a couple minutes later, I logged into my account only to see a mark of $1.20 for the spread and the order filled at $1.15.

What?!

I had a second challenge flag ready to throw.

I called my brokerage and spoke with another trading desk representative. He said he has seen the bid/ask spreads widen dramatically for just a few moments on numerous occasions. For this reason he advised me to never set a contingent order based on spread price. I protested, saying this would make sense during the first 15 minutes of the day when chaos abounds (Friday’s occurrence). This should never happen in a relatively calm period like we were having on Monday. I once again asked for time and sales to see what the spread price was at the time this order was triggered.

I saw the report. This time, the call on the field was confirmed.

The customer service rep suggested rather than entering a contingent order based on spread price, I should calculate how low or high the market would need to move to cause the spread to hit max loss. I could then set alerts so I would know something needed to be done.

This trade lost 2.3% (based on gross margin) in 10 days.