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.

Weekly Iron Condor Trade #1 (Part 1)

On June 3, 2015, I did my first weekly iron condor (IC) trade. The idea is to sell the 4-legged beast with 8-10 days to expiration around a 0.05 delta. I want to collect $0.40 per vertical spread.

My primary exit is to let the trade expire.

The only adjustment on this position is to close the distressed 15-point vertical if its premium reaches two times the credit generated by the whole trade. If I collect $0.40 per vertical spread then I will close either side if it reaches $1.60.

In theory, this is a high probability trade. If I sell a 0.07 (aggressive approximation) delta then the probability of touching is 28%. For calculation purposes, I will consider “touching” to be a loss but in reality I think the chance of losing is greater since I don’t believe touching is required to hit max loss. To account for that, I will consider a loss to be two times the average win.

Based on these assumptions, expectancy would be:

(0.80 * 0.72) + (-1.60 * 0.28) = 0.128

Since there is overlap of two trades on Wednesday through Friday, the weekly ROI is 0.417% on 30 points gross margin. This is 22.19% annualized.

If I were always able to close the losing vertical spread for 2x then my theoretical loss on the trade would only be $0.80 instead of $1.60. This would double the projected annualized return. I am taking a wait-and-see approach until I see how often it actually loses.

I will set a contingent limit order to close when a vertical spread reaches $1.60.

Given this trading plan, on June 3, 2015, I placed a JunWk2 2180/2165/2035/2020 IC for $0.85 credit.

At 9:35 on June 5, my contingent order to close the put spread fired. I called the trade desk and contested this trade because from what I could see, the spread was nowhere near the trigger price. I requested the time and sales report to verify. They could not get me this by EOD (customer service rep said the quotes provider “blew him off” despite repeated requests to get the information) so he told me to resell the spread. I did this after market close and the brokerage reimbursed me the difference.

Weekly IC trade #1 lived on…

RUT Weekly Calendar Trade #10

I opened my tenth weekly calendar trade Tuesday, June 16, at the 1260 strike. The market was 1261.61 at the time of fill. I placed the order at the mid and caved $0.10 over 16 minutes to get filled $0.15 off the then mark.

Two days later with the market just over 1280, I rolled one of the 1260 put calendars to a 1285 call calendar for a $0.20 debit. Later that day with the market at 1285, I rolled the other 1260 calendar to 1285 for a $0.65 debit. This would be my last adjustment for the position, which was now down 12%.

In two days, I had basically closed the initial trade and reopened another 25 points higher. For this trade to turn out well, the market pretty much had to stay calm for days.

On Tuesday, June 23, the position was down 3% and just a couple points away from the upper expiration breakeven. To have a chance at a profitable outcome, I figured I would have to hold into the last two days. As I have done previously in this case, I closed one of the calendars to decrease risk in case Wednesday were to welcome me with a big gap opening.

The market traded lower on Wednesday and my contingent order to close was triggered at 1:32 PM with the market at 1285. This position made about 10% in nine days.

RUT Weekly Calendar Trade #9

I opened my ninth weekly calendar trade Tuesday, June 9, at the 1250 strike. The market was at 1249 upon fill. I placed the order $0.05 off the midprice and caved another nickel after one minute. I got filled $0.05 off the then mark.

On the very next day, the market zoomed higher. I rolled one calendar to a 1275 call calendar with the market at 1268. The trade seemed to be down 15% in short order but the trade was now centered.

The market then traded sideways. My contingent order to close was triggered around 1:00 PM on Tuesday, June 16. This trade made about 12% in eight days.