Easy trading before the hurricane came through

This post may also be read at: http://www.cboeoptionshub.com/2015/08/31/easy-trading-before-the-hurricane-came-through/

As someone pointed out two posts back, I did tell everyone: "Follow along for a less wordy (because I've already explained it all) installation documenting the conclusion to this story pretty soon, as the story must end before the dates stamped on my only two current positions: Friday the 21st."

So here it is, minus lots of words, because there's not a ton to say other than when I opened, when I closed, and the prices (and the way I dodged being assigned a lot of shares at the associated strikes.)

A picture is worth a thousand words, but here are few on top of that, anyway:  On August 11th, with SVXY in the low 90s, and on August 12th, with SVXY in the mid 80s, I wrote puts for the 85 strike and the 77.50 strike (respectively), both to expire on August 21st.

On August 19th, feeling that anything could happen between then and Friday (good one, huh?) I bought back all, thinking I was being overly conservative on the 77.50s, but doing it anyway, just to raise cash, and because eight cents seemed like a fair price to get out of harm's way.

The funny thing is that Friday ended with both of those strikes cut through like a red hot surgical scalpel through butter.  Even the 77.50s would have been assigned, had I sat there watching the market like a slacker watching TV.  This is not to say I didn't get into more trouble later (I'm expecting a Santa sack full of early Christmas presents this week), but this is the story of last week.

I ended the week $918 richer (see above.)  Simple trade; not very challenging to monitor under stable market conditions; almost boring enough to fall asleep to.  If only every trade could be so easy, right?

In which I get a black eye, but escape a worse black eye

This post may also be read at:  http://www.cboeoptionshub.com/2015/08/25/trade-in-which-i-get-a-black-eye-but-escape-a-worse-black-eye/

It was a black eye I gave myself, of course.  If this blog were all sunshine and lollipops - well, that would be great.  I'll work on it.  For now, it's not happening.

So last week I got it into my head to sell some UVXY 55 calls, thinking that strike was unlikely to hit.  Under "normal" market conditions, that would be a reasonable belief.  As everyone and their kid's kindergarten teacher knows by now, the market has had a "correction."  I got sent to the house of corrections along with the market.

After seeing margin calls in my account so high they cannot be comprehended by the human brain, I sat through - crunching peanut-butter-smeared granola bars and chasing them with coffee - and watched the carnage subside.  Too proud to close a position for a loss just to avoid possible future damage, when I firmly (no, shakily) believed the damage would not become a reality, I sat there and tried to live on a steady diet of hope and lip-biting.  My belief was (still is, but it's moot now) that if the market bounced back fast enough, everyone would be amused by the idea of UVXY 55 and I'd be able to tell everyone the story of how I made 400 lousy dollars from the hardest trade in my life.

Instead, as my honest suspicions told me would happen, a second VIX spike happened today (August 25th) with UVXY following suit trying to get a senior discount at all the diners in town with its 65+ card.  $66.81 is the highest print I see today.

$16.90 is the highest price someone paid today to negotiate UVXY 55, expiring this Friday (the 28th) and it was done just before the close.  I don't have that kind of money to throw away, so thankfully I threw away just $5.95 earlier in the day (would have preferred the $2 range, but at least I didn't ruin my account.)  On 11 contracts, that's enough money to cause all-day grouchiness, especially since I still don't think UVXY will be at 55 on Friday, but to satisfy the brokerage which does not wish to ask their employees to mortgage their house to protect my account, I did it.  Because I am not working with play money, and must make good on the contracts I have written, I got out of a contract that I know deep down has the potential to cost me money my pockets are not deep enough to produce.  When your broker calls and says "we are watching this," it tends to nudge you to dispose of the miserable headache-causing mess.

Shouldn't I have hedged it?  Yeah - coulda, shoulda, woulda.

In addition to this I sold puts, both prior to the "corrective phase" and in the midst of it, for SVXY at prices people will laugh at me for during the foreseeable future.  So I will have a large pile of "stock" to work with, and how long my account total remains depressed due to it remains to be seen.  I'll sell the dickens out of calls, though, and make what money I can.

Prepare for some boring times on this blog (maybe.  You never know.  No one knows, or more people would be profiting like geniuses from current market conditions.  The genius count does not get added to by this writer.)

The bull market lives! Long live the bull market!

This post may also be read at: http://www.cboeoptionshub.com/2015/08/17/the-bull-market-lives-long-live-the-bull-market/

Or at least through the end of this week.  After that I'll be ready for anything else, but please - whatever is keeping volatility low - stay stable for a few more days.

My escapades this month started on August 3rd, when I thought I'd draw a line in the sand for UVXY.  See chart below. UVXY was in the $25 range that day and its fraternal twin VIX was in the low 12s. I calculated that UVXY was unlikely to sink as low as $24 during the next two weeks, and wrote puts at that strike for 93 cents.  Later in the day, those puts eroded in value to just 63 cents, and I could not pass up such a quick bargain, so I rang the register and put the proceeds right in the till.

Later in the afternoon, I looked for better premium on an even more attractive strike. After a jog around the park, UVXY took a solid nap, dropping back down to its morning levels, and I went searching for premium, this time deciding to be a little safer (since my estimates can be wrong).  I wanted to hold this one until expiration (that's usually my intent) and get more than just the icing off the cake, as I did earlier in the day.  So I chose a lower strike this time, $23.50, at the same expiration nearly two weeks away, and got a price very close to the one I had just paid to close the previous, more "dangerous" contracts.  I considered it basically a "free" move to a safer strike.  To make it seem like a deal even better than "nearly free," I wrote more contracts.  I wanted more money than I would have gotten had I just held the previous set of contracts, and I was willing to further my own willful delusion by taking on more risk (writing more contracts.)  At 63 cents each as payment, and taking on the risk of being assigned $28,000 worth of UVXY, I stood to make seven big bills for my time and trouble.

I could have held until expiration day to get every last penny out of the trade, but with two days to go, once again I could not pass up the bargain of closing the trade for just two cents when VIX did a one-day-only spike up into sixteen land.  UVXY startled itself up to $30 in sympathy, options traders got a case of the vapors, and someone left those contracts on the block for a price tag of just pennies, so I threw two pennies in that direction and left town twelve contracts lighter.  Subtracting commission, it turned out to be exactly the quoted figure: Seven sheets of double-digit currency.  So that was the end of my UVXY activity in August (so far - barring any new weird ideas I might get.)

Going back to the first week of August for an explanation of my motives:  While VIX languished around in the 12 range and no one had a foggy clue what SPX was going to do, I saw nothing to do but engage in the above hilarity plus accompanying chuckles called "selling SVXY calls."  Note that the below chart is, not coincidentally, pretty much a flipped version of the one above.  On August 4th I got it into my head to write 99 calls and someone else was handing out $2.20 to buy them.  I kept those under my hat all the way through today, when I decided that in the same way no one knows what SPX will do, there is no way in the dickens that SVXY can be counted on to do anything in particular for even the next five days, and I'd be willing to pay 20 cents per contract to get out of SVXY's way.  Pocketing a hefty "worrying fee," of course.  The worry coming from the way SVXY twice kissed $97 or thereabouts, right after I wrote those "take your chances" tickets.  Writing calls on SVXY always seems like more of a sweat-inducer than writing puts, if only because SVXY tends to march up the hill steadily with almost no encouragement under all but the most worrisome market conditions. 

Well, that's the wrap-up on my early-August attempt to get the leftover crumbs out of the pan where the great summer VIX cake was baked and served and all but forgotten about by now, with only some sagging volatility indexes left behind to make us wonder if it ever really happened.  Now, notice that so far these positions I opened and closed were designed to vindicate my thesis that volatility was not going to get much lower, or at least that the good-time party friends of VIX (my buddies UVXY and SVXY) could only go so much lower or so much higher (respectively).  That's a hard way to make money, though, when volatility is already low.  Around a week ago I shifted tactics, but didn't really shift sentiment.

Unless and until there's some sort of spike in volatility, I'll take the premium where I can find it, and I'll risk being forced to take on water if I have to.  Being paid a bonus to buy SVXY at prices not seen all summer other than during the July VIX bake-off is a worthwhile venture, in my estimation, and so is picking up bet money on the "do not cross" lines set at various points south of the current trading price.  On August 11th and 12th I wrote puts on $85, and then, balancing the likelihood of being assigned shares with the compensation I'd get for the inconvenience (of taking on nearly double the SVXY I'd be a proud owner of - I'd be a nervous owner if assigned all), I wrote a few more puts on $77.50.  Premium on the former was $1.65 per contract, and on the latter, a whopping (proportionally speaking) $1.45.  The reason the premium was so decent on the 77.50s is because anyone who comes along for the ride must chip in for gas.  No, really - as depicted by the blue arrows, I took advantage of an overnight share price drop to pick up the last few.  Follow along for a less wordy (because I've already explained it all) installation documenting the conclusion to this story pretty soon, as the story must end before the dates stamped on my only two current positions: Friday the 21st.

Mid-month status, appended

Look at the graphic in the post below, and then examine this one:

You will see that the UVXY puts are gone.  I was able to buy them back for 2 cents each after the market washout that took place overnight.  Also, sometime during the day yesterday I wrote the SVXY 85 puts (which looked terrible this morning - something like $700 in the red - but recovered significantly throughout the day, as you can see), and this morning I wrote the SVXY $77.50 puts.

What will happen next?  Your guess is as good as mine.  I just wait and see whether I get to keep the money, or if the money will take me by the collar and march me to the window where I am forced to make a big, fat purchase. (Or even worse, get stuck with a "due immediately" bill.)

Mid-month status

Not that it seems like mid-month yet, but the dates are now double-digit, and if I haven't moved along making something this blog can record in black ink, I'm woefully behind, that's all I can say. Gains can be made in the eleventh hour, but that's not how I plan for it. I don't think about dates or amounts - I simply think, "What's the most money I can get started making today, without getting run over?" On the fourth and the third of August I opened the following positions. Was the timing perfect, and were the prices precise? I doubt it. I tend to be a perfectionist by nature (in some areas - quite the opposite in others) and this venture is challenging my tendency to maximize and scrutinize, and then back-test and criticize myself for not getting the same result some imaginary person out there got with their theoretical genius trade. So it is what it is - a ham-fisted money grab that got slim around the edges yesterday, but appears ready to get a new lease on life today.

image taken pre-market today, August 11th

That's all I have.  That's all I'm working with.  Will that stay the same today?  Tomorrow? Will I cap either or both of those off as short strangles, as I planned to do Friday but didn't do? We'll see.

July: Tricky by anyone's standards

This post may also be read here: http://www.cboeoptionshub.com/2015/08/02/july-tricky-by-anyones-standards/

As if the first half of July didn't provide enough adventure, I set out to bring in a few more dollars during the second half.  As usual, I survived some scrapes and scares and ended up with just that:  A few more dollars.

Set forth below is my ill-timed scheme to capitalize on what I believed would be persistent volatility aftershocks for the remainder of July.  I wrote calls on SVXY at the 94 strike for the July 31st expiration, and the very next day - well, you can see what happened.  Two days later, still hoping I'd hang in there long enough to get the glory, I reinforced the same strategical position (read: I made things potentially worse for myself) by writing UVXY puts at the 25 strike also for the July 31st expiration.

Now, take a look at the 14-day charts above to see where those securities ended up at month-end (the expiration date of my contracts.)  I would have been fine holding those through the end of the month, and would have made virtually all of the $946.50 I set out to make.  But in a fit of disgust on July 23rd, having already viewed a lot of red ink and pondered rolling schemes until my eyes were ready to fall out, I closed those positions, loathe though I am to book a loss - ever.  (And you will see by the end of this post that it was the only loss booked during the entire month.)  See below for the result:  Profit on one, loss on the other, for a net loss of a few hundred dollars.  As already mentioned, now I have the benefit of hindsight to see that I could have held onto them, but I consider my fundamental mistake - if I made one - to be writing those options too close to the stock price at the time and too far away (two weeks is a long time with anything trading that close to strike unless you want to characterize it as "level-calling," or reckless speculating, which I am not casting judgment upon. I probably do it a lot.)

 

After seething for just about exactly one day (and declaring publicly on twitter that I would get "trader's revenge"), I gathered my wits and focused in on SVXY, and opened a short strangle.  This time I set out to be prudently conservative. See the 7-day chart below, showing my exit point on July 23rd from the above mess and the points at which I opened new positions on July 24th.  I wrote puts on SVXY at the 81 strike for the July 31st expiration, and late in the day (that adventure detailed in the previous blog post) wrote calls on the same security, same expiration, at the 98 strike.

With only a week to go, premiums were low, but when you want to scrape a little return out of the market in just one week, you work with what inventory is still in stock.  With strikes that far from current price (SVXY was about $90 on that day, but with a big range of $89.03-94.36, which is difficult for even seasoned traders to get solid footing on when you think about it), there's probably something to be had at every strike within a crazy person's idea of reason.  I found those crazy offerings and put them right into my account.  (55 cents on the 81 puts and 35 cents on the 98 calls.)

Above, see the outcome.  On Monday, July 27th (the next trading day after opening the position), I could not resist the 5-cent buyback available on the 98 calls. What happened is that SVXY plunged so much during a weekend gap between Friday the 24th and Monday the 27th - down to 83.58, (which, by the way, made my short puts look temporarily ugly) - that no one envisioned SVXY up near 98 anytime soon, so premium dried up instantly.  I closed the calls out, if for no other reason than to free up margin to write different calls later in the week (although I never did.)  As for the 81 puts, they courteously and conveniently expired worthless.

So, at mid-July, I set out to make $947; failed by losing $229 instead; vowed that I'd make that back or better; made $640 on the succeeding strangle, for a net of $411 on my end-of-July money-grab.  Which is not what I'd normally consider exemplary, but added together with accomplishments earlier in the month, makes for a month I will not complain about!  (total trades for the month below)