Whistling over the bridge

This post may also be seen at: http://www.cboe.com/blogs/options-hub/2016/12/05/whistling-over-the-bridge

At my last writing I had taken an accounting-sheet loss by simply exchanging one security for a comparable one and then selling some options against that position with the intention of bringing in some extra return on that position.  Refresher:

Converted to: (shown after just a few minutes as the position immediately resumed producing red ink):

Well, what happened to those during the earthquake that was election night and the days leading up to it?  I said I'd report back on my bag of Halloween goodies (or NOT-goodies), and here is the answer:

The going got rough, but I got going and worked to repair those positions (some repairs handled poorly and some better executed) until my account, as shown below in an entire-year view, bounced back:

What became of the above-depicted positions during the turbulence that transpired over the first several days of November and during the presidential election?  I got nervous about the short puts connected to my short UVXY shares and cashed them in on November 1 for a tidy profit, as shown below:

Then, I did the same thing again on November 7th, also as puts to cover that same position of associated short shares, but closed them out for a loss. (see below)

I don't remember the exact rationale for that move, but I believe I was worried that the puts would limit my profit, and I wanted to close the position and consider opening another one later.  As it happens, my prediction that UVXY would hit the 13.50 strike by the November 11th expiration (an undesired - albeit acceptable and anticipated - outcome in my mind) was somewhat on-target!  On November 11th, UVXY was all over the map but closed the day at 13.54, just pennies above the strike price.  It spent a lot of the day in the 14s, even looking 15 in the eye, and dipped to 13.43 just to freak out traders [of those particular options], before settling on the hairsbreadth gavel-drop of four cents above that option's strike.

I, of course, had long been out of it, making hay while the sun shone for the remainder of November.  Aside from the options trades described above, my trades consisted of short UVXY and TVIX shares (and just one lot of TNA), and the results are shown below.  For some reason too boring to go into, I changed my closing lot selections from LIFO to FIFO and back several times, so some of the profits are on lots opened earlier the same day, and some are on lots opened as far back as October 31st, the day of my last blog entry.  Some are associated with the options discussed above (you'll see the close of the 1,100 shares from in the second graphic, for example.  Just look for the 15.95 entry price to see those two lots; they were bought to cover at an average of about 15.21.)  The block of TVIX closed for a large loss was "converted" to UVXY with the purpose in mind of selling options against it, and we already talked about those.

As enjoyable as it's been to type this up and chop and crop all the screen shots, I must get back to watching the shares I have outstanding, once again with an uncertain fate.  But I returned, as promised, to reconcile my misdeeds with you readers, and you can be sure I'll do it again.  Maybe this time before an entire month has gone by!

Oh, before closing this entry, I forgot to mention that I had to sit through uncomfortable adversity on those shares before booking the nice profits you see above.  It wasn't an intentional glossing-over, but more like something I've put behind me since it was weeks ago (I hope there's no reprisal in the short-term, though.)  Just a little taste of it, if you'd like to see, went like this:

Fun to look back at the chasm-like gorge after you've crossed it on a creaky, fraying rope bridge.  I documented it then so I could look back and laugh.  Until next time, and best trading to you!

Trick now, treat later

This post may also be read at: http://www.cboe.com/blogs/options-hub/2016/11/01/trick-now-treat-later

After having a pretty good week shorting anything with a ticker (no, not really - just a few select names) and getting away with it, I got caught with my shorts up on Friday afternoon.  Who can predict green ticks higher than the Empire State Building that materialize while you're waiting by the microwave for coffee to warm?  So I decided to transmogrify the offending position into a Frankenstein's monster of sorts, fitting for the candy festival otherwise known as October 31st.

I booked a loss as such:

Then opened a new position as such:

To compare the old, closed position with the new, open position, it goes like this:  On Friday I had sold short 800 TVIX at a price of 15.32 and then added 200 more short shares at a price of 16.63 (halfway up the Empire State Building) for an average short position from 15.58.  Today (October 31st as I write this) I bought those shares to cover at 17.46 to close that position at a hefty loss.

Then, trying to waste no time but apparently wasting opportunity ticks anyway, I opened a similar position slightly larger in size in the comparable security, UVXY.  I sold short 1,100 at 15.95, and to go with those shares, I sold eleven 14 strike puts for the November 11th expiration at a price of 0.87 each.  Here is how the position actually looked, value-wise, a few minutes after establishing it:

As you can see, the short position immediately moved against me, and the option immediately moved in my favor.  I had sold the puts for 0.87 and they were going for 0.81-0.83 a few minutes later.  As UVXY moved higher in share price, the puts became less valuable immediately.

Obviously there are only three real dispositions for the options, now that I have sold them.  I can buy them to close for a price higher than I sold them for (taking a loss), I can allow them to expire (worthless or with value), or I can buy them to close for a price lower than I sold them for (making a profit.)   Let's outline the possibilities in relation to my short shares.

For the price of the puts to be higher than my entry price, the underlying would likely move lower than it was at the time of entry.  Buying the puts to cover at a price higher than I sold them for is something I would consider if I wanted to close out the short shares for a profit, set any losses on the options against that, and clear my slate of the entire position.  I'd enjoy less of a profit on the short shares than if I had just shorted and covered the shares with no options associated.

Buying the puts to close for a price lower than my entry price, similarly, may occur if the price of the underlying moves lower than it was at the time of entry, but due to time premium eroding daily, option price may stay lower than  my entry price so that I may not have to take a loss on the options, and may make some kind of profit on them.  So I could profit from closing both the short shares and the options.  The other scenario is that the options price would be lower than my entry as share prices rise above my short-share entry price, so that I'd have a loss situation (realized or unrealized) regarding my short shares, but at least I'd be able to book some sort of profit on the short puts. (See third illustration for a depiction of how this began to unfold immediately after opening the positions.)

The last possibility is to allow the puts to expire (either worthless or with some value) on the expiration date of November 11th.  If UVXY ends above 14.00 I will have ended my obligations connected to the options and, assuming I still have the short shares (I'm not planning, in this instance, to have naked short puts, so I'll still have them if I carry the puts through expiration) I'll be free to keep or dispose of my short position after November 11th; the premium received through the sale of these puts will simply be extra income for me.

But if UVXY ends under 14.00, I'll have 1,100 shares of UVXY put to me. Any value remaining in the options will be of no concern to me if I choose to be subject to assignment.  The result will be a short position and a long position which I can then ask the brokerage to zero out for me (this equals the equivalent of buying my short shares to cover at 14.00, and this caps the profit I'd realize on the short shares.)

In any case, I don't have to trade in my short puts and I can keep the $941.54 brought in by them.  Assignment will result in a nice profit of 1.95 per share on the short shares, times 1,100 which equals $2,145 to add up to a total of about $3,087 on November 11th; remember that I just ate $1,902 so that's about $1,185 I'll be ahead two Fridays from now if all goes according to plan on this.

If it doesn't go as I envision, I'll be on the hook for some unknown amount of loss on the short shares, or I'll take some small or maybe even respectable amount of profit on them, but I'll have the "option" of  keeping every penny of the $941 I didn't have until I decided to sell the puts this morning.

What's it going to be for me - trick or treat?  Or trick, and then treat?  We'll find out and I'll report back on my bag full of goodies (or not!)

A trader's week in review

Last week I traded only two securities, each of them short each time.  The below charts, detail sheets and typed logs represent every trade I made during the week of October 10th-14th.

The drawn brackets show each closed trade.  Most often I trade by opening and closing only one lot at a time, but fairly often I add a lot or two to my original position and then close all open lots at once to bring my account back to all cash.  The chart in the middle of this post (see below) shows a full week for each security with the totals made or lost trading that security for that day of the week.  I also typed up trade logs which are just another way of displaying the data in the detail sheets (above for TNA and below for UVXY). Starting with the TNA trades:

On Monday, October 10th, I sold 200 TNA short at 80.23 at 10:26AM. 
An hour later at 11:33AM, sold 200 more shares short at 80.26.
Covered all of these shares at 1:07PM for 80.22.   P/L: -$18

Also on Monday, October 10th, at 1:22PM, sold 400 TNA short at 80.12.
Covered these shares at 3:59PM for 79.88.  P/L: +$78

On Tuesday, October 11th, at 9:32AM, sold 400 TNA short at 79.02.
An hour later at 10:23AM, sold 200 more shares short at 77.66.
Covered all of these shares at 12:42PM for 76.10. P/L: +$1,449

On Friday, October 14th, at 10:01AM, sold 200 TNA short at 74.70.
A few minutes later at 10:16AM, sold 200 more shares short at 75.04 .
Inside an hour, sold 300 more shares short at 73.43.
Covered all of these shares at 12:34PM for 73.24. P/L: +$674

As for the UVXY trades:

On Tuesday, October 11th, at 1:25PM, sold 500 UVXY short at 16.51.
At 2:36PM sold 300 more shares short at 17.18.
Covered all of these shares 3:35PM for 16.75.  P/L: -$20

On Wednesday, October 12th, at 11:25AM , sold 300 UVXY short at 17.01.
Covered these shares at 11:59AM for 16.97.  P/L: -$9

Also on Wednesday, October 12th, at 12:01PM, sold 300 UVXY short at 16.95. .
At 12.23PM, sold 300 more shares short at 16.66.
Covered all of these shares within a half hour at 12:30PM for 16.48 .  P/L: +$167

On Thursday, October 13th, at 10:01AM, sold 300 UVXY short at 19.03.
Just five minutes later, covered these shares at 10:06AM for 19.04 .  P/L: -$21

Also on Thursday, October 13th, at 10.20AM, sold 300 UVXY short at 18.79.
Less than five minutes later, covered these shares at 10:24AM for 18.62 .  P/L: +$32

Also on Thursday, October 13th, at 10.49AM, sold 500 UVXY short at 18.88.
At 11:00AM, covered these shares at for 18.87 .  P/L: -$15

Also on Thursday, October 13th, at 11:25AM , sold 500 UVXY short at 18.48.
Covered these shares at 12:47PM for 18.09 .  P/L: +$176

Also on Thursday, October 13th at 2:26PM, sold 300 UVXY short at 17.72.
Covered these shares at 3:03PM for 17.67.  P/L: -$3

On Friday, October 14th at 12:41PM, sold 500 UVXY short at 17.35.
Covered these shares at 12:47PM for 17.48. P/L: -84

The TNA trades were more profitable, but I was happy to have the extra return from the UVXY trades, although they were a lot of work.  I can't remember which were more nerve-racking, but if you desire meticulous detail and if you bring up your own charts to see the movements of these securities between the opening and closing points of all trades, you will see that in many cases positions moved against me by a lot (not just a little) before they ultimately became profitable or even more-or-less flat.

My general trading behavior looks something like this:

I try to judge whether to cut losers short or allow some "room to become right," and it seems like the latter pays off many times.  When I need to cut a loser, I make all efforts to close it for flat, whether it has gone against me and come back, or gone in my favor but come back to where it's threatening to start robbing me.

In many cases, I add to winners so that I can amplify any returns should the movement be in my direction and the potential profits appear to be rolling in.  I strive to do this, actually; a day of adding and adding until my account is maxed out and break-even stops are a mile over the current trading price would be my dream come true.

In other cases, when a position goes against me, I short more shares at a higher price (see the paragraph about judging whether to cut losers for a loss) to raise my average basis so that, should the movement of the security resume downward, I can get out sooner and/or with less loss (or a greater profit!  That's right - I don't honor that old saw, "Don't add to losers.")  I probably should have included an enlarged inset showing the instances where I did that, but I'll leave it to any motivated readers to bring up and zoom into charts themselves if they want to wear out their own eyeballs, since every last data point of every single time I hit "order" last week is printed and accounted for two ways here (in the detail sheet and in my typed log).

I don't wait until I'm an expert at something before I start doing it, so don't expect to see perfect trades, exemplary technique, or even trades that you'd consider trying when you see what I do.  I learn as I go and I assume I'm always improving and refining my methods, so what you see is a work in progress, but also an attempt borne out of necessity as I have bills to pay and income that needs generating.  I don't think the week was too bad... Will the next one be better, or way worse?  Can't tell until we get there, and tomorrow's coming up soon, so I'll close with this word to my fellow traders: Goodnight and good trades tomorrow!  Thanks for reading (if you didn't skip all of it and simply read the last sentence.  If you did, go back and read the WHOLE thing - right now.)  ;oD

Present your ticket to exit the ride

What to do when the market resembles a bunch of hills and valleys, and you feel like you're just one in a steady stream of confused, disoriented foot travelers trying not to get robbed along the wooded trail? One idea is to try to pick up the cash others didn't secure carefully while on their hurrying way, and hope you don't get pick-pocketed by those overtaking you who are faster and smarter.

Yesterday (Monday, September 19th), I jumped right in with a mixture of false courage and resolve not to look at the wound as I initiated attempts to capitalize on the fall of XIV that I continue to believe is coming, if not in large, long-range scale, then in a daily scale I can trade in and out of.

The trades detailed on the above daily log are not in sequential order, but each lot is listed along with any additional lot that was eventually closed together.  To make things simple (on myself; I do this for my mathematical sanity), I may "leg in" but I never "leg out."  I just close the trade when I feel I should or must.  Instances of the word "OUT" on the blue chart are five; I closed trades that many times, and in addition, had a UVXY trade not shown on the chart.  All positions were short sales.



The circle denotes the biggest mistake I made all day.  While feeling like a terrible trader (see the grand total for the day being just a bill for $83), I analyzed the day's mistakes and saw that while I booked a few losses, only one of those was really understandable and due to forces I couldn't anticipate quickly enough; the others were due to my own greed and denial (allowing losses to grow because I was tired of being stopped out for even, which happened several times, as shown by the one-digit result figures).  But the biggest mistake of all didn't involve a loss - it involved the failure to take what would have been a very rewarding gain.  To wit:

The encircled area shows the trades, entered shortly after noon and closed at 1:13PM.  My average basis on those was 34.63, and with 1600 shares at work, I closed the trade at 34.29 for a respectable profit of $522.  But I sat and actually watched the lower prices transpire and I did nothing, due to a desire for even bigger profits (understandable, but unwise to be too strongly influenced by); if I had it to do over again, I would have taken some kind of profit on the hike back up the reversal hill.  The low point was 33.58.  I would have booked a $1,680 gain.  Who can time exact bottoms, though?  Most are not so lucky.  Any point along that jagged climb back up would have benefited me: an exit price of 33.70 would have brought in $1,488; 33.80 would have served up $1,328 and 34 even would have given me roughly a thousand dollars.  I'm not sure what went through my head when I finally closed that out, but I know I wasn't very happy to see a positive $500 and a negative $500 mocking me like a pair of profit-eating bookends squeezing my collection of trades for the day into a thin, insubstantial, non-noteworthy gain/loss.

Moving on to the next day (today, September 20th as I write this), I rolled up my sleeves and got to work.  My plan was to keep these three things in mind: 1. Limit sharply any trades that might take off in the wrong direction from the outset, by pre-determining a damage-limiting stop (in my head and on paper. Whether I'd really adhere to that intention or not is an unknown); 2. Set stops to protect capital once a trade has moved a reasonable amount in the right direction (and I did that, and the stops executed an annoying number of times); and 3. Take sizeable profits and not lose them to unreasonable and unrealistic greed.  It is very hard for me to accept that I cannot make maximum profit on every trade, and I feel like someone stole both my lunch money and my lunch when I get out of a trade and think of those fictional "other people" (who exist mainly in my imagination) cheering and making way more money on their trades that started exactly the same as mine did, in the alternate reality world where great traders are cashing in while I got out too soon.

Five times in a row over the course of the long day I was stopped out for what amounted to be a nominal loss on the day before my next trades achieved profitable status.  An XIV short that went against me to the tune of a potential -$780 finally closed for a profit of $229.  A UVXY short that went against me as a painfully proposed -$680 finally came around and presented positive dollars, so I grabbed 980 of them.  (There were better profits to be had, and I let them tick by, but at least I grabbed a big handful before the dessert cart rolled away.)

Food metaphors come from the fact that I hardly ate while monitoring all of this, and eating is all I've done since, while typing this up.  Not detailed above are the uncertainty and second-guessing involved throughout managing these trades.  Lists make it look simple and charts make it look brief but the ever-changing ups and downs caused anguish at times. At the end of the day I was glad to present my final ticket and get off the ride (only to get on again tomorrow, most likely).

Back to VIX specials

This post may also be read at:  http://www.cboe.com/blogs/options-hub/2016/09/17/back-vix-specials

Summer didn't draw to a close without telling us it was doing so.  If any VIX-watchers were sleeping, they're awake now. Most of the summer seemed flat and long as a football field, and while that should've been easy, I made it difficult for myself by trying from July 19th onward to profit from something that simply wasn't happening just because I wished it and staked it out repeatedly:  The return of any kind of volatility or at least the end of the silent, somnolent, stubbornly-immobile VIX.

As a review I noted on this chart the nine times I've attempted to get tickets to the early screening of the VIX show; five of them have already been detailed in past blog entries so I'll describe them only briefly.  The remaining four will be explained.

At point 1 in the chart, I had wrongly closed my volatility shorts ten days prior (and they had been appreciating in value nicely and would have continued, had I not made that blunder) and I was finally determined, fueled by bitterness, to put that yellow blob on the chart and call a bottom to volatility and a top to the related leveraged inverse security.  The chart depicts XIV, but it could just as well show SVXY; since I traded both at different points and since they chart essentially the same way, I chose one to represent both.  The chart starts on July 19th and ends yesterday, September 13th (as I write this.)  It also depicts high trades for each day, so the ups and downs of each day are not shown.

See my previous two posts for details of trades 1-5.  I'll summarize them in broad terms here:  In trade 1 I shorted SVXY on July 29th and also bought calls intended to protect me from any rise the shares might experience.  The trade was intended to run for at least a couple of weeks but when there was a deep intraday dip just two trading days later, I closed the whole thing for a profit.

In trades 2 and 3 I shorted shares of SVXY, first on August 3rd at a price that immediately went against me, and then again near the peak of an intraday high on August 9th the likes of which wouldn't be seen again for half a month.  The peak-shorting mitigated the damage the original shorting had done; I got out the next day with considerably reduced red ink, yet I remember the day of August 10th as being a volatile trading day in which I could have gotten out flat, had I timed it better.  As a footnote, I did take the opposite side of the trade immediately after that by shorting UVXY the same day and bringing in a profit on it the following day.

In trade 4 I shorted SVXY with a matched protective call on August 19th and added to that position on August 23rd with more of the same in trade 5.  On August 26th I closed it all out for a respectable profit.

This brings us to trades 6 and forward which are the September trades I have not blogged about yet.   Trade 6 consists of a day trade on September 1st in which I simply shorted XIV and closed it a while later for just ten cents lower.  (Lunch + gas money was my takeaway.)  I must have lost my nerve.   It's a good thing I did, since VIX visited the 11 neighborhood the next day and XIV took a hike higher up the mountainside.

Trade 7 represents my first real success in echolocating VIX on the ocean floor.  On Friday September 2nd I shorted XIV at 38.57 (see chart below.)  Within a few days the trade had moved against me to an apex of XIV touching 40.59 on September 7th.  At 800 shares, this put me behind by about $1,600.

 

I didn't even think about booking that, though; in fact, I looked the other way and forgot about it until I was awoken on Friday morning by my spouse literally holding a glowing chart over my face.  Our actual first conversation of the day was a whispered "VIX futures are up over three percent."  "Thirty percent?"  "No, three percent."  "Oh, OK, I'd better get up now."  Late in the day on Friday, September 9th, I thought I should harvest the fruits of the quick-growing VIX tree and cash in that short as such:

As you can see on the chart. 33.93 was the final print of the day and it chafes my brain to think that I could have closed the trade a little while later for an oversized dollar lower, but I must move forward and try not to dwell on it, because no pity parties are held for traders whining, "Coulda, shoulda, woulda."

Trades 8 and 9 bring us up to the current week.  See the detail and chart below for my XIV trades; the adjoining chart depicts same-day UVXY.  On September 12th I sold XIV short at 34.91; closed it the next day at 33.56.  A while later I believed I had made a mistake to close the short, so I re-shorted at 32.26.  Chop ensued for the next few hours so I closed it at 32.15.

With UVXY up more than 29% for the day on September 13th, I thought it might be safe to take some of the end pieces off that loaf of bread without being caught.  Sure enough, had I held that short through the present (Wednesday afternoon, September 14th as I write this), nearly two dollars have fallen off UVXY, but I didn't want to risk an overnight unknown so I bought it back just a few seconds before the close (oops - didn't mean to wait quite that long - timestamp: 03:59:47) for 24.58.  Detail:

Well, I started by saying that summer is over, but of course, it definitely isn't.  My favorite season won't be over until the very last day, which, by the calendar, is a week away.  Wait - did I say I like summer best?  It's VIX season I truly look forward to.  Is it here yet?  Can we start?  Can we invent a new season between summer and fall?   I'll be back soon with some tales of sightings of the wild VIX spikes, I hope.  Until then, enjoy the rest of your summer and the start of your VIX-er.

See a profit, pick it up

This post may also be read at: http://www.cboeoptionshub.com/2016/08/30/see-profit-pick/

She sells short shares down by the SVXY shore... Or something like that goes the nursery rhyme.  But does she buy calls to go with those shares?  Probably not. Here's why I did it:

I wanted a chance to benefit from the SVXY downside I envisioned without worrying excessively about the potential penalty for being significantly unfortunate in my timing/prediction.  So, feeling confident that my dream of SVXY put through the macerator would come true, I decided on a price I'd be willing to pay (which would also cap my loss), should my dream waft away in the mist of a sunny mid-September morning.

I looked around for a call I could buy that would guarantee me the right to cover my short shares at a specified price.  SVXY was trading near $74 at the time, but the only near-to-price contracts available right then for my desired expiration were at the $75 and $70 strikes. I decided to pay for the three of the $70 calls, knowing that about half the price was intrinsic (I'd make it back cent-for-cent upon buying my short shares back for a profit) and the other half was time premium.  Then I sold a corresponding number of shares short at the going price which was under 74 at the time.  A few days later I added on another long call and the appropriate number of shares at prices that didn't differ much from the initial position (see second image for individual prices), but improved (raised) the break-even point by a smidgen.  I settled down to wait and watch with my 400 short shares and four long calls.  I now had an average entry point of 73.77 in the short shares and an average cost of $6.75 for the long calls. The outcome at expiration would look like this:  (Three paragraphs will explain three basic outcomes)

Note the horizontal line at the bottom.  Worst-case outcome would be effected by exercising my calls, which I had purchased at a cost of $2,700, to buy the shares back for $70 for a gain of $1,508 on the short, netting out to a loss of $1,192.  Why would I do that?  If SVXY stayed above 70 and I couldn't recoup enough value by selling the calls to make it advantageous to get out of the trade early, I'd do the aforementioned.  SVXY could climb to heaven and instead of being punished for every step of the climb, I'd still be able to buy shares back at 70 by redeeming my call privileges.  I'd consider the whole venture a failure with a known, set price, and I'd be glad I didn't lose more, and I'd move on.  The reason I paid for all this insurance is that I wouldn't want to endure ever-increasing pain, should SVXY climb endlessly. This strategy is labeled by some a "synthetic long put."  It is comprised of short shares with accompanying long calls to cap losses to a predetermined amount, similar to what would be obviously known when buying puts.  What is the advantage of this method to me over simply buying puts?  I could liquidate the calls at any time, or see them expire, and allow my short to run indefinitely.  Long puts, on the other hand, have a defined lifespan and action must be taken to close the trade profitably.  So, a hurdle was set for me (by myself) right away; I had to watch the market move either against me or in my direction and make no money either way for a while.  At the time I constructed it, the appeal of this trade was the opportunity to see the outcome materialize over time, and I'd be able to sleep without checking futures in the middle of the night through bleary eyes.  I knew I'd either 1. Lose a set amount of money; 2. Lose a lesser amount of money, or 3. Make something, albeit via a raised profit hurdle I had set up for myself.  Moving on to the other possible outcomes:

Look at the diagonal line above the yellow-blocked area.  It starts at my break-even point, which would be SVXY trading at 67.02 at expiration.  Any SVXY price below 67.02 would represent a profit of better than 6.75 per share on my SVXY short entered at 73.77.  This equates to $2,700+ in profit since I had sold 400 shares short.  The maximum I could lose on the calls would occur if none of the $2,700 I had spent were able to be recouped (and every last cent would be expected to drain out of the calls if SVXY were to close anywhere below 70), so every cent lower than the 67.02 break-even would increase my profit upon closing the short (setting a $2,700 options loss against a greater-than $2,700 share gain), thus the diagonal line going upward in ever-increasing profit projections.

See the yellow-blocked area.  At one end is SVXY at 70; at the other end is SVXY at my break-even of 67.02.  Remember, I purchased for myself the privilege of closing my short shares for a price no higher than 70.  So, SVXY trading at any price higher than 70 would not adversely affect me past my worst-case scenario; I'd be out for my maximum loss no matter how the share price might climb, and if SVXY sunk below 67.02 I'd make increasing profits as described above.  But anywhere in between those prices would represent a loss (at expiration) less severe than the maximum, based on a combination of two factors:  The expected total loss in value of the calls as they expire under the strike price set against a profit realized by closing the short for some price less than 70.00 but greater than 67.02.

All this is off the table if I would choose to close the trade before expiration.  Anytime before that, some value would likely remain in the calls, depending on the interaction between the time remaining until expiration and the moneyness (just made up that term, if it doesn't exist already).  Obviously I anticipated that SVXY might end up anywhere over the strike or instead sink, slither, sneak, descend in an orderly manner or outright plummet below 70 to points so far within the basement you can't hear an answer back when calling to it.  You can tell which one I was hoping for.  My plan was to gladly hand over the $2,700 for the opportunity to run free through the ruins of SVXY during the future-vision fantasy world (that might never unfold for me) in which volatility would spike so high that SVXY would get destroyed and reduced to ashes and embers.  Here's what actually happened:

On Friday, August 26th, I happened to be writing the previous blog post and not paying attention until I captured the heart-shaped snapshot of the subterranean SVXY breaching 70.  Immediately after publishing the post, I turned my attention to the idea of closing the position out.  Realizing that it would be a toss-up between waiting to make a little or a lot of money or waiting to lose money, or booking a little gain now, I decided that instead of waiting several more weeks for the unknown to unfold, I'd subtract waiting from the equation and book the available gain.

Look at the orange arrow in the above chart, which shows where I closed this position.  Then see on the chart how the rest of the trading day unfolded.  By the end of Friday, SVXY was back to 71.45 and those calls traded at 4.32.  How would I have fared, just sitting around watching and then closing this at the end of the day?  For shares shorted at 73.77 and closed at 71.45, and calls bought for 6.75 and sold for 4.32, it would net out to a "now you see it, now you don't" profit, and in fact, a little bit of loss.  Good thing I struck while the iron was hot.  The iron's even colder now, with SVXY currently trading (as of this writing on Monday, August 29th in the afternoon) at 72.99 and the calls trading for 5.16.  I'd be looking at something like a $300 loss to get out of the position, were I trying to close it right now.

Moving on to the next trade, which I'll be sure to document here, but not before I know what it's going to be!  Some ideas are already in place, of course, but I have to watch and see what happens, just like all of us are doing.  Until next time... And - Careful trading!

Happy VIX-entine's Day

This post may also be read at: http://www.cboeoptionshub.com/2016/08/27/happy-vix-entines-day/

The funniest part of my last post was the quote from my last sentence, "...VIX, which I doubt will stay the same every minute from here on out..." because it has basically stayed right where it was at the time of that writing more than a month ago.  Spanning 11-13 that day set the tone for the next month, since that's all it's done ever since (with the exception of a toe dipped in 14 yesterday), for the next 25 trading days. (*And excepting today as I've been sitting here writing this, seeing the return of the fourteens with a vengeance.)

Loathe I am to write a post in which I don't have anything interesting to report, but I'll do it anyway.  Maybe some will find it interesting how uninteresting a job I've done when there was fruit ripe for the picking but I somehow didn't see it.  I can't hit the ball out of the park every time, and this time I simply swung and missed, so let's get down to the disappointing details:

To sum up the trades, I did a lot of attempted top-picking in SVXY and came home with a basket full of nothing.  But the trying was fun while it lasted.  I color-coded my basic three trades in the chart above.  Let's start with the red:

When SVXY was $66.15 on July 29th, I shorted 200 shares of it and at the same time I bought protective calls to cover that position for the 66 strike for the August 12th expiration.  Of course, this is not really a covered call; it's a protective call because it is insurance to mitigate damage, should my short position turn out to be a bust.  I paid $3.00 per share for the right to buy the short shares back for $66 anytime through August 12th.  Since I would only stand to profit fifteen cents for each share if I chose to exercise the calls, my loss at that point, should the trade transpire in that manner, would work out to be $285 per 100 shares of SVXY shorted.  The premium paid for the calls minus the gain made on buying the stock back at the strike price as just described would comprise the maximum loss for this position; in this case $570. Here is the opening and closing detail.  I didn't wait until August 12th, but decided to close it out on August 2nd when SVXY went down the sliding board and I suspected it might climb the ladder again.  Value remained in the calls, so I sold them to recoup part of their value, and SVXY had declined enough to take a nice profit by buying the shares back to close.  Netting a smaller loss against a larger gain left me with a number in the black:

Small profit in hand, I set out the next day to do some no-hedge shorting and it nearly immediately went bad on me. On August 3rd I shorted SVXY at 65.12 and watched it rocket to 74.16 on August 9th.  On that day I decided to get a little Traders Revenge (AKA doubling down) by shorting again at 73.90.  This worked well to dilute my losings through the one-two punch of shorting from a top plus waiting and happening to be lucky; in fact, had I been a little more patient with the buy-to-cover button, I could have gotten all of my money back (excepting a few measly dollars) later that same day.  Hindsight is perfect, of course, but at the time I had to decide whether to continue in my position of unwise-turned-crazy risk or clear the table and start over again.  In a fit of petulant Traders Remorse (AKA being glad I had recouped a few thousand of the previously 2.5-grand unbooked loss I had been looking at as Traders Self-Inflicted Penalty), I closed the whole thing while looking the other way and holding my nose.  Results:

I moved on to what I thought would be a short-lived exercise in shorting UVXY, and considering that I placed that trade at 3:33 PM and closed it before 10 AM the next morning, it was technically less than an hour in duration (counting only open market hours.)

 
I could sit here all day and compute losses or gains that could have been effected by holding for different additional time periods, but it would only serve to show that UVXY seems to have done the sideways shuffle daily since about August 8th or 9th.  Since everything I do revolves around volatility -  and I'm not excusing myself in any way here - maybe it's not coincidental that I've done very little that's notable during the last month.  Here's my August 10th-11th venture, by the numbers:

A careful reader would notice that I never explained the last notation in the first graphic in this post.  Whatever became of the SVXY shorted on August 19th at 73.71?  Great question.  I'll write another post very soon (no dawdling/dallying a month between updates this time) to explain what monster that trade has become the essential guts of; I'll leave a little preview here by saying that I still hold that position short.  As I sign off for today, I just saw SVXY hit the sixties.

Is it Valentine's Day yet?

The Clean-Plate Club

This post may also be read at: http://www.cboeoptionshub.com/2016/07/21/clean-plate-club/

Little did I know how soon I'd be back to report on the status of the last line of my most recent post - specifically my declared hope/dream to be rid of the SVXY that became like a pebble in my shoe.

Yesterday (July 20th), when VIX scraped low in the elevens and SPX scaled a steep hill, I starting thinking about and fearing a future that might not include SVXY prices more attractive than those I was seeing point-blank.  Biting the bullet and sweating through the pain, I sold all shares of SVXY and then bought back all shares of TVIX, enjoying for the second the sensation of a clean plate, a fresh slate, and freedom from a position I had not been happy with since taking it on more than a month ago.

Then I turned attention to the fragment still left after cleaning up, the element making the plate NOT clean at all.  Perhaps as a balm to the recently acquired wounds (SVXY is what I speak of; not referring to the TVIX which never did a thing to harm me) I decided to leave my SVXY short calls (had previously been covered) undisturbed.  (Now naked.)  So all I could hope for was one direction for VIX and the other direction for its friend SVXY, and I'd call SVXY a friend as I'd reap (hopefully) the benefit from deflating premium on the calls I had sold (detailed in previous post).  Those calls were SVXY July29 61.50 calls, sold for $1.00 last Friday, July 15th.  Pictorial of the story is below:

Oops!  I gave away the ending to this story.  Today in a fit of fear that SVXY might rise again to bite me (no, more like rip my leg off), I made the decision - loathe though I am to ever take a loss - to buy those calls back for $1.10 each.  Two reasons went into the decision:  1. I didn't want to wait and see if this option would move against me even more than it already had.  Yesterday it traded for $1.60, and that was with SVXY never reaching so high as $61 during the day.  Significant moves higher in SVXY next week would inflict some real damage on me, I knew.  So I took the not-quite-even buying price and got out.   2. While I wanted to stick to my original plan and just have the shares called away from me next week and keep the premium, I had already negated half that plan (I had sold the shares), and after accounting for the risk I just mentioned in point 1, I didn't think waiting one week to learn the outcome of this trade was worthwhile or prudent.  In making the calls naked, I had turned the nice dog on a leash into a Tasmanian devil off the leash.

So that's all scrapped and I'm not very happy about it.  Let's total up all the gains and losses in the pile, though, to assess the exact damages:

As printed last week:

Above is one small collection of trades revolving around the SVXY position.  There is the $1,867 collected as short put premium; this resulted in the shares being put to me (you will see below that some were put to me early and some upon expiration.)  Also, there are two sets of covered calls I wrote against the shares after they were put to me; one set expired worthless and I booked $307 gain; one I bought back and booked $173 gain.

Add in the remainder of the transactions:

There are the lots of shares put to me; 600 shares assigned to me on Tuesday of the week of expiration and 200 shares assigned after expiration.  Then you see my sale of the shares today.  The difference is my loss on the shares.  Also above are the calls I wrote against the shares last Friday; today I bought them back at a loss of $107.  Not pictured is a fee I had credited to me by the brokerage as a courtesy, which the kids suggested be used to buy ice cream (and that we did.)

Adding the pluses and subtracting the minuses goes like this: Pluses: $1,867 + $173 + $307 + $20 + $48,230 = $50,597.  Subtract: -$39,020 -$13,020 -$107 and the end result is a minus figure of $1,550.

Let's not forget to mention TVIX shares sold short and then covered.  I mentioned in the last post that I had sold TVIX short at $1.60.

Yesterday (July 20th) I covered them at $1.37 and will look for a place to re-short.  See the first graphic in this post.  As of this writing (Thursday, July 21st at 2:40PM), TVIX is $1.45.  What is it as you read this post?  With the help of VIX, which I doubt will stay the same every minute from here on out,  I'll make sure we have plenty to talk about next time - you can be sure of that!

Baseball, hot dogs, apple pie, and... VIX shortcake

This post may also be read at: http://www.cboeoptionshub.com/2016/07/16/baseball-hot-dogs-apple-pie-vix-shortcake/

If you can't wear shorts in the summer, when can you?  At the time of my last writing, I was showing off a pair:  TVIX and UVXY, which everyone knows are really just two legs of the same thing (for my purposes, anyway).  Even though I had donned one leg before the other (I put my pants on one leg at a time, just like everyone else), I took them both off in one motion, as such:

But only one day later, my thoughts were consumed in the following manner:

From WikiHow's "How to Short Sell" http://www.wikihow.com/Short-Sell

Re-thinking my June 11th thesis that volatility was so low that it wouldn't stay that way, and that VIX shorters would be sorry, I pictured instead a basket of money brought in by selling people a medium-sized raft of TVIX.  Knowing that the basket might have to be carried over a bumpy ride (anticipating that the position might move against me sooner or later or even immediately), I went ahead and re-shorted anyway.  This time it was all TVIX, and 2400 shares short at $1.60.

All the while, my trading partner and I strained our brains over how to get rid of our SVXY position.  Those who have been following this saga as far back as June 8th will remember that we sold 65 strike puts on that day that resulted in the delivery of 800 shares to our account a few days later.  What started as a "take cash now, think later" move has turned into a complicated maneuver to try to get our money back.  Of course, we could just wait.  I feel confident that the value will come back and we could realize a profit on the shares at any time after that, but I don't know when that will be.  So we started counting up the transactions by which we could offset any loss upon selling the shares and call it something like even.  So far the positive closed trades connected with these 800 shares of SVXY, put to us at $65.00 per share, are as follows:

In order of date closed, that's the original sold puts for $1,866.56, some calls opened June 23rd that expired worthless the next day for $307, and some calls opened today at 10:58 AM and closed at 1:05 PM to bring in $173 (today's trade pictured below:)

Later in the afternoon today, we strategized on how to get rid of the SVXY we now wish we didn't have, and discussed at length how badly we wanted to ditch it, and what price/benefit ratio was acceptable (in terms of time, missed opportunity, freedom from aggravation, lost pride in bookkeeping, etc.).  Momentarily we had forgotten about the $307 one-day trade, and our math went something like this:

If we end up having our 800 shares of SVXY (for which we paid $65) called away from us on July 29th at $61.50 per share, we'd book a loss of $3.50 per share, or $2,800.  To make up for that, we already had (as circled in green above) $2,347 in profits (although we had forgotten about the $307, so we used the figure of $2,040 in our calculations.)

We settled this afternoon upon the strike of 61.50 for the July 29th expiration because we were able to get $1.00 per contract, for 8 contracts, bringing in just under $800, and we added that to the $2,040 we figured we had already brought in, which would total $2,840.  This would offset nicely the $2,800 loss we'd stand to take upon having the shares called away at that strike.  So we went ahead and sold 8 SVXY July29 61.50 calls for $1.00 each (placing the order at 2:59 PM and seeing it execute when we were out doing other stuff at 3:30PM.)  Now that we remembered (upon writing this post) the $307 booked on June 25th , it looks like we'll come out ahead by around $300 if we get rid of our SVXY to a hungry call-buyer two weeks from now, and we'll be able to forget the whole 1.5-month debacle.

In my next post, hopefully I'll be rid of the SVXY and I'll describe at that time why we're moderately in a hurry to get rid of it and the strategy we plan to replace SVXY put-selling with.

Profiting from the side dishes

This post may also be read at: http://www.cboeoptionshub.com/2016/07/05/profiting-side-dishes/

If it sounded like I had a little trick up my sleeve upon hastily closing my last post with a promise of quick and interesting updates, here's a confession:  Yes, one typing hand closed the post while the other was closing my TVIX short (see detail below).

Crown jewel of June 21st, an otherwise lackluster day

Everyone who lived through it will agree that nothing in particular happened on June 21st, but somehow I got a little shaken up inside and decided it was a good idea to close that short and take the money instead, going into the unstable week laced with Brexinsanity around every corner.  Of course, I learned a few days later that I could have held onto it a little longer, but that's nothing I could have predicted, so I willed my blood pressure down as I saw, two days later, TVIX prices fall as low as 2.33 (just about a full dollar under my initial entry point and 40 cents under my non-optimally-timed exit point).

To distract myself, I turned my attention on June 23rd to the large collection of SVXY that had been put to me (as shown in the last graphic of the previous blog post) and hunted around for some premium.  There wasn't a ton to be found, but I wanted a few dollars for my mental anguish (and reduced account value) so I looked for a strike I could stomach and a dollar amount that wouldn't be a total insult and settled on the consolation-prize figure of a few hundred dollars for taking on a one-day contract.  With SVXY trading at around $56 that day, I wanted to make sure I risked my shares being called away from me at a price no lower than the $65 I had, sadly, paid for them.  Actually, I did a little bit of computation and decided that, upon the unlikely event of my shares being called away, I'd be willing to book a loss on them roughly equal to the amount brought in on the calls I was selling that might effect that action.  So, with 64.50 as the strike and 0.40 as the premium brought in, I wrote that contract and enjoyed the full benefit of all premium brought in after it expired the next day worthless.

The option activity chart (below) for this contract is truly humorous, as you can see that while someone else jumped in there along with me, I was there for the very short duration of this contract's existence. I saw the story through from beginning to end.  From 0.40 to 0.00.

The next thing happening was on Friday, when I knew the option would expire, requiring no action on my part.  No distraction now prevented me from reflecting upon the TVIX short I wished I had not cashed in.

Sometimes my timing is not the best, and this was one of those times.  But instead of dwelling on it, I look forward to the day I'll cash in this short, just as I did the previous one, for some kind of profit.  As seen in the chart below, I decided on the morning of Friday, June 24th to stop thinking about it and just take advantage of the overnight gap and get back in.  Shorting TVIX at $2.80 (compared to the $2.76 exit point several days prior) didn't seem so impressive once I was in the position, but I felt fortunate not to have lost any ground, having just the day before witnessed prices (as previously mentioned) as low as $2.33.

Little did I know I was in for a bit of a ride - and by that I mean simply seeing TVIX do nothing but rise for the rest of the day and on Monday, June 27th, finally topping $3.60 as I cringed and tried to think about other things.  But that seems to have all come out in the wash now, along with the damage to the UVXY short I held alongside it the whole time (mentioned in the previous blog post.)  The shorthand summary of the two short positions:

I sold UVXY short on June 10th at $11.25, and still hold it short today, with a current trading price (as of today, July 5th) of around $9. ($8 was seen one trading day ago.)  UVXY went against me to a height of $17.12 on June 16th.

I sold my second round of TVIX short on June 24th at $2.80, with a trading price today of around $2.  This round of TVIX mocked me up at the $3.68 peak on June 27th, but I'm still standing, and in in the green, on both of these positions today.

My next post may detail some action taken on one or both of the shorts, but hopefully I'll be able to report what I consider to be more interesting news regarding some action taken on the SVXY shares - either disposal of them or at least profitable calls written against them.  Also, maybe I'll have something else to report in the options department, since the UVXY and TVIX shorts are just like side dishes to me, and I'd rather get something going on the main section of my plate.

Taking the apples from (somewhere near) the top of the tree

This post may also be read at: http://www.cboeoptionshub.com/2016/06/22/taking-apples-somewhere-near-top-tree/ 

The best way to tell a story (well, maybe not always) is to tell it in the order in which it happened. In this case, I'll start where I left off, and that means to describe the mystery position I took at the end of the last post. I made mention of it, but did not divulge it. It turns out I opened and closed that position all on the same day, so that by the time my last article went to press, it was already in the can. Here's the rundown for my June 3rd open/shut:

 

Pictorial illustration of the entry and exit that day which completed the trade:

Next in the story was the brand-new week of June 6th-10th, and of course I got up to some mischief.  I'm going to pass some of the blame along to my co-trader (my junior trainee, who is training me as much as I am training him, since we bounce ideas against each other and then select one the way a ball is ejected from the air lottery tumbling machine).  On Tuesday, June 8th, we hatched a wild plan based on a desire to bring in a lofty credit, and nodded and rationalized to each other until both of us agreed on the reckless but attractive (at the time) idea of selling $65 puts.  A ten-day chart from today (June 21st) looking back reveals that we acted at the recent SVXY price top, and sure enough, we later ended up fulfilling our end of that entire contract.   Details are as such:

Premium brought in was 2.35 per contract for the 8 of the SVXY puts expiring June 17th, for a total credit of $1,866.56.  On Tuesday, June 14th, and Friday, June 17, we were assigned 6 and 2 contracts, respectively, so as of the present, we own 800 shares of SVXY at the share cost of $65 each.  Note that in describing my cost, I have not netted the premium brought in against the strike price of the shares; my broker likes to record it that way, so that my cost basis for the shares is computed by them as being $62.67.  SVXY is currently trading at around $55 (which is better than the $46 seen a few days ago), so obviously, this position is not a money-maker for me at the current time.  A future post (not sure how far into the future, however) will detail the disposition of the shares, as I don't intend to hold them indefinitely.

Meanwhile, as the above was unfolding, I kept my eye on the VIX and desired to take an apple from that tree.  Not sure if the fruit was ripened to a peak, I acted anyway, believing that an apple in the bushel now is better than a missed opportunity to take an apple later.  I sold shares of UVXY short on June 10th (being too early, as it turned out later to be evident) and TVIX on June 13th (being much closer to the ideal time, which, by the way, I do not feel able to identify ahead of time.)  Entry points were as seen below:

Late in the day on Monday, June 13th, before the assignment of the SVXY shares detailed above, my positions were all behind, looking like this:  (in fact, I believe I took this screen shot after hours, when prices had worsened even more than shown in the chart above.)

On June 15th I added 150 more to my pile of TVIX short shares, at the entry of 3.20, making my average cost basis 3.29 (shown below.)

As of today (June 21st as I write this), the TVIX and UVXY apples have sweetened up a bit and the unbooked losses on the SVXY do not look nearly as bad as the above theoretical loss on the SVXY puts (computed as if I were going to buy them to close when SVXY traded at $49 that afternoon, which I never intended to do.)  Current view of the landscape:

The closing of some, if not all, of the above positions will most likely be described in the next blog post, and I hope to have something to report sooner rather than later.