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.

Plans are meant for re-planning

This post may also be read at: http://www.cboeoptionshub.com/2016/06/07/plans-meant-re-planning/


At my last writing on Tuesday, May 17th, I had just sold to open SVXY 55.50 puts for the May 20th expiration at 1.45 per contract.  My pledge was to stick to my plan and that's what I did:  I let those expire and realized full profit over the weekend when the contract expired worthless to the buyer.  It was rough going, though, with the high, low, and close of SVXY over the intervening days as shown below:

SVXY's closing price on Friday, May 20th was over $55.50, and no shares were assigned to me.  Below see the detail for that transaction and the others which I am about to describe:

After landing safely on Monday morning (May 23rd) with a tidy sum collected and no position at all, I set to work immediately deciding what risk I would take in order to bring in more premium to my account.  At 10:35AM I saw that SVXY was trading at several cents above and below 56.50, and I looked at puts for that strike.  As seen in the chart below in the orange typeface (and in the detail above), I sold puts for the May 27th expiration and my order filled at the 1.47 contract price.   The next day, May 24th, SVXY was trading at around 58 right around noon.  I had originally set out to bring in $1,162.60 (see second line in above detail) and that is what I received upon opening the transaction.  But some kind of risk-management anxiety got into my head at that time and I decided that after such a large rise in share price in just one day, I should take a profit and start over with a new trade later in the day or on another day.  I brought in this trade by buying the puts to close for 0.75 per contract.  The net amount for the closed trade was a profit of $549, as shown in the above detail; not the original full amount intended.

The blank spaces above on Wednesday, Thursday, and Friday represent days when I did nothing. Share price for SVXY rose each day, and I counted up the profits I would have made, had I simply done nothing and not bought back the puts for a part of my intended and hoped-for profit.  I can't describe my trading mindset as happy or proud during these days, but rather, bitter and cranky.  I thought about my frequent resolve to stick with my plan and my frequent departures from my plan.  I considered that there are no hard-and-fast rules, and each trade must be dealt with separately.  Ultimately I realized that a judgment call made on any given day shouldn't be obsessed over, because sometimes they'll turn out to be great calls and sometimes they'll turn out to be calls that resulted in non-optimal profit.  Either way I don't know what will happen - ever - in advance, so I can only make my best decisions at the time and move on to the next trade, holding my nose if necessary when trying to distance myself from a particularly counterproductive move I wish I had never made.

Reminding myself that at least I had made a profit and not booked an unnecessary loss, I got back to work after a weekend of flushing trade history out of my brain.  As pictured above in the green typeface (and on the detail, third line), on Tuesday, May 31st  near the end of the trading day I sold SVXY 60 puts for the June 3rd expiration for 1.40 premium received.  Again, my intention was to hold through expiration set for just three days later and be assigned shares or not, but either way to keep full premium.  But plans are made to be amended, and when SVXY rose from 60-ish in the afternoon on May 31st to 62.50 on the afternoon of June 1st, I decided that closing the short 60 puts was a good idea, particularly because greater than 65% of the intended profit could be reaped in just one day instead of the six days I would otherwise have had to wait for the puts to simply expire (Tuesday May 31st to Monday June 6th, accounting for weekend time for the options to settle and my trading capital to be freed up again accordingly.)  My thinking was that SVXY had risen so fast that a pullback was a reasonable possibility the next day (and I always have my eye on the VIX and SPX, and take their movement into consideration as a backdrop for SVXY's behavior.)  On Wednesday, June 1st, just one day after opening the trade, I bought the puts to close for 0.45.

Since the above chart was too crowded, here is another chart zooming into the days of June 1st-3rd, when I completed a trade all within the single day of June 2nd.  (See last line on the detail image, second graphic.)

On Tuesday, June 2nd, SVXY had dropped overnight just as I had suspected it would do and just as I had, accordingly (based on my suspicion) made the previous put-closing decision. With SVXY trading a bit under 62, I decided to sell puts just a little bit already in-the-money.  I went short the 62 puts expiring a week and a day later, June 10th, for 2.20.  Despite my intention to hold them through expiration, conditions unfolded such that I was influenced to buy them back to close later in the day for 1.25.  So there's the pattern:  I make a plan to hold short options through expiration, and sometimes do (or should) let the plan play out, but other times, it appears prudent to take a large profit when it appears quickly and there's a suspicion that it may evaporate or may take a lot of time to materialize, if not acted on quickly.  In other words, sometimes I decide that a quick profit that is a large proportion of what was originally intended to unfold over the course of a week is ripe for the picking in the here and now (pick the fruit when you find it.)  Other times I decide to be patient and wait for a little more profit, even if most of the benefit appeared evident early on.  I cannot really plan for contingencies ahead of time, so I must evaluate each trade individually at a given point in time.

This chart is not especially detailed, but you can see when a few others and I jumped in and out of the pool.  The "high" notation indicates that (and I remember seeing this specific trade recorded) someone grabbed 2.50 right after I got 2.20, and in the afternoon, someone got 1.15 after I left the game by forking over 1.25.  Volatile option prices ensued the next day (today), and I started the day with no positions but opened a new one partway into the day.  That position and its unknown (as of this writing, Friday, June 3rd) fate of that will be discussed and dissected in my next post.