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)

Mini-blog for a mini-trade

This post may also be read here: http://www.cboeoptionshub.com/2015/07/27/hitting-a-single-in-svxy-by-meredith-kelley-zidek/

Sometimes it isn't the biggest trade that brings the most joy.  What I'm saying is that a half-baked idea so impulsively formulated that I didn't think to throw the trade through until seconds before market close on Friday...

(see illustration below:)

...turned into an instant money-maker that grew to all but 15% of its full potential value less than one trading day after the crazy wish-making order was incredibly filled.


So what do you think I did?  Instead of waiting four more days to find out if the tide would turn against me and if the tide might contain sharks and jellyfish, I just cashed it right in today.  Someone else took ten cents, and I thought I would probably not unload it for five, but in another wish-making fishing-line-throwing, I just cast my line to see if anything would bite.

Instant fill!  No more worries about SVXY holding a knife to me up at the 98 level.  I really, really, didn't want to be responsible for selling someone $78,400 worth of that security.  Wow, what a way to make $213!  There has got to be an easier way.  (Just kidding.  I'd do that any day, a dozen times over, for $213 while I sit here and exchange bon mots with other traders on twitter.)

In my excitement, I neglected to thoroughly explain this:  The opening order was timestamped received at 03:59:47 on Friday as pictured, and I assumed it got swept away with the deadwood, but to my amazement, at 04:04:49, the order was filled and this short-lived but fun-filled adventure got started. 
 
It's the timing and the price on entry and exit that made this a fun one, not to mention the way I no longer have to think about SVXY cornering me into some social obligation I'm not prepared to fulfill. I really didn't want to attend the 98-strike party and was looking for a way to gracefully decline just as soon as I accepted.

If $213 doesn't thrill you - well, every trade cannot be a ball hit out of the park.  Look back to some of my earlier posts in the month for more exciting fare - and I still have something in the works for this Friday. 

Will that complete your order?

This post may also be read here: http://www.cboeoptionshub.com/2015/07/15/trade-analysis-selling-svxy-puts-by-meredith-kelley-zidek/

If you read the last post about the sea monster adventure otherwise known as writing UVXY 52 calls just before the Greek Drama unfolded, see the associated graphic and locate the portion of the sea monster that is closest to the sun.  That is to say, on July 8th and 9th, with my strike looming close and my account being distressed (including special notices in bold, red typeface sent to me), I must have had "making money" on my mind more so than "losing money," since I took some positions in the same direction, but from the other side of the table.  No, not just the other side of the table - more like pretending to leave, saying goodnight to everyone, then walking around the outside of the house and sneaking around the back where I could lay my trap undetected by anyone still playing cards at the table inside the house.

Due to some stroke of luck, or maybe having something to do with the many pictures of Alexis Tsipras propping his face up with his fingers, the UVXY calls deflated in value like a marshmallow just taken out of the microwave, and similarly, the SVXY puts written in the backyard of the allegorical poker-playing shack turned into something like a popsicle forgotten on the front seat of a car overnight during the hottest part of July.  There was a little to be salvaged from them yesterday, but since July 24th is a few days away, I decided to "take it off the table."  (Many card-playing analogies from someone who hasn't played anything more than "Go Fish" and not since about second grade.  I'm just not a card player.  I hear people talk, though.)

The post title is meant to allude to drive-thrus, and indeed, I did take the kids out for ice cream and slushies yesterday. And that's about all I did, in between stalking the next opportunity to scoop up some premium that someone else took it in their head to buy, that hopefully will send the red-print notices to them next time.



Nuts and bolts: I risked the possibility of being forced to buy $28,000 worth of stock. I got a margin call from my broker for $19,618.93 overnight Thursday, but that's because I still had the UVXY monstrosity open at the time.  The margin call disappeared with no action needed on my part.  I was behind in this position by $468 at one point (maybe more - I don't remember how high the bid/ask got). I set out to make a maximum of $1,313.20, but I closed early and realized $1,123.00.

Rang the register

The aforementioned non-slam-dunk has been closed, and it's sort of a relief, although I admit I'm a little burned up about not getting the last $150.  That is a personality trait within myself that I had better learn to control.  Time is money, and I can probably make more during the four days between now and Friday, or at least have other things on my mind, and not wake up dreaming of scanning the options chains.

Well, maybe I'll still dream the same thing, without the side-dream about rolling two weeks out.



Nuts and bolts:  I risked being either assigned $52,000 worth of short UVXY shares or having my account debited in order to deliver 1,000 shares at $52 each to the contract buyer at a cost to me of whatever the difference would be between the contracted $52 and the price at which I'd have to obtain the shares (example:  $62 UVXY would cost me $10 per share or $10,000 as a loss to my account).  I could have bought shares at a price under (or even over) 52 to make these calls covered, though, at any time before assignment.   At one point I was behind in this position by $3,350 (or more - I don't remember every bid/ask but I think I may have seen $7.00), and I did receive a margin call for $19,618.93 from my broker, but it was in conjunction with the position detailed in the July 15th post.  The margin call disappeared with no action needed on my part.  I set out to make a maximum of $3,135.20, but closed early and realized $2,970.00.

Time decay at work

Here we are, almost two weeks after I wrote the non-slam-dunk calls you see in the post below.  As you can see, last Wednesday and Thursday they were trading for around $2 or so per contract, and now they are doing exactly the same, with the underlying trading even a little higher today than it was on those days.  That's because the clock is ticking, the hour is getting late, and people are leaving the party.  Does anyone really think UVXY will perform that parlor trick (fetching $52 per share on the sale block), if it hasn't done so yet?  Traders talk with their money, and the money is saying "no."  (Bids are $1.97 on this nonsense, as I type.)

Last night I had to do some homework, though.  After the price action in UVXY yesterday (and a friendly "message" from my broker), I realized that to keep my broker happy (I tend to bite off a little more than I should - my eyes are bigger than my stomach), I should think about rolling.  Why roll?  "To avoid being assigned" is a classic answer, but I have another answer.  Two answers, really.  One is the obvious:  To buy time.  The other is to reduce the number of contracts, and thus the potential liability (which will make the broker scrutinize other people and leave me alone.)  I don't mind waiting a little longer to make money.  Sleeping well for seven or fourteen extra nights to realize a profit is a good tradeoff for sleeping poorly and facing some kind of adverse action, so if it's a difference of just a few weeks, depending on how much money we're talking about, I'll choose to wait.

(Oh yes, I also snuck in some short 70 July 24th puts on SVXY yesterday and the day before, and that had something to do with my name popping up on a list of people my broker felt compelled to communicate with yesterday.)

So anyway, I priced some farther-dated UVXY calls at various strikes, and looked at them again this morning, and was all ready to do it if necessary.  Not necessary, as of now.  But maybe I should wait until Janet Yellen speaks before publishing this. Yellen, what are you sellin'?  What happens after Janet speaks, there's just no tellin'.

Bumpy ride

Instead of hearing about my trades after they are closed, how about examining and inspecting one while it is in progress?  Get your protective wear on.  Goggles and gown advised; it's a gross specimen.

July 17th UVXY 52 calls sold to open at $3.15 on Monday, June 29th

And that pic is from yesterday.  Were I inclined to update it, you'd see the mountain range rise again to approximately the worried-face level.

I'd enjoy documenting only the slam-dunk sha-zing/sha-zam results, but that leaves out the details on the "work" (er...  worry) in between.  What fun would that be, to see the finished plates coming out of the kitchen on an ornate tray, and not see the cook behind the swinging doors cursing and running around with a red face?  Some of those seamless-appearing trades farther down the blog look like they were born winners, but really it took some fancy footwork before they crossed the finish line in the black.  See if you can untangle them, based on dates, if you'd like to re-create the adventure (a prime example being a bunch of short SVXY calls in the 90 or so range that needed covering, and turned out to produce gains due to advantageously-timed purchase and sale of shares, despite share price breaching the strike and exceeding it by several dollars.)

By the way,  I never set out to do anything exciting.  My goal is to end with more money than I started with.  I like to set up a challenging puzzle for myself with a cash prize at the end.  If I have to pay to play the game, then I wrecked the puzzle.  If I make a few dollars, then I solved it. That's all I'm trying to do.  Sometimes my eyes get bleary and my brain gets weary from watching the scrolling green and red numbers and hearing the barrage of insights from every pundit on the internet who has a great idea on how things "should" be done.  I listen to just about all of it because I think I might learn something - and oftentimes I do - but ultimately, I have to focus on pretty much one thing at a time and remember that my goal is to get across the street without being hit. 

As simple as it gets

So, in my last post I asked if anyone wanted to guess what I might do with the SVXY 99 calls expiring today.  That's all I had open at the time - no fancy combination of anything; just one lone set of naked calls (as simple as a trade gets) that would have to either be closed out or allowed to expire. The answer is that I disposed of them on Monday, not wanting to wait five days to earn the last $80 out of that deal, when better deals appeared to be on the horizon.  Here's a graphic of what I did, along with the other crazies who jumped on board to participate in this party.  As you can see, someone got a slightly higher price ($1.39) than I did, and once, just once, I would like the meet the individual(s) responsible so I could... give them a nice handshake and a compliment on their good work.

I held that for only four trading days, and that's not bad - I believe that $837 is best scooped up when you find it that quickly, so scoop it up I did. Some people obviously vacuumed up the last few crumbs, since SVXY hasn't given even a hint of interest in a level like 99 any day this week.

Never one to enjoy a dull moment, I made my moments jaw-clenching this week by writing some UVXY calls that expire on the 17th. Scoring those on Monday mid-afternoon was sweet, but even sweeter were the scores made by those who followed me on Tuesday and got my price by double. How do you think I felt on Tuesday? Worse than the way I feel now, that's all I'll say about it. Yesterday I was feeling pretty good, but today I don't believe I'm completely out of the woods. I like to be ultra-conservative (umm... yes, I know - Ha ha!) when writing contracts on these instruments. I like low stress. I prefer to just watch the money trickle into the account like water flows from a spigot into a bucket. Any sign that the pipe might burst is an unwelcome development. Follow along while this trade "matures" and find out whether the outcome is faucet-bucket-flow or call-the-emergency-night-plumber-for-help.

Another stock/option multi-legged trade that includes red ink

Here's another "adventure" trade.  As always, look at the dates.  For some reason I don't recall in precise detail at this moment, on May 22nd I bought 400 shares of SVXY at 91.30.  I think it had to do with some calls, and I wanted to protect myself by owning the underlying, and I decided to keep the shares and realize full profit on the short calls.  I do not pick and choose which trades to show unless it's because only some of them are pertinent to a conversation; all trades are posted each month in this space and also in the "all trades" tab.  So anyway, here we are going into the trade with 400 shares of SVXY  under my belt, so to speak.

So on June 1, with SVXY trading in the 89 range or thereabouts, some wild hare or other influenced me to write four puts at the 85 strike for the June 26th expiration.  I received $3.20 for each of these.  Translated, this means I expected to receive $1,280 for these at expiration, assuming the strike would not hit.

Then on June 9th, when SVXY was trading around 86 during the day, I decided to put a top on the cake by writing four calls for the same expiration, at the 91.50 strike.  Note that this is just a few cents higher than the price at which I bought the shares.  My expectation was that the shares could be called away for a tiny profit (any profit being better than any loss) and I would just keep the premium of $732.

On June 15th, I got bored with just waiting and waiting for this trade to unfold, so I "traded out of boredom" and wrote more calls (naked, because I didn't own any more shares to support these) but this time for the July 3rd expiration, and at the 93 strike.  SVXY was trading at around 88 this day.

So now I had a "strangle sandwich" (or you could say some naked puts and a set of covered calls) for the June 26th expiration and some naked calls for the July 3rd expiration.  On June 22nd, I got nervous as I saw SVXY creep up near the strike of my naked calls.  Being the responsible option writer that I sometimes am, I shelled out big $$$ to buy 400 freaking more SVXY at a cost of 92.90 per share (gulp), which is just below the strike on my naked calls of 93.00.

What do you think I did with this strangle? Any guesses?  Anyone followed along and read about how I closed some of this out?  Hint:  Look at my June 23rd post, a few inches down the page.  I feel bad that I just explained the same thing that I explained a week ago (on June 23rd, titled "Finished a $700 project 3 days early").  If anyone is enjoying reading this, then good for you - I am glad.  I think the only difference here is that I explained my strategy in more detail, and I included in the screen shot the short puts, which were a crucial part of the original strategy, which was a short strangle.  Can't have a strangle without both sides!  It's like having a sandwich with only one piece of bread.

The extra content in this post, as opposed to the one a week ago, is this explanation:  I bought the puts back on June 18th because I anticipated I would soon buy shares to make my naked calls into covered calls, and I didn't have the capital to do that without closing the naked puts.  Then I took my time watching the price of SVXY, hoping I would not have to buy shares, but that hope turned out to be in vain.

When you look at this all together, including the puts which were an integral part of the original strategy, you see that it came out to profit of $1,594, which is not bad for approximately 3 weeks' worth of shuffling, if you don't factor into that the date at which I bought the original 400 shares of SVXY, which, in all fairness, I bought during the legerdemain of some other past strategy.

Of course, if I had a crystal ball, or some as-yet-invented future-viewing goggles, I might not have bought that second lot of shares, and might have just realized the full $890 profit from the calls which were set to expire this week.  Instead I netted the buyback of the calls with the buying and selling of the stock for just a fraction of that.  But I do not have clairvoyant superpowers.  And SVXY ran up nearly to 98 three trading days ago.  What's a trader to do with their short calls, stand there with a "ROB ME"sign on the chest and back? And I decided I could "roll" those calls and maybe still get some good meat off the bone.  (Which remains to be seen.)

I really hope someone is enjoying reading this, and it isn't simply my own record, but if that's what it is, then it's better than a kick in the shins on a cold rainy day after missing the bus.

Look, though:  If you follow this blog, you'll know that just a few days ago I turned around and sold naked 99 calls (this is what I referred to regarding chomping some more meat off the bone).  What's going to happen with those?  I own no shares to go with them (hence, the designation "naked.")  What do you think will happen this week?  They expire on Friday.

Why I show a loss on some options (multi-legged trade explained)

Let's go back to May and take a look at something, and I will explain what I did.

This started as a simple short strangle; the reason you see two lots of three and one lot of one is because I made a mistake. I didn't realize a trade had partially filled, so I ended up with just one contract. I thought about dumping it right away but decided to just keep it and see if it worked out in my favor. As you can see, it did. But here is why there is a loss on one side of the trade, and why I bought stock, and why it was profitable overall.

Look at the dates. On April 30th, when SVXY was $78, on average, during the day, I wrote puts for the 77 strike for the May 22nd expiration.  I didn't think my order filled, so I cancelled it and moved on, but it turns out that one was filled, and you see it there. I didn't even see it until I had written the three puts (described below.)  The price for this was $3.30.  I kept it in my arsenal of hopeful money-bringer-inners.  Then I:

Wrote three puts at the 77.50 strike for $3.41 each

Wrote three calls at the 85 strike for $1.55 each

Then things got interesting, as SVXY went on a tear, leaving my sweating forehead behind in the dust.  I had a contingency plan, though, since the last thing I would want is to get assigned to make good on calls that were way in the money, if I have no shares to have "called away."  So when it looked like SVXY was not returning to seventies-town anytime soon, I bought 300 shares of it for $84.35, as you see above.  Obviously this was just cents under my call strike of 85.

That same day (May 15th), I cashed in the lone 77 put for a handy $268, as you see above.  I didn't do it because I wanted the money or because I thought 77 was a threat.  I think I needed to make room in my account to buy the shares, and/or I was tired of looking at the lopsided trade - I can't remember what my main motivation was.  But this simplified things.  Now I had a "strangle sandwich," as I call it, or a short strangle with some shares in between the short put strike of 77.50 and the short call strike of 85.


So then it was expiration week, and I think I wanted to do something else with my account and needed to make room, so on May 19th I bought back the 77.50 puts for a gain of $964.

With SVXY climbing every day, and expiration just one day away, I had a [virtually] known and guaranteed outcome for what was now just a set of covered calls.  I bought the shares specifically so they could be called away (at a small profit of $195), and I would keep the premium from the short calls.  The known profit would be proceeds from the liquidation of the shares plus $465 from the short calls at expiration, assuming they would expire worthless to the buyer, for a total of $660.

Then, although I didn't plan to do it this way, and would have done a few hundred dollars'-worth better, had I just stuck to my plan of allowing the shares to be called away, I got greedy and sold the shares one day before expiration for a gain of $1,694.  This left me really sweating it out, because I had gotten on the "greed train" at this point, hoping that I could buy back the calls the next day for less than the price at that moment.  I hoped for SVXY to pull back, in other words, and the time premium to evaporate.  Unfortunately, SVXY traded higher on May 22nd than on May 21st for most of the day, or at least for the parts important to me, because I bought the calls back for $5.83, resulting in a loss to me on the calls of $1,304.  (Instead of the approximate loss of several hundred less I was looking at when I hatched this last-minute daredevil plan.)  Netted together with the shares, the end result of the covered call adventure was a gain of $390, though.

The covered call move would have netted me $660, remember, had I simply let the calls expire and allow the stock to be called away from me.  Lesson learned on last-minute attempts to squeeze a little bit more out of an already-winning strategy.  But it was a winning move, overall, anyway, so I can't complain too much.

So, let's sum up the whole shebang now:
Short "mistake" put at 77 strike: $268 profit
Short 77.50 puts:  $964 profit
Covered calls:  $390 profit
Total for three weeks:  $1,622
(would have been $1,818 at expiration, excluding commission, had the underlying simply remained between the strikes.)
(would have been  $2,013, excluding commission, had I let the puts expire and had I not messed with the covered call near the end.)  I didn't let the puts expire because I needed the capital in order to protect myself by owning shares on the call side.  Maybe I would have been fine by leaving the puts alone and letting the calls do what they wanted, but I didn't know that, and I wasn't going to risk it.

Not bad for something that ran away from me immediately after I initiated it, and now you understand why sometimes you see big-ticket losses in my account.  Maybe they aren't actually losses at all, when you see them within the context of the overall trade of which those "losers" were just one important part.

Before the ink was dry

 - you know, I mean before the electrons were in place - I opened new short options.  This time July2nd 99 strike SVXY calls.  Let's see if this ends up being a winner or some market maker's dinner!

Finished a $700 project three days early

Let's see if anyone can look at this and see what I did. I'll give you a few clues (the only ones I understand. No, really, I know what I did, but I will tell you that I had to do some fancy stepping and then I got greedy and then I got out, and it turns out I could have done half the work and come out in the same place.) So, take a look:

Quick rundown: (this is not necessarily in order, even if it s numbered.)

1. Wrote naked 91.50 calls.
2. Bought shares at 91.30 to ensure that those would be covered, should shares be called away.
3. Wrote naked 93.00 calls.
4. Bought shares at 92.90 to ensure that those would be covered, should shares be called away.

Then I saw the stock run up to $96 or so and got greedy. Deciding to close all of it out at the same time, I did this:
5. Sold the shares that had been at an average price of 92.09 for 95.99, for a nifty profit of over $3K.

Then the prices of those options rose quickly (and I mean within seconds of closing the shares) and I did some cursing. Watched the prices a while, and finally decided I could roll those calls by buying them back at a loss (which still gives me an overall profit, when you combine it with the proceeds from the shares, but the profit is really just about exactly what I would have made from the first set of short calls - the $91.50 ones! It's like the 93 calls never happened. But look at all the steps I took, that I didn't need to take.

I should not be complaining. I made the $700 or so that I set out to make for this Friday, but I made it several days earlier, and I got rid of the risk of holding this highly volatile ETF. I have neither the risk of being taken to the cleaners via naked calls, nor the risk of taking a gut-punch to my account value via falling share value.

And it's just as well that the 93 calls are done away with, also, since the share price has surpassed that strike, and I didn't want to waste time and margin set-aside just to wait until July 2 to make an additional $900 (which is good money, and worth waiting for, but I think I can do something that is currently out of the money.)

 Now I have nothing, and I can go on to the next trade. Which will probably be short calls at a higher strike. When I say I have nothing, I mean that my slate is clean, but at least I wrapped all of this up for the same profit I set out to make when I opened the initial trade, which is the first one you see listed there (the short 91.50 calls written for a total of just over $700.)

Covered up

This morning, pre-market, I bought 400 SVXY at 92.90.  I had seen SVXY go well over 93.00 earlier in the pre-market session, and I didn't want to get left behind, so I jumped on the chance.

The reason I bought these is that I am short 4 calls expiring July 2nd at the 93 strike.  If shares are called away from me, I want to be able to say "thanks for the [tiny] profit." (on the shares. I intend to make full profit on the contracts.)  Better than "too bad I'm taking a loss on freshly bought expensive shares."  I don't like to take losses.

Will I regret buying so much SVXY?  We'll see.  So far I have made so much in premium against 400 shares that I can't keep track.  Now I have another 400 from which to make premium.  We will see whether this turns out to be a take of woe or a tale of dough.

Ooops! I blathered myself out

With all that blathering, I forgot to report that yesterday I closed SVXY June 26th 85 strike puts for 95 cents; I had collected $3.20 originally, so that's a profit of $2.24 per contract, times 100 for the standard block, times 4 contracts for a total of $879 profit booked after commission.

It's very possible I could have gotten a lot more out of that, but I could not resist the way the put lost so much value so quickly.  Plus, if the security does drop, I could always write that contract again for more than 95 cents and double-dip on the same thing.  Go back for seconds, in other words.  Nothing like making extra premium by timing the ups and downs of the decay of the contract.

I'm not expecting to do this; I've moved on, in my mind, but it would be a bonus.  I've done it before on some other eventually-worthless calls or puts (can't remember which), and it was great to collect free extra helpings!

I didn't buy those puts back for any reason other than needing buying power in my account, though.  I believed it would be necessary to buy some shares to secure my now-naked calls, and I may still have to do that (but haven't yet.)  Otherwise, I would have let those decay more, hopefully to zero.

I don't predict

One thing you will never see me predict is which way the market will move.  No, I take that back.  During an extreme, I may predict a reversion to the mean (of volatility.)  But during times like these, my guess is as good as a coin toss.

My strategy, therefore, is to figure out where certain securities won't go, and lay a little booby trap in those recesses of the options chains so that when settlement day comes, I will see some zeros on the bid and I can keep my pile of borrowed goods.  After all, when you borrow an expensive book from the library, and the library shuts its doors before the due date and tells all borrowers they can just keep whatever they checked out - well, that's one method by which valuable "books" can be accumulated.

Will the market fall a little, with "ProShares Short VIX Short-Term Futures ETF" (SVXY) also falling with it?  Not sure, but I have no short puts (promises to buy the security at a specified price, if that price is reached in trading on the security) so if the market falls, I'll be fine with that.  I do, however, have short calls (promises to sell the security to others at a certain specified price, if that price is reached in trading on the security), and since those prices I signed my name to are higher than the current price, I'd prefer that the market not rise very much.  But if it does - no biggie; I have the shares to sell, and will make a small profit if I'm forced to make good on my contracts.  Not to mention the premium I received for having entered into those contracts in the first place.  That's my bread and butter; that's the money I hope to make.

To complicate matters, I have some short calls that expire June 26th, and some more at a slightly higher strike (promised sales price) that expire July 2nd.  That second lot is not "covered," meaning, I do not own enough shares to make good on those.  If the price rises higher than the strike, I could be forced to buy at whatever the price of the day is and sell at my promised price, which would cause me to book a loss on the transaction (and that loss may or may not exceed the premium I received for the contract, which is how most people compute whether the covered call was profitable or not.)  My general practice is to buy the shares before it rises higher than the strike so that again, if I'm forced to sell, it would be no problem and cause no loss to my account.

I'd rather make money on writing calls and writing puts, and having no shares of fluctuating value to worry about.  I try to constantly leg in and out of various dates and strikes.  I also like to work with "ProShares Ultra VIX Short-Term Futures ETF" (UVXY), but only under certain market conditions (the VIX being stretched ridiculously in one direction or the other) and sometimes other securities.  I'm not in love with that brand; I just find the best premium with those.

And that, in a nutshell, is what I do!

New Page Tabs at the Top

I have added new tabs at the top so that monthly trades can be viewed there.  This is because I plan to comment extensively here, in the main blog space.  Let's start right away:

June is shaping up nicely enough.  I feel like I've been sitting around watching paint dry, but it's nice paint.  How many times can short options be cashed in around one core position?  Right now I have a short strangle with some shares right there in the middle (I prefer not to own shares but for various reasons, I might buy them - one reason being to make the short calls covered), and I also have some naked calls for farther out.  Let's see how this shapes up!

I have 400 shares of SVXY and 4 short calls against that for 91.50 at the June 26th expiration.  I paid 91.30 for the shares, so:  Easy come, easy go on the shares.

I also have 4 short calls at 93 on the July 2 expiration.  I will not let those remain uncovered, so depending on how fast the stock moves, I may have to cash in my short puts (at the 85 strike for June 26th) to allow me to buy shares to cover that.  We'll see.

May - It's a wrap!

Here is how the merry month of May went:

April Gain

Here is the gain for April.  See the Total ST Gain/(Loss) figure at the top.  If the figure in the Gain(Loss) column is black, it's a gain; if it's red, it's a loss.