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.

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.

Rinse and Repeat

This post may also be read at: http://www.cboeoptionshub.com/2016/05/17/rinse-and-repeat/

At my last writing on Monday, May 9th, my position was ten short SVXY puts for the March 13th expiration at the 54 strike, sold at $1.40 per contract, or $1,385.20 received.  My choices in disposing of the position (or allowing it to be disposed for me) was to either buy these puts back before Friday or allow the contracts to expire and accept assignment of shares at $54, should conditions dictate.

On Tuesday, May 10th at 9:40 AM, I noticed that SVXY opened above $56 and, not knowing what would happen later in the day, I took that early-morning opportunity to be the proverbial early bird, and I bought to close all ten puts for $0.55 per contract (please excuse any rounding of decimals), paying $564.77.  I considered this completed venture to represent a profit of $820 and I was happy with it, but not so happy that I didn't immediately sell more puts.

One minute later I sold ten puts at $1.11 each, also for the May 13th expiration but this time at the 56 strike.  For these I brought in $1,095.23. The scenario was identical:  Either buy back the puts at any time or allow them to expire and accept assignment of shares if contract buyers so desired, depending on share price anytime before, or more likely right at, the contract's end date.  This action on my part was simply a roll to a higher put strike.  (See illustration below for all of these transactions.)

The remainder of Tuesday was uneventful, but the next three weekdays saw my strike price crossed going up or down at least once per day in either direction.  In other words, it was run over and then run over in reverse and then run over again just for good measure.  On Friday, May 13th, SVXY touched a low point of 53.46.  I knew 56-strike put holders must have been whooping it up at the opportunity to sell their shares to me for $56 (their immediate gain / my immediate loss.)  I must have stopped watching it and resigned myself to getting expensive self-bought presents under the tree over the weekend or not; I'd wait and see.

Sure enough, on Saturday, some hardworking people [somewhere, not sure where] made sure that 1,000 shares of SVXY, having just been through the car wash and with the tires shined up to look new, got parked in my driveway while I was sleeping to greet me in the morning.  It turns out that I set about slapping a "for sale" sign on that mess of SVXY without wasting a moment.

My actions on Monday (May 16th) morning are regrettable to me now, but I'll explain them, anyway.  Interestingly, they closely resemble my actions of the previous Monday in which I immediately sold freshly-assigned shares and then wished I had not.  One difference is that this time, I had no associated covered call already in place to go with the shares.  I planned to put one in place first thing Monday morning, though, and I went against my own plan.  It would have been better to do that, so I'm making a mental note to myself to not throw my own strategy out the window so hastily.

What happened (see illustration above)  is that upon seeing a gap up and immediate rise in SVXY right after market open, I decided I'd do anything prudent to get rid of the shares.  I sold them for a price that, when netted against the put sale associated with the assignment, came out to $13 in my pocket.  It wasn't what I had set out to do, and sand was deposited in my swimsuit by the shovelful all day on Monday as SVXY rose, without stopping, to a late-afternoon peak of 57.16 ($2+ over the price at which I had bailed.).  I could have sold my stock for a nice profit of over $1,000 rather than taking a $1,000 loss as I did.  I also could have sold covered calls at the 56 strike (as was my plan, so that my shares would possibly be called away at the same price for which they had been put to me, and I'd bring in the premium, irrespective of the fate of my shares.)

The illustration above shows that the broker tactfully merged the short put and the sale of the resulting shares together instead of showing a gain and a loss. We could pretend nothing happened, but I knew I took my own work apart as soon as I had constructed it.  Moving on...

To get right back in the saddle instead of moping over my mistakes, I set about selling either a strangle or just a fresh set of puts for the May 20th expiration.  All day Monday I played "sub and snub."  That is, I submitted sell orders, and buyers snubbed them.  The standoff ended in a natural manner called End-of-Trading-Day, and I happily sold "better" (lower strike) puts on Tuesday (today, as I write) morning as such:  SVXY 55.50 puts for the May 20th expiration for $1.45 per contract.  Market conditions and sticking to my plan (which can change as market conditions change, but hopefully won't be discarded as quickly this time) will dictate the fate of these puts, and my next post will tell the adventurous or mundane tale.

A Walk Through the Maze

This post may also be read at: http://www.cboeoptionshub.com/2016/05/10/a-walk-through-the-maze/

Let's detail a story of the last two weeks, in which I stumbled through a maze in search of the reward at the other end.  I've made some wrong turns and backtracked a few times, but I think I smell the cheese ever stronger, ever closer to me, right around the next corner.

On April 28th I started with nothing but an idea, so I set it in motion as such:  With SVXY trading at $56.63 the moment I spied it, I sold ten SVXY 56 strike puts for the May 6th (six trading days away) expiration for $1.70 premium received on each.  All costs or amounts received take into account commission, so if you notice my figures not adding up by eight or fifteen dollars, rest assured I had to pay someone to move all this around for me.  The amount received for this transaction was $1,685.22.

Two minutes later I put through the order I already had worked up:  Ten calls sold at $1.40 each for the same expiration at the 57.50 strike.  The amount received for this transaction was: $1,385.22.

One trading day later, on Monday, May 2nd,  SVXY traded around $52.15 bright and early as the day got underway.  Call premium had really taken a hit, and I could not resist the prices being asked for 57.50 calls.  I decided to close out my short calls by buying them back for $0.19 each.

The closed transaction detail looked like this:

At this point I no longer had a short strangle; I only had short puts.   And expiration day quickly approached.  Over the course of the last five trading days of this contract's life, SVXY slipped below my put strike price of 56 and appeared to want to stay there.  The price to buy back the option was too high for me to stomach, so I planned for the eventuality of being assigned shares over the weekend.  Then, during the last trading minute of the contract's life, I sold to open ten calls to expire the following Friday, at the same strike as the price at which I would be assigned, for $1.50 per contract. My intention was to create, through the call sale and the assignment over the weekend, a set of covered calls.

The plan was a good one, but unfortunately I made what amounted to a bookkeeping error, and I'm still cringing.  I was, of course, assigned 1,000 shares of SVXY at $56 each, since that was the contract I wrote and I had to make good on it.  So on Monday morning (today, May 9th as I write this), I was the owner of those shares plus the short calls (now covered calls) for the 56 strike expiring on Friday, May 13th.

I envisioned my shares being easy-come, easy-go; put to me for $56 via a contract and called away from me for $56 via a contract (assuming share price would dictate that, of course), with premium collected by me on the buying and the selling side; elegant and engineered to be profitable.  Of course, the other possibility would be that I'd just continue to own the shares after expiration,  but either way I'd keep the entire premium received from what was, for one minute, a naked call but became a covered call over the weekend when I was assigned.  The proceeds from the call-writing were $1,485.20.


However, I must not have had enough coffee or something, because I didn't go over the math and I took my broker's bookkeeping on faith without comparing it to my own method.  I'm still not sure what happened; I tried to untangle it but ultimately decided that I'd rather just watch my own math more carefully the next time.  Before stretching this out into details that would give everyone hives, so let's shorten this portion of the story and say that I was under the impression that selling my shares would bring in a profit of high-several hundreds of dollars that I could use to offset (with profit leftover) the subsequent unprofitable closing of the short calls.  Instead of waiting one week for the short calls to expire and the shares to be called away, I set out to book what I thought would be a loss on the calls and a larger profit on the shares (refer back to a brain blip on my part wherein I didn't look closely enough at my cost basis in the shares and the profit/loss on liquidating them.) So I embarked on what I thought would be not a genius move, but a modestly-more-profitable three-part move.

In reality, what happened was that in a double whammy I bought the calls to close and booked a $330 loss, as such:

The big stinger, though, was that the $56,000 (gulp) worth of SVXY that I had blithely unloaded without fully opening my eyes yet that morning was sold at $54.34, and with my buying price of $56.00, that's what I consider a loss of $1,693.17.

To wrap up the mess above, it should be noted for the tally that the first figure mentioned in this post, $1,685.22 brought in for selling short puts, did offset the losses on the liquidation of the assigned shares (described in paragraph directly above) associated with that trade.  If the short puts, the share purchase and sale, and both sets of short calls are all taken together, it looks like I came out $843 ahead from the start on April 28th. 

On a different track now but not derailed, I went ahead and completed the next part of my plan, which was to sell SVXY puts now that I was freshly free of any shares and also of any covered or briefly-naked calls.

As of this writing on Monday afternoon, May 9th, I am short ten SVXY puts for the March 13th expiration at the 54 strike, sold at $1.40 per contract, or $1,385.22 received.  I can either buy these puts back before Friday or accept assignment of shares at $54.

No arrow illustrates the fate of the 56 strike puts which expired worthless on May 6th and resulted in assignment to me, but otherwise the option entry and exit points are shown below:

Shaking down the Shack

This post may also be read at: http://www.cboeoptionshub.com/2016/04/27/shaking-down-the-shack/

A trading friend of mine, who wishes to be called "Chip" in the telling of this story, is clamoring for me to tell this story on his behalf.  The brief but detailed saga is basically a chronicle of Chip's studious, calculated transactions that allowed him to benefit from a particular company's stock price trajectory over the one week span of time covered by this case study. It's a tale of Shake Shack, puts and calls, and of cash raked over the barrelhead into Chip's sweaty, eager hands.

On April 15th, noticing that Shake Shack had been trading four cents shy of $39 during the morning and was somewhat above $38 in the afternoon, Chip scouted out attractive puts to sell. With cash set aside to secure them, he submitted a limit order for $1.10 for the 38.50 strike puts expiring one week away, on April 22nd. His reasoning was that he believed SHAK's price would top $38.50 by the 22nd, despite possible interim moves lower. He was willing to be assigned stock if incorrect in this prediction.  His order was filled at $1.13.

He now held ten short put contracts for SHAK at the 38.50 strike, April 22 expiration, for $1.13 premium each.

Interestingly, two trading days later, on Tuesday the 19th, SHAK touched an intraday low of $35.59.  Chip's puts would have been expensive to buy back.  He did no such thing, however; to the contrary, while SHAK hovered just under $36 that morning, Chip bought five calls at the 36 strike for $0.85 each.

The next day, April 20th, the premium for those calls decreased, despite a slight rise in share price for SHAK.  Chip bought five more of the same for $0.80 each.

He now held ten short puts expiring in just two days for the 38.50 strike and ten long calls also expiring in two days for the 36 strike.  SHAK's trading range for April 20th was 36.10 - 37.54.

On this same day, April 20th, after having loaded up on long calls for 36 strike SHAK at a cost to him of $825 total (including those purchased the day before), which had the potential to become a total loss to him in two days, Chip assessed the health of this position.  With his second purchase having been made during the first hour of the trading day, the last hour approached and call prices had risen significantly.  In mid-afternoon, when SHAK prices hovered around 37.50, more or less, Chip liquidated all ten of his long 36 strike calls for $1.30 each.  This brought him a profit of $429.50, after broker commissions, for just one day of monkeying around and shaking up the shack a little bit.  See summary below:

On Thursday, April 21st, only one day remained in the life of Chip's short puts.  See chart above for refresher:  He had sold ten puts short for the April 22nd expiration, 38.50 strike, for $1.13 premium received.   SHAK's trading range on this day was $36.76 - $37.70.   Chip knew that if SHAK ended below $38.50 by the end of the next trading day, he was likely to be assigned 1,000 shares of SHAK, and in fact, he could be assigned those shares at any point prior.  He was willing to own those shares, because he believed SHAK share prices would rise in the long run, and he was comfortable owning the shares.  But his intention was to avoid taking on shares if possible, and instead to profit from the movement in option prices over short periods of time.

Around midday on Thursday the 21st, one day before expiration, Chip rolled his short puts by doing the following:  (see chart below for detail)  He bought to close all ten of the above-described 38.50 puts for $1.30 premium each,  which was a price higher than what he had opened the short puts for, so he took a loss on this transaction.  The loss was $201 after accounting for commissions.  Then he opened up new short puts as such:

With a date one week farther out but everything else being identical, he replaced the set of short puts by selling ten SHAK puts expiring April 29th at the 38.50 strike for $1.73 premium received per contract.  On the next day, April 22nd, Chip noticed SHAK stock prices rising (see chart again) so that traders weren't hot on the trail of SHAK puts, and premiums softened accordingly.  When  his week-away puts sported $1.40 price tags - cheap relative to the price he had received - Chip took the opportunity and bought the contracts back to close for a profit.  His profit on these rolled contracts paid him back for the loss he had taken on the puts closed the day before, with some extra bonus profit.  While his loss had been $201 on the previous set of puts, he made a gain of $299 plus some cents (all figures after commission) on the new transaction, and netted together, that made for about $99 in profit from his put-selling and buying-back venture.

This chart zooms in on the last two days shown in the previous chart

Total figures on the short put project are summarized as such:

All told, he made over $500 and never owned any SHAK stock at any point during the put-and-call shuffle. Chip's trades demonstrate that both long and short options can generate profits when traded with attention to daily price fluctuations and an eye on the underlying's price.

The Iceman Selleth

This post may also be read at: http://www.cboeoptionshub.com/2016/02/23/19782/

Sometimes it's worth letting something simmer on the stove a while to get impressive results, or in this case it's more like letting something ferment in earthenware pots buried in a forgotten location. But the feast five months later is worth the wait and the worry!

Back in September I asked an offhand question of my fellow trader, @Option_Iceman, and received no offhand reply; I quickly forgot about the matter and didn't revisit it again until an answer emerged just a few days ago. The curiosity was momentary; my interest in @Option_Iceman's trade vanished as quickly and surely as would a demanded recollection of what I ate for breakfast on some random day within the last year (actually, I could place a safe bet on that answer since I seem to eat the same thing daily. Uh-oh... boring personality alert!)

To jump right into the middle of the story, note in the below tweet-conversation the five months that elapsed with no answer, during which I excised @Options_Iceman from my list of civil and courteous close friends with whom I share exciting, lucrative wealth-building ideas back and forth like a crew of bandits and outlaws generating the most money anyone can legally... Wait, not really; I simply forgot about the question and went on with my same-breakfast-daily life, not knowing that @Options_Iceman was the one making money while everyone else just gnashed teeth on their daily granola bars, watching the market's red cascade daily and thinking about how we could have made money, but didn't make the right moves at the right time.

Well, here's what @Options_Iceman did to show us all up:



Let's start by looking at what SVXY has been up to for the last nine months:



As pictured below, during one fine day in September, @Option_Iceman saw that even after SVXY's August crash, someone was willing to pay $4.10 at the very top of the call chain, which happened to be 140 strike calls at the time. He sold those calls, told the world about it, ignored my question, and then hunkered down to wait.

Green grass yielded to autumn-colored leaves, then snow blanketed the land; winter solstice plunged us into dark mornings and afternoons peering at flickering red numbers, hands cupped around hot mugs of coffee, crunching our daily granola bars; no one gave a thought to @Options_Iceman and his strategy (unless you paid better attention than I did, in which case you'd see that he sold other calls and puts like the aforementioned bandit all fall and winter. He obviously makes money the way the rest of us just make cups of coffee and peanut butter sandwiches.)

Another look at SVXY, this time with the entry and exit points for @Option_Iceman's short call finagle:



But enough of the SVXY share chart. Let's look at the chart showing options prices that traded for his selection, which was the January 2017 140 strike calls. @Option_Iceman got in while the gettin' was good, obviously, since he took $4.10 of someone's hard-earned money and only had to repay 5 cents to the poor schlub.



The only thing @Option_Iceman could have done to be Impossible Genius of the Year would have been to sell those calls at their highest historical price. That is to to say, right around the tippy-top of SVXY's wingding of a YTD party, its culmination of non-stop buyer-profit revelry going on six-months strong, which is another way to describe mid-August of 2015. Someone was writing those contracts for eighteen dollars and I wonder what kind of robots those people are. Is anyone smiling about this, somewhere, or has someone's heart and brain been replaced with circuits? Or were those contracts traded out of the next day, all the way down the slip-and-slide? Questions I don't have answers to, but I ponder between one cup of coffee and the next. See interesting call price chart for the January 2017 SVXY 140 strike call below:



Those calls now [as of Feb. 22] trade at 25 cents each, which is a significant difference from @Option_Iceman's bargain 5-cent buy-out price. It's especially significant since the contract still has nearly a year to run and with fluctuations in SVXY's price, anything goes. So, even though he didn't scrape every morsel off the $18 drumstick (did anyone?), no one can fault him for spending a nickel to make four dollars, a fine options-trading move by anyone's standards.

Keeping my end of the put-selling deal

This post may also be read at: http://www.cboeoptionshub.com/2015/11/29/keeping-my-end-of-the-put-selling-deal/

Let's follow up on a strategy started on August 25th, which is a day that can be labeled by any one of a number of epithets, as it was the day Mr. Market fell off his barstool.  Actually, August 24th was the day he clawed and struggled all the way down, and the 25th was the day he really went "thud" on the floor.

In this linked post from early October, I detailed some sold puts that got assigned to me; soon after, I disposed of 100 of the 300 resulting shares and kept 200.  The cost basis after accounting for the premium received was $53.61 per share on SVXY purchased at the contracted-for price of $57.50 on the expiration date of August 28th.  The premium I received, as you can deduce from observing the discrepancy between contracted strike and cost basis, served as a down payment on shares, and since SVXY closed that day (the contract expiration date of August 28th) at $52.12 (and traded as high as $53.78 during the day), purchasing SVXY at a cost of $53.61 didn't seem like too bad of an outcome at the time.  In fact, as I boasted within the above-linked post, SVXY was $60.85 at the time the post was written (approximately one month after assignment), which gave me a nice unbooked gain on those shares.  It's written in the post, but you can do the math in your head right now:  $7+ per share gain times 200 shares equals more than $1,400 in profit just sitting there ripe for the picking.  In fact, SVXY tried to touch $65 in October.  Did I take the whopping profit?  At any point when SVXY was in the sixties?

You know I'd be posting some tables and charts here, if I did, but I didn't.  Here's what I did next:  As shown in the next post from mid-October, I continued the same strategy of selling naked puts (actually it was singular - just one put) on SVXY, risking that I'd have additional shares put to me (unless I would trade out of the contract first, and it turns out that I did not trade out of the contract first.)  To be more detailed, though, as described in the post, I liked thinking of it as a short strangle, but really it was a covered call and a naked put.  To be precise, I already had more than enough shares to secure the call, and that changes the character of the call.  The put is then out on its own, not part of a set anymore, but something of a spare part; possibly a little unglamorous and undignified as the descriptor "naked" connotes.  At the end of the post, I noted that I didn't plan to buy back the contracts, and I described briefly the three possible outcomes for that "short strangle sandwich" as I like to think of it.  The strategy I had in mind based on the three possible outcomes is as such:

1. Of course I could have just collected the premium for both the call and the put as an uncomplicated end to the whole story, had SVXY stayed between the two strikes of 60 and 66 through November 20th.  (This did not happen.)

2. I could have just had 100 shares of SVXY put to me (which is what actually happened) along with keeping the premium received from the put, and kept all of the premium from the call with no further obligation on that side (I kept only a very small portion of the premium from the call because I bought it back, when in retrospect, I wish I hadn't.)

 

3. I could have had 100 of my 1,000 (at the time) shares of SVXY called away from me along with keeping the premium from the call, and kept all of the premium from the put with no further obligation on that side (which is not what happened, since SVXY ended lower than the $60 put strike on expiration day.)

One thing I did not want was to have any of my shares called away from me, although of course that is a valid strategy and a possible outcome when selling what really amounted to covered calls.  I wasn't swayed by the idea that I could book a gain (by selecting a parcel of shares that I had bought at a lower price than the call strike and recording that as the one I handed over to the call buyer); I simply wanted to keep my shares.  So on October 23rd, when SVXY topped $64 and VIX wore 13.24 and looked like it might try on 12.00 for size, I got nervous and bought the call back in order to protect what I saw as a precious collection of short-volatility cash-producers.  I wasn't really thinking about how low the VIX was or how fast SVXY climbed compared to recent history and expected trajectory (I noticed it -I'm not unobservant); I wasn't thinking about anything but the way SVXY can march straight up and leave you, crying, behind, and I didn't want to subject myself to that vicious treatment for a lousy couple of hundred dollars as consolation prize.  Then I sat tight even when volatility took a hike back up the mountain and SVXY went on an extended lunch break; I accumulated more shares on November 20th for a total of 1,100 shares of SVXY back from lunch and "at work" (hopefully) now.

As of sometime this afternoon (November 23rd)

So, to compare the scenario from my post of early October with the scenario now, and to mention what happened in between, a summary could be made as follows:  In late August I added to an existing collection of SVXY at a cost basis of $53.61 per share.  I did not liquidate any SVXY shares when prices as high as $64+ were reached 1.5 months later, but I did sell more puts (and an ineffectively traded short call) at that time, and ended up taking assignment of more SVXY at a cost basis of $56.49.  Since the great majority, but not all, of the SVXY shares I hold were bought at prices higher than either of those, I reduced my overall cost basis slightly with the first assignment and then again with the second assignment.  I also have a greater number of shares now, so that any rise in SVXY will power a greater overall profit potential for my account.  Whenever desired, I can to write any number (up to eleven) of calls against my shares without taking on the liability of naked calls.  I may have missed the boat by not cashing in any SVXY shares when $65 was visible on the shoreline, but if I see it again, I'll have a bigger boat this time.

How Cheese is Made (Alternate Title: Put the Short Premium in the Bag)

This post may also be read at http://www.cboeoptionshub.com/2015/11/02/put-the-short-premium-in-the-bag/

The tale of October happens to be the tale of my friend, "Mr. G," and what he did to turn $39,727.47 on September 30th into $56,239.25 on October 31st.  How's that for some trick-or-treat plunder?

Here is the breakdown, separated by types of trades, of which there were only a few.  I'll number the types and show the dates and entry and exit points.

1. The greatest number of trades were made by selling short shares of TVIX on different dates between September 22nd and October 23rd, and buying them back on different dates between October 5th and October 28th. 

Between September 22nd and October 28th, TVIX declined by 47%, from $11.11 to $5.92.  Had Mr. G simply sold short approximately 419 shares, which would be about -$4,653 worth of TVIX on September 22nd and bought those back on October 28th for $2,480, he would have been able to realize the same gain:  $2,173.  Most likely the brokerage is happy with his trading habits.  Instead of making those two transactions, he traded with a frequency comfortable to him,  based on risks he decided to take at the time and with larger and smaller amounts from day to day.  Also, he put more or less into this mostly-ongoing short TVIX position based on availability of funds in his account surrounding other trades which he considered more important at most times.

2. A trade parallel to this one was some UVXY shares sold short and then bought back to close, which was soon replaced by another lucrative trade.

As you can see, on October 5th Mr. G sold 200 shares of UVXY short at around $46.28.  The very next day, he bought those shares back for $42.73 and made a profit of $699.35.  Here's what's interesting:  He closed the short at 10:06AM on October 6th.  Now, according to Mr. G, he must have had four cups of coffee that morning, because during, between, and while taking care of that trade, he went and did the following:

At 9:47 AM, before closing the short shares, he believed that the sharp overnight drop in UVXY would be followed by a bounce (as pictured in the chart, he turned out to be right) so he sold two puts that were deep in the money.  Less than one hour later, when those puts were less deep in the money, he bought them back for a tidy gain of $167.  (See below for details.) In the interim, of course, while watching his under-one-hour-dry-cleaning maneuver otherwise known as taking put buyers to the cleaners, he closed the short shares from the day before and moved on to his next method of turning volality into dollah-tility.

3. (category three of Mr. G's trades which is the above-mentioned limited foray into the short-selling of UVXY puts.  Think about the layers of inversity there for a moment.  Selling puts on a leveraged ETF that purchases futures contracts on the VIX, which... Never mind, shaking head and moving on now.)

4. The largest amount of profit in Mr. G's account during October was made by selling shares of SVXY he bought at various points during September and October.
 

He ran 887 shares of SVXY through the washing machine and found $10,049 in the dryer which represents a gain of 23% (he bought $44,364.30 worth of stock, sold the same stock for $54,413.43.)  That's a lot of extra socks in the dryer that came from who-knows-where.  Actually, it's known where they came from:  The S&P went up by 6% between September 10th and October 23rd, and the VIX decreased by 45% during that same time period, and Mr. G sought to participate in the stability-building in the market by buying SVXY low and selling it high.  In addition to shares, he also dealt in calls as such:

5. Bought the December 45 and 50 strike calls for something in the neighborhood of $8.50 and sold them later for something in the zip code of $11; he had ten honking contracts so this was something under $2,500 in extra wallet-stuffings by the time all was said and done.

6. Sold some calls on SVXY and bought them back for a punishing price soon after, which was the only significant money-loser Mr. G experienced this month.  That's another story for another day which will never come, because the story cannot be told (in this venue.)  Sold some puts on SVXY and bought them back for nearly flat; sold some others and let them expire worthless so that a tidy profit was realized on a two-day trade.

The month ended with only the expiring options to be settled (for full profit to Mr. G and a total loss to the put holder) over the weekend, and a fresh, clean slate of working capital with which to generate more returns in November.  Thanks for following along with "guest blogger by proxy," Mr. G, who gave permission for his adventures and misadventures to be documented for entertainment and maybe even 15 minutes of fame.

Closing a volatility short and writing an inverse volatility strangle instead

This post may also be read at www.cboeoptionshub.com/2015/10/19/closing-a-volatility-short-selling-an-inverse-volatility-strangle

Let's check back on the progress of a trade last mentioned two posts ago.  This could be described as one of my favorite games ever, formally called "shorting the ultra-long volatility."  I've dabbled in both TVIX and UVXY recently, and the October 6th post illustrated some meat carved off the bone from the eleven-ish level on TVIX down to $9.48, when I just could not resist taking a bite.  To the tune of $651.

Never one to be happy with a clean plate, I loaded the plate again, as alluded to in that post as such: "jumped back in less than one hour later" ... "and sold some UVXY short at $43.79."  I also mentioned that I might have to sit through some adversity with the position, but I didn't really believe it was likely; I was trying to minimize cockiness and also preemptively save face, in the event I might be wrong.  Six trading days later, I bought the short shares back for $38.59, and it was not necessarily to "call bottom" on a move, but rather, to take a short breather and convert the chips back to TVIX.  Why would I do this?

Well, originally, I got the clean hundred of UVXY short shares with the intent of selling one put against it.  But, due to pathological cheapness, I could not bring myself to do it.  Said another way, I didn't think the premium I'd be able to collect at the time would be worth offsetting the potential gains I'd make with UVXY short shares.  Take a look at the activity during the days I held this to see how difficult it was to pick a plausible UVXY bottom:
 

As you can see, I tried all day on Thursday the 8th, but basically sat back in awe of the ever-dropping share price, each minute happier than the minute before that I had not tried to be a wise guy and set a floor on this rolling boulder.  On the 14th, realizing that if I had not sold a put yet, I would probably never do it, I bought the UVXY shares back and then used most of the proceeds to add to an existing TVIX short position I had started to build up on October 7th, 8th, and 12th right after writing my "Book It While It's Hot" blog entry (because apparently I like cooking more than I like booking, so I secretly started a pot boiling as soon as all of you had left the room.)

This brings us all the way to today, where I closed out the varied and sundry lots of TVIX accumulated recently and took a nice profit, but felt immediately afterward like a person who just ate the last piece of cake.  How does such a person feel?  Wondering where their next piece of cake is going to come from - that's how!  Here's the cake, sliced up:

Now I'm in need of something to do if I'm going to stay out of trouble.  I looked over the SVXY options chains this morning when SVXY was trading at around $63.00.  They looked like this:

Here's what I did:  I sold just one call for SVXY expiring on November 20th, 2015 at the 66 strike for $3.17, and I sold one SVXY put for the same expiration at the 60 strike for $3.60.  I have more than 100 shares of SVXY, which makes this what I call a "strangle sandwich" (a short strangle with shares in the middle) but what the brokerage labels a covered call and a naked put.  Here is what a section of my portfolio looked like soon after initiating these positions:

This post is already long, so I'll save the exact profit/loss calculations for the various outcomes and go into them next time.  But the outcomes will run something like this, assuming that I won't buy back the contracts (and I don't plan to):

Keeping the premium received from both legs or
Having 100 shares of SVXY put to me and keeping the premium from both legs or
Having 100 shares of SVXY called away from me and keeping the premium from both legs.  We will see next time which, if any of these outcomes, is looking particularly likely over the other ones, and calculate what might happen regarding additional share purchases or sales connected to these contracts.  I will also go into my motivation for assembling this simple structure of bookend-like contracts.

Option assignment is not always bad

This post may also be read at: http://www.cboeoptionshub.com/2015/10/13/option-assignment-is-not-always-bad/

If anyone remembers (and even if you don't), back in early September I griped a little about my booked gains/losses for the month of August not showing the premium I received for puts I wrote which were then assigned.  The brokerage incorporates the premium received into the cost basis for the shares upon assignment.  I may not have liked that then, but I sure do like it now.  See illustration below on the transactions and the outcome in my account as of today:

That's the transaction detail showing the $1,165.95 I received for the puts; my gain/loss sheet for the month showed only the notation "OA" (for option assignment) and no dollar amount credited.  Instead, my current holdings show the cost basis being lower than $57.50, as such:

First of all, let's address the missing shares. You can see that I wrote three puts, but there are only 200 shares shown in my portfolio.  I sold 100 shares of SVXY at some point in the interim.  If you want to be detailed about it, well - I sold more than 100 shares from several different basis prices, but let's zoom in on the way the brokerage recorded it (and I was the one who set the LIFO or FIFO, so who really cares, right?) but I did, in fact, sell 100 shares on September 4th for some noble purpose that may not have panned out as profitable, but here is the ugliness, anyway:

So, to recap and refine this story in text format, with the above graphics as visual aids, on August 28th I fell victim to my own put-writing by being assigned 300 shares of SVXY at the contracted price of $57.50.  The brokerage left my gain/loss detail for the month looking unimpressive (even more unimpressive than it already was) by recording the gain/loss as a zero for that transaction and instead logging a nicer price for the shares I was forced to buy.  Instead of $57.50, they were recorded as $53.61 per share to purchase.

Then on September 4th I got the wild idea to take a loss on 100 of those shares to enable some cockamamie scheme (actually it was for the purchase of in-the-money calls - see my blog entries from September 16th and October 3rd - and those calls did end up being sold for a profit.  It looks I got my loss back and tacked $300 on with that venture.)

As of today, the remaining 200 shares of SVXY sit in my account with the price paid noted as 53.61 and the price as of this writing being 60.85 for an unbooked gain of $1,434.61.

The gain I initially realized from the put writing went straight into buying the shares, but an attractive-looking purchase price was recorded.  I lost $743 when selling 100 of those assigned shares, but did make a comparable (plus bonus) profit on a side swindle with the liquidated cash.  And my 200 remaining shares could be sold right now for a $1,434.61 profit.  So being assigned is not always the disaster it is sometimes thought to be.  I used the words "down in the dumps" in September when describing my share holdings, but now I have no complaints.

Book it while it's hot

This post may also be read at: http://www.cboeoptionshub.com/2015/10/06/book-it-while-its-hot/

When we last left off, I wrote in detail about the long calls I bought for SVXY.  I still have those, and the update is that while they traded for only $4.64 each at the time last mentioned (versus my $8.50 buying price), the bid/ask on those has risen to $7.00/$8.30 as of this writing, with the last trade recorded at $7.49.  I keep under consideration the idea (translated: I can't wait) of getting out of these calls as soon as I can do so for even money.  All right; it's not really true that I'm chomping to get out of them. I would have to assess conditions at the time.  My intention is to amplify returns that I would expect to make on a particular number of SVXY shares.  I might make money on neither, though, with the shares simply turning into slimmer versions of their former selves (which allows me to retain some value and some hope for future gain - slim livestock can always fatten up) and the calls turning into dust.  That is the risk I took by buying calls.  I will evaluate the risk every day until I get rid of the menacing things.  I have until January, but dollars and time do not always equate in the way we would like, and I'm not crazy about holding a potentially depreciating asset.  This is the extended-mix way to say I am nervous owning long calls.

I will now revisit a topic too tangential to get into in the last post.  I said, "I did something else with the rest of the proceeds" of some liquidated SVXY shares.  Hmm... I could compare the loss I took on those liquidated shares and see how it lines up with the gain I booked on the following.  But I'm not going to do it, mostly because I bought and sold so many small lots of SVXY during the last several months that it would be meaningless to single out one lot and differentiate it from another.  After all, it is up to me to set "FIFO" (first in, first out) or "LIFO" (last in, first out) when I liquidate shares, and I was not even paying attention to that.  I don't really care whether my booked gains and losses look pretty; I expect them to even out in the end with real dollars and not just beautiful ledger entries.

So anyway, on September 18th and 28th I sold some shares of TVIX short.  See detail.  It was 360 shares altogether for an average entry of about $11.31.  Today I bought all of those back to close the trade at $9.48 for a profit of $651.

A visual representation, showing the start of TVIX down the side of the mountain, is below:

Then, never content to consider a trade done and over with, I jumped back in less than one hour later (grabbing a little bit of benefit from momentary float upward in TVIX/UVXY) and sold some UVXY short at $43.79.  (By "momentary float upward" I mean that I sold UVXY short at a higher comparative-to-TVIX price than the point at which I had exited the TVIX short.) I may have to sit through some adversity on this, as I did with the TVIX trade.   My purpose in this was chiefly to convert my TVIX short to a UVXY short, with the possibility open that I can sell covered puts against this position if an attractive opportunity presents itself.