Friday, January 22, 2010

I have been busy this morning...

So the market has for sure taken a beating with a third triple digit down day in a row. As I posted last week I came into this week with about 95% cash because I felt that the market needed a rest, it was one of those gut feelings. Needless to say it has come in handy, but I won't lie I have taken a bit of a beeting today for positions that I put on yesterday, but I am not that worried.

With the drastic move down the Vix has popped from a low set last week at 16.26 to a high of 27.59 today. I have never traded VIX options but I could not help myself today and I bought 10 Mar '10 20 puts @ 0.60. I messed around with the option pricing model and if the VIX pulls in to exactly 20 that I will be up about $3,000, which is what I am targeting. See the risk profile and price slices below:

If the VIX continues to rise I will most likely be buying more puts at higher strike prices. May even think about selling some call spreads...
This morning as Dell broke below $14 a share I sold 2 Jan '12 12.50 puts @ $2 a piece. I will sell more on a further decline. They report on 2/18/10.

I also added to vertical put spreads in FUQI from the screen list I posted yesterday. I sold 2 19/17 put spreads with Mar '10 expiry for $0.90. If these were to go against me I do not mind owning the stock, so before expiration I would sell the puts that were purchased and take delivery of the shares to sell covered calls.

Lastly I closed out the put spread protion of the Iron Condor that I sold on ISRG and captured about 90% of the gain. I am looking for a pull back after this thing gapped up $40 points after its earnings announcment. I will then look to offload the call spread piece of the Iron Condor.

Below is a Position Summary:


  1. I did the opposite today, which was nothing. I only have a few positions and I'm willing to die by them so I didn't even tune in today. I agree with the IWO thesis on VIX, the rate of change isn't sustainable. I also like your concept of just adding more puts if VIX does keep rising. If people aren't even willing to get through earnings season then the top is in.

  2. So I closed my VIX options out today for a small gain of only $50. One thing that I did not factor into the the model is the change in volatility which made my profit targets from the price slices that I chose very inflated.There was a drop of about 12% in volatility from Friday. Plugging this back into the model with the VIX at 25.33 I would had been up close to $400.

    Jason you actually pointed this out on Friday when I put the position on. But this was a good learning lesson. Not sure I understand exactly how these options move as the 27.5 put only gained .30 on a 2.12 point down move. I would had expected this thing to be up at least 2 points. So it is obvious that these options have different characteristics then that of equity options.

    I will def do more research before I try to play with VIX options again.

  3. So the more I got to thinking about our email conversation last night. I was able to realize that I have to much bias in my trading right now and I jumped back long the market way to fast. I think that you are correct that we have put in a top for now. And the market needs some time to digest the recent rally and the rest of the news that has recently hit the market.

    This morning I closed the call spread piece of the ISRG iron condor. The trade was basically a push, I did not get the pull back I was looking for. I do not want to fight this strong stock.

    I also closed out my FSLR trade as I fill that I jumped into this thing. So I used today's bounce to get out for a small profit of about $40.

    I also decided to take off my Dell puts as I went back to the analyzer and realized that even if this thing goes to my target of $16 they would only make me about $100. Just decided it really wasn't worth the tie up in capital.

    On top of all this, I decided to hedge up the rest of my position in case this downmove is not over. I am willing to spend a little money for some protection. I just don't want my trading to be too influenced by my bias. The market does not care what I think. I really think that you have take a step back sometimes and make sure you are playing in the same direction that the market is.

    So with that said. I bought a $65 put to turn the BRK.B naked into a vertical put spread. I bought a $60 put to turn my XOM position into a vertical put spread as well. So the only position that I have that is not hedged is the DRYS position.

    So I spent about $150 for some insurance on my positions and my plan is if there is further downside to possibly take these off for a profit or if not they will expire worthless in the next month or two. Some cheap piece of mind.

  4. So here is how I look at it, you made a small profit and learned something, what can be better than that? On your other point of having too much bias, I didn't feel that way. Hopefully my feeling doesn't influence you at all. I wasn't looking to change your mind. We both go with our gut and right now mine is telling me I think that was the top. If I'm wrong I can always chase it up with ATM options later. Just as I've heard you say before, I'm not afraid of missing a move. I'm not going to catch every one. I'll just kind of be in the wait and see mode here for a bit.