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:

4 comments:

  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.

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  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.

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  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.

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  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.

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