Thursday, April 7, 2011

Took my last profits on short ZB position, I miss my babies already!

I was conflicted yesterday about taking profits at 119'00. I've had a GTC order in to cover 2 contracts at 118'16 for several weeks. But like I mentioned in yesterday's post, I didn't want to watch profits evaporate as they had in the past so I felt I needed to take some of them. Well sure enough a few hours later my last short contract gets covered at my target price which means I left another $500 on the table from yesterday's close out. But looking at the chart, if 118'14 turns out to be a tradeable low, then I will be happy I got out. What if that low was 118'17 and thus I didn't get out of my trades for being stubborn on price at 118'16? That's the battle I still struggle with, when to override your game plan. It's easy to look at a chart later and say should've, could've, would've. So while it sucks to wake up and realize you probably flushed $500 by not being patient, what I have to remember is I felt it was the right move to make at the time and not second guess myself. Now comes the hard part, being patient and waiting for another good set up. I've got my alerts set up so I will evaluate the landscape when/if those are hit.

There is very little time premium left on my short calls, about $350 total. Essentially I'm out of the market right now. Notice Think or Swim's software is still messed up and showing something is ITM when it's not. I emailed them weeks ago and they assured me they knew about it and it would be taken care of soon. Makes you wonder how safe your money is with them, safety is an illusion anyway.


  1. Jason,
    I have found that my biggest struggle in my options trading as primarily a premium seller is closing trades to early. You feel silly leaving that last 20% on the table and then watching your option expire worthless. So i guess its just a matter of sitting on your hands and letting your winners run.

    Also, do you think that the short thesis on /ZB will continue to remain in tact? Or do you think that another Japan earthquake or news event could push Bonds higher in the short to medium term?

  2. Darrin, I used to have your same struggle, I always hung on until the end when selling premium. I hated to pay anything to buy something back that seemed worthless, and then like you said, you watch it expire and feel stupid. However, I found that I was marrying myself to the max possible gain at the time of execution, of course assuming it would expire worthless. This was a roadblock for me as that's what made buying it back a problem, I felt like I was getting less than what I had already planned on.

    So Dominic got me to look at it another way, stop looking at it in terms of dollars and instead concentrate on the percentages. Once I did this I got over that hurdle of feeling like I was leaving something on the table. Example, if I sell a short put for .80 and it's only worth .05 with two weeks to go. I now look at it as locking in 94% of the possible profit in exchange for 0% future risk. And if I've captured more than 90% of the profit in about 50% of the time, why wait another 50% of the time on the contract for only 6% more return? And why take the risk of losing profits rather than lock them in.

    This has helped me tremendously as even though there is very little reward left on the table when you're options get down to .10 and under, I still put in the same amount of time and psychological capital regarding that position. I live and breath any chart I have a position in. I'm glad I reached a state where I can be happy taking 90% or more of the premium and move on to the next trade. I did this last week. I was short a $90 strike put on crude oil. I sold it for .57 and it was .05 for days. With oil at $105+ I wasn't worried about it breaking below $90, but I also found myself watching oil related news when I have very little reward left in that trade. So I would rather leave another $50 on the table and have the next two weeks of my life back instead. I can't exactly quantify the amount of time I would have spent on that one position, but I can tell you that it was worth $50 to me to not watch it for the next two weeks. It's interesting that the only thing that changed was my perspective, the prices and risk/reward of these situations were exactly the same.

  3. Darrin, regarding ZB. I will continue to short if ZB rises, I think what happened the last few weeks via Japan and bond prices is testament that short-term flights to safety in bonds should be sold. A long-term macro trend like actual inflation can not be trumped by short-term psychological flights to safety.

    Central banks in emerging markets have already raised rates, China/Brazil, and they are seeing actual high inflation already. The ECB raised rates today against our wishes, you can argue that we haven't seen inflation yet and the FED can keep rates here for another year even if we do see inflation, but keep in mind that you don't need the FED to actually raise rates to have bonds fall further. The millions of educated bond investors will discount it accordingly with or without FED action. You can see this by looking at the SEP and DEC ZB contracts, they are both trading at discounts to today. At the time of this writing the JUN is at 118'20, SEP is 117'01, and DEC is 116'00. I'm playing the basic thesis that rates are cyclical, and once that cycle is underway it's not as transient as short-term market events are. My only fear here is that once we roll to the SEP contract it gets harder to short, less appealing, because of the contango in prices.

    We've never had a time when the FED kept interest rates artificially low, negative real savings rates, so it's hard for me to quantify what price I think ZB can trade at given real interest rates. However, I do have rough price structure and chart if you're interested. Email me at and I'll email you back the info. I'm not done with it so I haven't posted here yet.

  4. someone please help me with the following
    explain with an aid of a diagram option position of being
    a)in the money
    b)at the money
    c)out of the money
    for both call and put options.
    please guys any ideas are welcome at

  5. I sent you an email with some info on this question so look for one from