I AM ALIVE!!!

It has been a couple of weeks since my last post. If you look through the feed you will likely notice that my last post was on May 23rd. I really can't believe that it has been almost three weeks. Never fear I am alive and well and have continued to trade the markets. But over the last few weeks I have been pretty busy with work in both my day job and in my side pursuits. More recently I have been teaching myself programming skills. Before we break off into market analysis I will leave you with this quote I live by from Jim Rohn: "A formal education will make you a living, but self education will make you a fortune".

My last post was the first of what would be the first corrective move to the downside after hitting all time highs at around 1,685 on the /ES.

Chart from May 23rd

And 3 weeks later...

Looking at the chart above you can see that the markets pulled back about 90 points and have found support around 1,597 on the /ES. During this time we finally got a pull back and a awesome move lower in JNJ:

Remember JNJ had an incredible run of 19 strait weeks to the upside without a single down move. Although the above chart is not a weekly chart, you can see that JNJ topped out a penny shy of $90 and hit a low at around $82.50 11 days later. Only to remind us that there is cycality in the market...meaning that the market goes up AND it also goes down.

As public as I have made it, it is no secret that I have been net short the market place. But over the recent pull back I have been selling puts in NLY which finally showed some life today. I am short 20 put contracts that have an equivalent delta of about 30 SPY. If you look back in the archive you will see numerous posts about my fascination of NLY for its juicy dividend. I made really good money until exiting the trade in March and have been since been patient to build up a healthy position again. My effective long price puts me long the stock around $13.30/share. The current yield at this price is around 13.5%. There is ton's of chatter about rising interest rates and reform to fannie mae and freddie mac....I don't care!

I have continued to play in and out of VXX as a compliment to my short position in the /ES. I have mostly been short puts to get long volatility since my position in /ES is short premium which by its very nature is short premium. So although intrinsically I am up a little money...the expansion in volatility that has happened over the past few weeks doesn't show me up as much as I would be at expiration. But that is fine with me, I am currently getting paid $33/day in theta in my aggregated position. My profit range on this position is 1,537 to 1,645. I think the recent high at 1,685 has given us something to trade against to the upside.

Getting back to VXX...with a pop volatility I covered the latest short puts I had and turned around and sold out the Aug '13 $21/strangle for $5.15.

Good Luck Trading!

In The Money Trades

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Short Premium in VXX

Believe it or not, but the market continues its grind higher only 3 points off its all time highs after a nice move lower during yesterdays session. If the market continues to grind higher this does not bode well for my overall portfolio as I am leaned to the short side. I think as I write this I am about 200 SPY deltas short. With that said I decided to sell a 19/20 put/call strangle with a kicker buying the 23 call to define my risk to the upside.

Now you may be asking yourself why I would add more negative deltas. Well my thought is that we are either going to have a move that finds velocity to the downside which will cause volatility to pop (think February move with 35% pop) which would be good for my overall portfolio and leaves my max risk on this trade at $90 to the upside. Or the other scenario is we keep grinding higher with little one day sell offs with small pops in vol in which case I don't think vol really goes anywhere between now and Jun expiration. My break even to the downside as it stands is at $16.46. The max gain is around $510.

And for full disclosure, one thing I will be looking to possibly do is sell some 30 calls against the 23 that I bought on a decent pop in vol. This would effectively move my break even to the upside to $30 (a 55% move in vol). These calls are currently trading for about $0.30 and would need to move another $0.20 before I decide to sell them.The new risk profile would look like this:

Good Luck Trading!

In The Money Trades


And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Long Vol in Low Vol Environment

On Monday I posted that I moved to 95% cash and that I thought short term that we could see some weakness in the markets. I also added a comment to that post that because of this thesis, I decided to get long volatility via the VXX. I sold 5 May '13 puts @ $1.24 with a $19 Strike price.

Above I have a 4 hour chart of the VIX. The thing I want to point out is that the VIX has been below 15 for all of 2013 except for 2 days. One of those days was the 35% spike on February 25th. I have 44 days til expiration to see a spike in volatility and plenty of time for theta to work for me. My goal is to capture about 50-70% of the premium I sold.

My break even is $17.76 and I would look to roll if we actually continued lower towards my break even before I close the trade. Remember when we had the spike in VIX in February I was short vol with a covered put position in the VIX. At these prices I don't like that trade as much, which is the justification of being long.

Remember I took off the VXX, I think last week for most of the max return with plenty of days til expiration.

Good Luck Trading!

In The Money Trades

And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Covered Short Put in VXX

Reading Jason's post about how he is trading his position in the /ES along with the segment that I caught the tail end of this morning on TastyTrade.com got me thinking about a short position in volatility via the VXX. Being that both VXX and options are a decaying asset I just love the idea of this. With that said I am selling 100 shares of VXX and the Apr '13 $24 put against it for $2.46 giving me an effective short price of $26.46.

And here is a chart that really gives you a visual of what I was refering too with respect to VXX being a decaying asset:

This should be a fun experiment. We have 49 days until April expiration. My break-even is my short price of $26.46, which is only about 40 cents shy of the recent high that printed this week when the volatility popped more than 30% in a day. As I continue to see a long bias in the market I don't see a real threat of volatility getting way out of control. And if I am wrong, due to the nature of this particular product I would feel comfortable waiting it out as not only is volatility mean reverting but this asset really can only decay overtime due to how it is composed.

Good Luck Trading!

And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Long Volatility via VXX

As I have been talking about over and over for the past few weeks. Right now the market direction is up and  I am trying to sit on my hands and not add to any new long positions. The risk/reward to adding new positions with markets at the upper end of their range and at 5+ year highs is very hard to justify. The SPY is possibly starting to show signs of getting a bit tired. With that Volatility (VIX) is at the lower end of its range and is currently in the 13% percentile.

With that, this morning I sold the Mar '13 $22 put @ $1.28. In other words I collected a $1.28($128 bucks), betting that volatility is not going much lower and could go higher between now and March Expiration. By break even is at $20.82. I really like the fact that my Theta is about $2.33/day.

After adding this to my overall portfolio I am net long about 42 SPY deltas.

Additionally this week PBI will be paying its quarterly dividend. /The covered call I sold against my stock position is about $2 ITM. So I will update the original post on this position as to whether I get exercised to sell the stock or if I go under the radar and keep the dividend. Either way I make money :)

Good Luck Trading!

And 1 favor that we ask: 

If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

VXX post-mortem

This is one of those trades that happened so fast I never did any pre or post-analysis until now. I wasn't sitting around waiting or even anticipating that VIX would spike up. I just happened to be watching on Wednesday when the panic hit. I was already in a position with short 48 strike calls on VXX for APR expiration that I sold for .46. At the time that trade was put on VIX was at 25 and VXX was 35, so this was meant to be an income play but I'd be more than willing to stay short volatility if I inherited a short position up there. Now, because I already happened to be short those calls, when the spike in vol happened I noticed my marked-to-market position on VXX was way upside down, like by more than $-2,000 on just 10 contracts. I thought this couldn't be right since VXX was at 38, I was still $10 OTM!! So I bring up the option chain to confirm what is going on and see what looks like free money.

The IV of VXX had shot up over 100% and the skew was crazy. The IV was going up higher and higher for the farther out strike prices. Normally I'm a proponent of assuming that options are efficiently priced, but take a look at the screen shot I made of theoretical price versus the price trades were going through at. I thought this was insane so I decided to double up on my short position of another 10 call contracts, pucker up and hope the world doesn't go truly insane. I was definitely nervous of what was on the news and why VIX was spiking so hard, but at this price I would be at a cost average of over 50 on VXX, the 49 calls were the farthest available strike price offered for trading, I'll take that risk. I was not assuming or even guessing that the VIX wouldn't or couldn't go higher. I just felt like I was panicking a bit and I wasn't even long stock, so I've been around a while and felt that feeling enough times that I felt comfortable that the logical play was to try and sell some fear, even though I admit I was feeling some myself. T

It turns out I got lucky and things didn't get worse. I was able to close this trade out for 72% of the max profit in just two days. I felt like taking the gains and leaving myself the margin availability to jump on a similar trade again in the next week if it appears. This post isn't to say look at me I make a quick kill, it's to show you what I was seeing in case you come across it yourself. The options market was not pricing in risk efficiently and as a trader that is something we should be taking advantage of. As long as you're not using a position size that can hurt you, your risk here is that VIX goes above 40, VXX above 50, and never comes back down. That's not a logical assumption.

I didn't pull the trigger until I had reason to believe we peaked.

Take a look at the increasing IV of the calls

Theoretical price vs trade price. The purple line is Theoretical Value, the white and red boxes are the prices trades are going through at for the 49 strike calls. The green boxes are my entry and exit points. Notice that I received far more than theo price for selling but only paid a few pennies more than theo price to buy back. This concept in isolation is an example of a good trade, the fact that I got lucky with timing is not what makes the trade good.

E-mail: JasonAndrewHaas@aol.com



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VXX: Closing Out Naked Calls

On Monday 1/31 I was waiting to see how the markets opened and how they reacted to the weekend news in Egypt that riled the markets the previous Friday. If there was no initial follow through of fear then I was prepared to short the VXX via short calls. I picked a pretty far OTM strike in case I was wrong and gave myself some room. I sold to open the $40 strike calls at .42 and closed out today for .03. I captured 93% of the profit in 8 days so I decided the risk/reward of holding another 11 days for .03 made no sense. On to the next trade. It's a relatively small pick up with a net of $382 after commish, but risk was relatively low as well.