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First time creating my own post, let's see how this goes. In the video I update a trade I talked about on Friday, and describe the trade I put on today. Let's see if this works.
Addendum : I notice I didn't state this explicitly in the video but as I said in the NG Natural Gas Trade thread at the time I put today's trade on, I paid $0.83 for the majority of the calendars, but was able to get the last 20 for 82 cents at the very end of the day.
Pre-market looks very strong, IWM up about 50 cents from yesterday's close, now trading $83.33. This is the kind of move I was worried about yesterday and the reason I closed the 82 put calendar. Will consider adding an 84 call calendar to my current position depending on market action this morning.
Trade Update - Just added 10 more 84 call calendars for $0.79, to get more delta neutral (now -70). So far the total results of this trade is flat, just a lot of commissions.
Trade update - IWM very strong so added more 84 call calendars, now have equal number of calendars at 83 and 84 strike prices. Probably would have been better off just buying some calls. Hopefully this is the last update for today.
I've never traded calendars. I understand them conceptually but I've learned my level of understanding doesn't truly take hold until you're in a live position. I understand you're trying to take advantage of the short-term theta decay in the front contract, but was there a thesis or bias of what you thought IWM might do over this week that made the calendar your strategy of choice? Did you have a predesigned exit or adjustment strategy if the stock moved outside your break-even range? Please update this trade through conclusion so we can learn from it. Good luck!
Sure, I'll discuss those points this evening. This trade is not going that great so far but one thing I like about calendars is that they usually don't hurt you too badly even when things don't turn out as planned.
In tonight's video, my thoughts on my trade thus far:
http://screencast.com/t/FyeSueH2
Regarding my thesis of what I thought IWM would do - yesterday I thought it would be bullish as it went down to 81.62 intraday but finished much higher. I did not think it would be as bullish as it has been today - if I had foreseen that I would have bought the 84 call calendar instead of the 83 yesterday and my position would be looking pretty good today.
Just to be more complete, here is a picture of the chart I was looking at today. As I posted in this thread, I had started adding 84 call calendars during the morning. When I saw the big green bar on volume at about 10:40 am, I quickly doubled my number of 84 calendars to get to the current position.
Trade Update - Woke up early this morning and see that IWM is around $84.50 pre-market. That will hurt my position, so bought a couple of /TF futures at 844.3 to provide a small hedge for further upside movement.
Today did not go very well for my position. IWM up again strong for the majority of the day, ended up selling the 83 call calendar for $0.55, for a loss of $0.28. Rolled the 84 calendar to next week for a $0.42 credit. The most disappointing thing to me is that with 10 minutes till close, the 83 call is going for $0.71 (natural) and the 84 roll is $0.56 (natural). I waited till about 11:10 am central before I closed out those positions, seems that I made my trades at about the worst possible time during the whole day.
Put new weekly/April monthly calendars at the 84 strike price, will hope to do a little better next week. About the only good thing that came out of today is that I made a little money on the futures, but not enough to cover losses on options.
Lessons (at least some things I am taking away from this experience):
1. After a big sharp move up at the start of the day, IWM stayed very steady just under $85 for most of the morning and early afternoon. I think I should have realized that after the big rise in the morning, it would be unlikely to go up much more at the close. It would probably be more likely to just stay the same or go down. If I had realized this I may have given the trade more time to work out, since I would not have gotten hurt much worse unless it really took off up hard in to the close.
2. I should have realized that I should be hedging my position with the futures earlier, could have done this yesterday or even last night and would have fared better.
3. Trying to manage complex trades while simultaneously doing your day job is not easy. I can't quit my day job, so I need to do a better job of anticipating different scenarios and how they might play out well beforehand. Today I knew the jobs report could move the market down if I were lucky, or up if I were unlucky. Aside from the initial move, though, I didn't really think about how the entire day might play out given the different scenarios, and that could have made a difference in how I would have traded.
4. Risk management - I was aware that the 83 call was the position in most jeopardy, and could have removed it yesterday for break even. I elected not to because I still believed in my thesis that the stock has gone up too high too fast, and I thought I needed the downside protection in case the market tanked this morning. Next time I need to remember that even if I feel this way, I can always consider taking half off - sometimes I forget and only think in terms of all or none, but an adjustment like that would have made even my bad outcome quit a bit better.
Time to go to the local brew pub and reflect over these things with a cold IPA. Hopefully I'll do a better job of managing the trade next week.
I've struggled too in the past with thinking things have to be all or nothing, they don't. You can take off half, or hedge half, etc. Obviously there aren't any rules other than self-imposed rules we should follow. Using futures to hedge is valuable if you've got a day job that takes priority. I know that the one year I had a day job I found myself only interested in selling covered calls because it was the only risk/reward strategy that I was comfortable with given that I couldn't follow the market during the day. Anything that needed active management wouldn't have been possible for me at that time.
I am just curious why you use the VIX as your proxy for volatility when trading the IWM (Russel 2000)? I know that it is a good proxy for overall market volatility but it is specific to the S&P 500. I am not sure if there is one but it may be in your interest to see if there is a vol index that tracks index that you are trading.
I only mention this as when I trade oil I use the OIV (oil vol index), and when I trade SPY I use the VIX...but maybe it is the closest thing you can get. You can also look at implied volatility for the underlying and compare it vs historical volatility. I do this when trading individual underlying. I gave the formula to Jason, you can add it as a study on your chart. It is very similar to what Jason uses when he has screen shots of livevol.
I have not traded calendars a lot. But I found that I preferred to trade put calendars when I do due to the inverse relationship with price and volatility. As you know calendars benefit from an increase in volatility and since more often then not an increase in vol usually is taking place when the underlying is declining in price. Unless of course you are trading Gold or Oil, then it is likely that upside moves cause and increase in volatility as traders fear the upside. In this case then I would be more open to using call calendars...Just a thought from my own experience.
Thanks for the post and sharing your trade and thought process. And welcome to the blog.
Also just a tip about your posting...when you get a chance go into your settings and under basic make sure that under global settings at the bottom of the page that you have the updated editor selected. This gives you more options when posting. I think you were also trying to figure out how to get the links be clickable and this gives you that option.
Also feel free to embed the video on the actual post. If you are not sure how to do that yet, get with Jason as he has done it a few times now and I think he set up a Youtube channel for this blog.
Thanks Dominic. I have gone into settings, but don't see any global settings option at the bottom of the page. Also, I have seen an editor that looks like it will let me put a link in a new post, but when I type in this comment box I don't see any way to bring up that editor.
Regarding your question about VIX, you are right that it is best to use the volatility indicator that most closely tracks the instrument you are trading. In this case I just use VIX because I'm more used to following it and it is essentially the same as RVX as you can see from the comparison chart here with VIX in pink, RVX in yellow (same problem, no editor in this comment box so it won't paste as a link):
http://screencast.com/t/fj6Aipgct
I agree with you about put calendars, if volatility pops up and price goes down and out of the money put calendar benefits from vega, theta and delta - which is what I am hoping for in my current trade. However strike price is also critical, so if my directional bias is up I'll do a call calendar, if it is down a put calendar.
Dominic, It looks to me like I can only put a clickable link in the initial post. For example, this thing gives me the option to edit the initial post in this discussion. I went in there, used the editor, and that first link is now clickable. As I said though, I don't see the option to do that for any comments after the initial post.
IWM very strong, added the 86 call calendar yesterday for my first adjustment, today took off all the 84 calendars for the second adjustment at a $0.10 loss. Regardless of how the rest of this trade turns out, I think IWM is too volatile for me to trade it using the weeklies, so I will be looking for longer term calendars.
Toward that end bought the IWM May/June 87 Call calendar today for $0.78.
Finally got some positive movement in my calendar spreads today. Sold 60% of my positions in the 86 call calendar for 12 cent profit, sold 50% of the 85 call calendar for 9 cent profit.
Sold the remainder of my 85 call calendars today for a 10 cent profit. Just have a small short position in the 86 calls now that will likely expire worthless tomorrow. So that is it for the IWM weekly calendar trade for me - the last two days were profitable but the net result of trading these the last two weeks will be a loss. The main reason for this is that the thesis of IWM staying flat or going down did not pan out, it pretty much went steadily up over the course of the trades and that hurt the positions.
Addendum : I notice I didn't state this explicitly in the video but as I said in the NG Natural Gas Trade thread at the time I put today's trade on, I paid $0.83 for the majority of the calendars, but was able to get the last 20 for 82 cents at the very end of the day.
ReplyDeletePre-market looks very strong, IWM up about 50 cents from yesterday's close, now trading $83.33. This is the kind of move I was worried about yesterday and the reason I closed the 82 put calendar. Will consider adding an 84 call calendar to my current position depending on market action this morning.
ReplyDeleteTrade Update - added 40 of the 84 call calendars at an average of $0.795. This changed position from -243 delta to + 200 delta.
ReplyDeleteTrade Update - Just added 10 more 84 call calendars for $0.79, to get more delta neutral (now -70). So far the total results of this trade is flat, just a lot of commissions.
ReplyDeleteTrade update - IWM very strong so added more 84 call calendars, now have equal number of calendars at 83 and 84 strike prices. Probably would have been better off just buying some calls. Hopefully this is the last update for today.
ReplyDeleteI've never traded calendars. I understand them conceptually but I've learned my level of understanding doesn't truly take hold until you're in a live position. I understand you're trying to take advantage of the short-term theta decay in the front contract, but was there a thesis or bias of what you thought IWM might do over this week that made the calendar your strategy of choice? Did you have a predesigned exit or adjustment strategy if the stock moved outside your break-even range? Please update this trade through conclusion so we can learn from it. Good luck!
ReplyDeleteSure, I'll discuss those points this evening. This trade is not going that great so far but one thing I like about calendars is that they usually don't hurt you too badly even when things don't turn out as planned.
ReplyDeleteIn tonight's video, my thoughts on my trade thus far:
ReplyDeletehttp://screencast.com/t/FyeSueH2
Regarding my thesis of what I thought IWM would do - yesterday I thought it would be bullish as it went down to 81.62 intraday but finished much higher. I did not think it would be as bullish as it has been today - if I had foreseen that I would have bought the 84 call calendar instead of the 83 yesterday and my position would be looking pretty good today.
Just to be more complete, here is a picture of the chart I was looking at today. As I posted in this thread, I had started adding 84 call calendars during the morning. When I saw the big green bar on volume at about 10:40 am, I quickly doubled my number of 84 calendars to get to the current position.
ReplyDeletehttp://screencast.com/t/QIDN7RL5F0r
Trade Update - Woke up early this morning and see that IWM is around $84.50 pre-market. That will hurt my position, so bought a couple of /TF futures at 844.3 to provide a small hedge for further upside movement.
ReplyDeleteToday did not go very well for my position. IWM up again strong for the majority of the day, ended up selling the 83 call calendar for $0.55, for a loss of $0.28. Rolled the 84 calendar to next week for a $0.42 credit. The most disappointing thing to me is that with 10 minutes till close, the 83 call is going for $0.71 (natural) and the 84 roll is $0.56 (natural). I waited till about 11:10 am central before I closed out those positions, seems that I made my trades at about the worst possible time during the whole day.
ReplyDeletePut new weekly/April monthly calendars at the 84 strike price, will hope to do a little better next week. About the only good thing that came out of today is that I made a little money on the futures, but not enough to cover losses on options.
Lessons (at least some things I am taking away from this experience):
ReplyDelete1. After a big sharp move up at the start of the day, IWM stayed very steady just under $85 for most of the morning and early afternoon. I think I should have realized that after the big rise in the morning, it would be unlikely to go up much more at the close. It would probably be more likely to just stay the same or go down. If I had realized this I may have given the trade more time to work out, since I would not have gotten hurt much worse unless it really took off up hard in to the close.
2. I should have realized that I should be hedging my position with the futures earlier, could have done this yesterday or even last night and would have fared better.
3. Trying to manage complex trades while simultaneously doing your day job is not easy. I can't quit my day job, so I need to do a better job of anticipating different scenarios and how they might play out well beforehand. Today I knew the jobs report could move the market down if I were lucky, or up if I were unlucky. Aside from the initial move, though, I didn't really think about how the entire day might play out given the different scenarios, and that could have made a difference in how I would have traded.
4. Risk management - I was aware that the 83 call was the position in most jeopardy, and could have removed it yesterday for break even. I elected not to because I still believed in my thesis that the stock has gone up too high too fast, and I thought I needed the downside protection in case the market tanked this morning. Next time I need to remember that even if I feel this way, I can always consider taking half off - sometimes I forget and only think in terms of all or none, but an adjustment like that would have made even my bad outcome quit a bit better.
Time to go to the local brew pub and reflect over these things with a cold IPA. Hopefully I'll do a better job of managing the trade next week.
http://screencast.com/t/KBNI255FauE
ReplyDeleteJust reviewed my video, one correction. I meant to say that with VIX low, there is LESS likelihood of a big drop in VIX (which would hurt a calendar).
ReplyDeleteI've struggled too in the past with thinking things have to be all or nothing, they don't. You can take off half, or hedge half, etc. Obviously there aren't any rules other than self-imposed rules we should follow. Using futures to hedge is valuable if you've got a day job that takes priority. I know that the one year I had a day job I found myself only interested in selling covered calls because it was the only risk/reward strategy that I was comfortable with given that I couldn't follow the market during the day. Anything that needed active management wouldn't have been possible for me at that time.
ReplyDeleteHey Sandeep,
ReplyDeleteI am just curious why you use the VIX as your proxy for volatility when trading the IWM (Russel 2000)? I know that it is a good proxy for overall market volatility but it is specific to the S&P 500. I am not sure if there is one but it may be in your interest to see if there is a vol index that tracks index that you are trading.
I only mention this as when I trade oil I use the OIV (oil vol index), and when I trade SPY I use the VIX...but maybe it is the closest thing you can get. You can also look at implied volatility for the underlying and compare it vs historical volatility. I do this when trading individual underlying. I gave the formula to Jason, you can add it as a study on your chart. It is very similar to what Jason uses when he has screen shots of livevol.
I have not traded calendars a lot. But I found that I preferred to trade put calendars when I do due to the inverse relationship with price and volatility. As you know calendars benefit from an increase in volatility and since more often then not an increase in vol usually is taking place when the underlying is declining in price. Unless of course you are trading Gold or Oil, then it is likely that upside moves cause and increase in volatility as traders fear the upside. In this case then I would be more open to using call calendars...Just a thought from my own experience.
Thanks for the post and sharing your trade and thought process. And welcome to the blog.
Dominic
Also just a tip about your posting...when you get a chance go into your settings and under basic make sure that under global settings at the bottom of the page that you have the updated editor selected. This gives you more options when posting. I think you were also trying to figure out how to get the links be clickable and this gives you that option.
ReplyDeleteAlso feel free to embed the video on the actual post. If you are not sure how to do that yet, get with Jason as he has done it a few times now and I think he set up a Youtube channel for this blog.
Dominic
Thanks Dominic. I have gone into settings, but don't see any global settings option at the bottom of the page. Also, I have seen an editor that looks like it will let me put a link in a new post, but when I type in this comment box I don't see any way to bring up that editor.
ReplyDeleteRegarding your question about VIX, you are right that it is best to use the volatility indicator that most closely tracks the instrument you are trading. In this case I just use VIX because I'm more used to following it and it is essentially the same as RVX as you can see from the comparison chart here with VIX in pink, RVX in yellow (same problem, no editor in this comment box so it won't paste as a link):
http://screencast.com/t/fj6Aipgct
I agree with you about put calendars, if volatility pops up and price goes down and out of the money put calendar benefits from vega, theta and delta - which is what I am hoping for in my current trade. However strike price is also critical, so if my directional bias is up I'll do a call calendar, if it is down a put calendar.
Dominic,
ReplyDeleteIt looks to me like I can only put a clickable link in the initial post. For example, this thing gives me the option to edit the initial post in this discussion. I went in there, used the editor, and that first link is now clickable. As I said though, I don't see the option to do that for any comments after the initial post.
IWM very strong, added the 86 call calendar yesterday for my first adjustment, today took off all the 84 calendars for the second adjustment at a $0.10 loss. Regardless of how the rest of this trade turns out, I think IWM is too volatile for me to trade it using the weeklies, so I will be looking for longer term calendars.
ReplyDeleteToward that end bought the IWM May/June 87 Call calendar today for $0.78.
Finally got some positive movement in my calendar spreads today. Sold 60% of my positions in the 86 call calendar for 12 cent profit, sold 50% of the 85 call calendar for 9 cent profit.
ReplyDeleteSold the remainder of my 85 call calendars today for a 10 cent profit. Just have a small short position in the 86 calls now that will likely expire worthless tomorrow. So that is it for the IWM weekly calendar trade for me - the last two days were profitable but the net result of trading these the last two weeks will be a loss. The main reason for this is that the thesis of IWM staying flat or going down did not pan out, it pretty much went steadily up over the course of the trades and that hurt the positions.
ReplyDelete