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And just like that I get what I need, in just a few hours VIX explodes up by 35% and ES is down 30 points. Now I have options, pun intended. I will take a look at what kind of put premium is now available for the remaining 4 days of this week. If I don't like anything I see I can either just stay short, or cover the short and attempt to get back in on an up move and trade around the position. I've done this many times in the past over the years but makes more sense if you've got more than a 1-lot position like I have. If you've got a 2 or 3-lot than you can pull 1 or 2 off and at least you've got some exposure should your gamble fail. So I'm leaning towards selling some premium here and will post back when I decide.
ReplyDeleteWhile the goal of this trade is simply to get out even at some point, I also have to be rational with what the market is giving. The bottom line is as long as I'm bearish I'm staying in this short, but if at some point my sentiment changes then it doesn't matter what my cost average is or how much I might be down. I constantly re-evaluate trades with this thought process, what would I do today if I wasn't already in? Because deciding to stay in a trade has the exact same future risk/reward as entering it as a new trade today. The only difference is psycholoical. For those that follow I just wanted to share one traders perspective of how they manage a rotten trade. As I was down over 120 ES points at one point I'm certainly not bragging, just sharing the good and the bad.
ReplyDeleteI just got filled on a short weekly put 1460 strike for 5.00. This brings my cost average up to 1412 on the short ES trade. If exercised my loss will be 1460-1412 = 48 points times $50 = $2400, plus $14 in commissions. I was upside down on this trade by as much as 120 points or $6000 just two days ago. It will definitely be disappointing if we crash through 1460 by Friday, but cutting my losses by over 50% in a week after taking eight weeks to get there wouldn't suck either. Here is some further rational for the strike price chosen. If we do continue on down past 1460, you can expect an even higher VIX, which means I'll have plenty of opportunity to sell vol or actively trade around. Also, keeping with the theme I mentioned in an earlier post, if I was short at higher prices I would be pulling them in here for a profit and looking to reenter. 30 points in a day is nice, the only way its gets substantially worse is a crash. I'm not saying that won't happen, just playing the odds as it doesn't happen often.
ReplyDeleteI think yesterday was just a bit of pent of demand for a decent pull back and uptick in volatility. At the very least we likely see some price consolidation over the next few weeks. If we can keep a bid up in volatility, it would bode well for you to collect some more premium against your position. Have you considered doing a bit of a ratio on this position? Maybe selling 2 puts against the position? Maybe selling the 2nd put where you think the /ES has no chance of going in the next week or so? For example, in the weeklys that expire in 10 days you could sell the 1400 put for $1.75.
ReplyDeleteJust an idea.
Thanks for sharing!
While I admit the 10 day option at that strike looks attractive, but it only looks far away until we hit it. When I shorted at under 1400 I never thought I would be looking at 1530 without ever having a chance to get out. I would also view the second short put in a ratio as a stand alone trade. We can call a trade something fancy like a ratio spread, but the bottom line risk/reward is that I would have one covered put and one naked put. The question I would ask is if I want a naked put if I'm bearish and the answer is no at the moment. I'm not a 10 delta premium selling kind of guy. But if this were a fresh trade say getting short at 1490 here and selling the 1460 put, then maybe I'm enticed to sell that extra far out premium because if we actually got there that would mean I've got 30+ points of profit as a buffer zone.
ReplyDeleteHowever, a large pullback to an area of that nature and then maybe I'm interested in selling naked puts where I wouldn't mind getting long if I had to. But after a one day pullback I'm not interested in selling naked puts here. But I thank you for the input. Sometimes I hear an idea and it makes you feel silly for not seeing it yourself. That to me is part of what the blog is all about.
I realized in reading my own posts that the nice 30 point down move we had on Monday would be the time to pull in a contract if I had more than one. So now that we're back up huge and I missed that type of trading opportunity since I only had a 1-lot, I decided that down 100+ points was a good entry to add another contract. So I'm now short two ES with the cost avg on the first at 1412 and the second short was at 1517 and I have not sold any premium against it.
ReplyDeleteSo you are effectively short 2 contracts around the 1465 level. Do you plan to sell premium against the second short /ES contract? How do you decide what strike and how far out to go? Want kind of potential downside target do you have?
ReplyDeleteThe intent is to not sell premium on the second and use this one to trade around with. I'm hoping for either increased volatility, or a two-sided market with low volatility, anything where I can trade around. I would like to sell premium on one and trade with the other. If vol normalizes and we just continue to go up, then I'm in doodoo and will reevaluate and I'm constantly reevaulating given market circumstances.
DeleteI would think at this point you need to hedge it. I would be selling SPX Puts. Just a thought. Are you gonna give video update On what happened to your account.
ReplyDeleteThnx..I really enjoy this blog
b1llmoo
At the moment I'm not looking to hedge the second contract, the intent is to trade around with it and pick up small scalps if possible. If not then I will adjust accordingly. I'm not panicking or changing gears after a few hours. I will do a video update on my account history. I meant to get to it yesterday but didn't have time, will defintely get to it by this weekend.
DeleteI just closed out the second short at 1510 for a gain of 7 points in 24 hours. I only got 5 points for the weekly put. This is exactly why I added the second contract yesterday, I now have flexibility. If ES continues to go down, VIX will most likely increase and I'll sell some more premium against my short. If ES goes back up I put the short back on. I like being able to scalp when appropriate and sell premium when the situation arises as well. There is no right or wrong here from my perspective, only a personal preference.
ReplyDeleteCost average one a 1-lot is now 1419, not bad considering the initial short price was 1389 two months ago, though I'm still 90 points in the red. Between selling premium and scalping I've recouped 30 points and the trade has done nothing but move against me since the second I put it on. I'm still short one ES with a short 1460 strike put that expires tomorrow 3/1. With patience and a little luck on direction I will hopefully eventually scratch this trade at par. Many might think a goal of breaking even is ludicrous, why take the risk if you just want to break even? I don't JUST want to break even with my trading in general, but given how bad this one went if I can manage to get back to even I consider that a victory. There will be blind luck winners along the way as well. So mitigate the damage on bad trades and manage winning trades accordingly and you end up with a net profit, which is the name of the game.
I was able to scalp another 7 ES points this morning, same entry and exits as yesterday with a short at 1517 and covered at 1510. I immediately put another short order in at 1517 and was filled on that an hour later as well. So shaping up to be a good week cost average up the position with a net 19 points minus $10 in commissions, which is 1/5 of one ES point. I believe I'm now at 1426 on one contract but still deep in the red overall by 90 points as of this writing. Just trying to manage a bad trade until I get lucky.
ReplyDeleteJust closed out at 1510 again for another 7 points. Third time in two days using the same exact prices. Cost average on one contract is now 1433. If I don't get another chance to short again at 1515-1517 then I will be selling a weekly put against the one short ES I have left. I'm still 77 points in the hole but feeling better than the 120 it was at last week. Long way to go.
ReplyDeleteSometimes it may seem daunting to have to eat an elephant, but it can be done as long as you take it one bite at a time.
DeleteGood job so far 40+ points in a week is a significant improvement.
DeleteI'm short again at 1515, I moved my entry point down a bit from the 1517 I've used the last few days and until something changes, the chart is sloping down at the moment.
ReplyDeleteI rolled my two short contracts today, everything is going according to planned. Shorted a second contract at 1515 only to watch it go to 1555, down about $9000 at the moment, feeling awesome :) Whoever put the hex on me, ha ha, now take it off already!!
DeleteHave you sold any more puts against at least 1 of your contracts?
DeleteI had a standing order in the first few days of the week but never got filled, so I just rolled both. But with VOL at these levels I'm not interested in selling puts. But I will take a look again on Monday morning and reassess the possibilities.
DeleteI will be looking to sell some premium in the morning.
DeleteI woke up to find out I was filled on a 1515 weekly put for 4 pts. That is the latest entry point for my short on the second contract so I would love to give that up at that strike. Which or course means that won't happen.
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