Theta Burn...where does the time go?

Oh where does the time go? The last year decayed much faster than normal. Now when it comes to option trading I love to be positive theta, in other words I love to sell premium with the intent of taking advantage of the decay of the extrinsic value of an option. But when it comes to life in general I sometimes forget to realize how precious time really is, I think we are all guilty of this.

Well enough with the geeky spin...I woke up this morning and could not believe how fast this year had passed by...and more than that, how many months have passed since I created this blog. Believe it or not but it has been 18 months...WOW! And boy has my trading come a long way since then...I continue to learn everyday.

I wish I could be posting more but unfortentully the job just does not allow for the time at the moment. So until then I will continue to post as I have time.

Just thought I would share.

New ZB Trade

As mentioned in a previous post on this trade, I was looking to initiate another short position when the opportunity arose. I got short at 126'20 and again at 127'20. I also sold a 129 call for more than a point so essentially it's getting short at a little over 130. This is the last of this position I am comfortable adding to at the moment. I'm still doing my homework on this trade. For instance, why would a $100,000 face value no coupon bond be selling for about $127,000 right now? Because ZBs are deliverable on a 6% yield basis, so there is a deflater/conversion factor calculation that has to be applied to the current price at time of delivery that brings it back in line. Right now I'm comfortable with the amount of risk I have on just based on technicals, a hunch that 30-year yields have hit a low and have nowhere to go but up, and QE2 bond purchases being fully priced in at this time. I believe there to be an upside price risk in this trade if the Euro region tanks and thus we see another flight to safety in the US dollar and Treasuries. For now I'm going to attempt to trade in and out on a short term basis using a position size that would allow me to stay in the trade should we in fact see some panic that pushes Treasuries higher. And thanks goes to Tom Sosnoff for turning me on to the idea. After initially analyzing the trade and because of the leverage involved with financial futures, I like the risk/reward offered on this idea.

Trade Update 12/1/10

I had set a GTC order to cover these two short contracts at 126'04. Though I was happy to wake up and find I made $2,000 while I was sleeping, it was also irritating to see that I could have doubled that by selling at any point later in the day. It took me a long time to get in the habit of setting a GTC for an exit point once I initiated a trade. This is just one of those times when I could have made more without it, but I just as easily could have woke up and found that with a GTC you could have covered in overnight trading but missed it. So you take the good with the bad. I set my exit point where I was willing to exit so can't cry later that you could have got more.

Historical Trading Results

I've finally finished documenting my historical trading results going back to my first trade in the summer of 2008. It was an interesting experience because my personality is such that I focus on losses much to strongly and tend to downplay my successes. So being able to quantify and visually see my total history has been a good exercise. I need to look at the overall results once in a while, specifically when I've had a recent loss as I tend to get conservative and even at times stop trading all together for a while.

My style of investing has changed over this brief 28 month period so its hard to draw any solid conclusions on my performance other than to say I believe I will continue to trade profitably. I've learned a lot about risk mgmt and position sizing so hopefully future losses will be mitigated to an extent that some of these past trades were not. I would like to get more quantitative in the future as far as total portfolio return rather than just monthly dollar returns. I have a few problems in this area though as I haven't decided exactly how much I would like to designate as available trading capital, and I continually pull money out to live off of so the calculation of compounded returns is difficult if not impossible without some sort of software package to aid me. If you're aware of any please let me know.

Thank you Kim Jong IL

I was already short 30-year Treasuries but yesterday's Korea news opened up an opportunity to add to the position. My feeling was this, six months ago if you had told me that North Korea would engage in an attack on South Korea and people died, I would have guessed the markets would be down huge and fall from there. When we only opened down 150 Dow points and didn't sell off any further I didn't sense any real panic. Bonds however did show some panic and shot higher. With the combination of this news and some technicals I decided to add to my shorts in both the DEC and MAR contracts. This morning apparently a good jobs number trumps international conflict and the markets rebound and thus bonds sold off. I exited my shorts for a nice three day gain of roughly $3400. I am still short (1) MAR11 ZB 130 Call but will look to short MAR11 ZB futures again should the opportunity arise.

November 2010 OPEX Results

This is another deceiving month as the large gain on MET has been a paper gain for many months and finally switched to a realized gain this month. My actual trading activity during the month was a loss.

NQ

I shorted the NQ yesterday afternoon at 2142 when it looked like it was going to stop at overhead resistance, was planning on shorting it down to support levels but using a stop in case I'm wrong. I just closed it out for a small gain. This was a trade where I was kind of late to the game. I had wanted to short last week but just didn't make the time to follow through on it and I missed the move. So when I saw a large white candle that seemed to stall at resistance I decided to be a late entry to the trade. I later decided that was stupid, I had already missed a good 50 point move down. So I'm out at 2124.75.

A few new trades: ZB, CSCO, KMP

I've been very passive with trading/investing lately but I'm back at it full time as of yesterday and looking forward to it. I started things off good with what turned out to be a quick trade. I shorted (1) ZB yesterday morning at 127'20 and covered in after hours at 126'22 for a gain of $933. Minimum tick is 1/32 at $31.25 so each full point is $1,000. I decided to short after seeing the largest while candle in the last three months that looked to be nothing more than a little panic flight to safety buying as equities shed 1.5% that day. I will look to enter again with a short if there is any short-term strength in bonds. Meanwhile I have been short a ZB 133 call for November which is set to expire worthless, and I'm short a Dec ZB 130 call.

I am going to spend the next few days finally rebuilding my spreadsheet I accidentally lost with all my trades going back to summer of 2008. That is the time frame I made the jump from primarily investing long-term with covered calls to different types of short-term options trades. I'm looking forward to seeing and analyzing the results.

ZB

CSCO

I sold Dec 19 puts on CSCO for .39. After the recent sell off it left this stock at its lowest price since the MAR09 bottom. I'm comfortable owning this stock long-term if put to me so there is no exit point to this trade.

KMP
I was short NOV 67.50 puts that are to expire tomorrow so I rolled this trade to DEC 67.50 puts at a net of .52. With a 6.3% dividend yield I think this stock has a floor in it not too far from current price. In a world chasing yield this is a low risk stock with a long-term track record of stable and growing dividends. I am willing to own at a cost average price of $67 so there is no exit point for this trade.