Monday, August 30, 2010

Leg out of SPY Backratio

I leg out of the short SPY backratio. I cover two of the three legs:
cover short half the SPY 88 puts
sell SPY 96 puts
still short half the the SPY 88 puts
Netting a small but useful profit, though I had lot more profit at Friday's lows.

The ThinkorSwim software is extremely sluggish for me today, so I use the website to execute the trades. I don't know if the sluggishness is due to the new release, more TD Ameritrade customers using the server, or what, but I had a frustrating morning trying to enter these trades.

The analogies about surfing come to mind, about the staying on a beach with a lifeguard but not depending on the lifeguard. Sometimes there are problems related to computers or software or phones, that can have a negative impact on trading. These kind of glitches happen, often during the worst possible days.


Thursday, August 26, 2010

Risk aversion

The end of the week after expiration is often the time during the option cycle that I sell options. However, I am not in a mood to take on more risk. Covering TBT puts at a big percentage loss the other day, likely contributes to my skittishness. As I have said before, when things turn south, trading smaller, taking on less risk is often the best way to regain the mojo.

I am leaning bullish on bonds, bearish on stocks, bearish on gold. Seasonality points towards up for bonds, down for stocks, up for gold. That said, with all the cross currents, just about any move in any market wouldn't be a huge surprise to me.

There is a quite a bit of chatter about insurance against Black Swan type of events. Mostly about another big drop in the stock market, and the bubble in the bond market. While a big drop seems unlikely when people are talking about it, a scary but limited drop of 10% or 20% wouldn't surprise me.

Tuesday, August 24, 2010

Sell TBT (cover short puts)

Sell TBT by covering short puts (TBT Sep 30, TBT@30.4). TLT continues to explode higher, and I take a loss on the TBTs. It is a huge percentage loss, a small nominal loss. It is painful to cover in a fast moving volatile market. However, standing there in front of the train, hoping the train will stop can be more painful.

Stock market is selling off, and my SPY backratio is doing well.

Short SPY

/edit to add: for now it looks like I covered close to the worst point of the day.

Friday, August 20, 2010

10-0-1 for August

Ten winners, zero losers, one breakeven for the August option cycle. I bet on a trading range, and for the most part, the range held. The bushel of winners I attribute to a little bit of luck, and picking strikes at chart support/resistance. All short puts:
BRKB Aug 60
IWM Aug 58, 60
SDS Aug 31
SPY Aug 84, 87, 95, 100
TBT Aug 30
TLT Aug 90, 92

Going forward, I have a SPY backratio which makes net short SPY, and a short strangle on TLT, net neutral.

Net short SPY
* TLT offset by TBT, net neutral TLT

Thursday, August 19, 2010

Confirmation Bias

Random Roger (blog link) mentions an interview with Felix Zulauf (link2). I found the concept of "confirmation bias" to be interesting.

In plain English it means seeking out and reading only information that confirms a person's opinion. With the Internet, virtually any position can be confirmed with outside sources. There is a fine line in having enough conviction to take a market position, and being so stubborn that all evidence on the other side gets ignore.

When I was a beginner trader I remember reading or hearing something along the lines of this:
Q: "What is your secret to trading?"
A: "Be bold, and be right."

Q: "What happens if you are wrong?"
A: "You go down with the ship."

Obviously, this "gunslinger" approach, is a far cry from how I trade today.

Buy TLT (sell puts) sell IWM (cover short puts)

Buy TLT via selling Sep 98 puts, TLT @106.2. I double up on short puts as TLT continues to rally. I am also short TLT Sep 93 puts, and TBT Sep 30 puts.

Sell IWM covering short Aug 58 puts as a protective measure. There is about a 5% chance of IWM 58 with option expiration tomorrow. I am still short IWM Aug 60 puts with IWM @61.2.

SPY offset by SDS, net long SPY
TLT offset by TBT, net neutral TLT

Tuesday, August 17, 2010

Surfing analogies

I stumbled upon a trader's blog (link). As readers know I like analogies. Summer is a good time for surfing analogies. Here are a few "Lessons from Riding Different Kinds of Waves (link2)."

* Be patient, there will always be another wave along
* Some waves are deceptively weak and some deceptively strong
* Riptide and cross currents can be dangerous!
* Have a safety net in place but don’t take it for granted
* Timing is everything
* Location is everything
* Finding the sweet spot
* Conditions can change in the blink of an eye


Monday, August 16, 2010

Buy TLT and GLD (sell puts)

Buy TLT via selling Sep 98 puts, TLT @104.2. This is a rebalancing trade on the short strangle. The initial position was short TBT Sep 30 puts and TLT Sep 93 puts. I am a bit stunned at how far and how fast U.S. Treasuries have moved up.

Buy GLD via selling Sep 109 puts, GLD @119.6. I am also a bit surprised at how strong GLD has been. I open a Sep position to continue to have a bit of exposure.

SPY offset by SDS, net long SPY
TLT offset by TBT, net long TLT

Wednesday, August 11, 2010


Wow, what a washout day for the stock market. With all my hedging, my overall trading positions were down just a tiny bit. If the stock market decline continues, I will take on some water.

I do have some downside protection in the SPY Sep backratio spread (short SPY 88 puts, long SPY 96 puts), but that may not be that useful if there is an air pocket decline before August option expiration on 8/20.

Today, I was tempted to sell some options for September. I remind myself that fast markets are not my friend. Oversold often becomes oversold-er, and I already have plenty of exposure for August expiration, and some positions are coming into range of assignment.

Tuesday, August 10, 2010

The Fed as Goldilocks

Bonds, stocks, gold all are up half an hour after the Fed statement. The Goldilocks comment is about the fable about being too big, too small, and then just right. Historically, it is unusual that all three markets can move up together.

We will see if I can get it "just right" and have all my August short options go off the board worthless (or at least closed for a profit).

Sentiment for bonds is getting touchier because comments and predictions for 2.5% or even 2.0% on the 10-year Treasury note are more numerous. At some point all the little fish that have piled their money into bonds will likely get burned badly. However, today is not that day, tomorrow isn't likely to be that day, and if I had to bet, a year from now we will still be waiting.

* Moments after posting, TLT (20 year bond ETF) went from being up a full point to down. So, wow, how quickly can a person become wrong when making statements.

Friday, August 06, 2010

Whipsaw:200 day moving avg

The 200 day moving average is a popular timing indicator. The last two SPY signals have resulted in whipsaws, causing losses for those using it for timing. Roger Nusbaum is one of many that use it, and those interested can read more about it on his blog (link).

Some timers go all in, or all out on the 200 dma indicator, and their portfolio whipsaw experience is much more extreme than the modest losses that Nusbaum has seen. This is a danger with any indicator, more so with popular ones. When a lot of people are looking at one indicator, it can become a trading point for some looking to game the system and trigger orders.

Personally, I was net short SPY deltas going into the employment report, so the steep one-day decline is okay with me as long as it doesn't extend into a much bigger washout. With today's decline, I am about delta neutral on SPY, so unchanged or modestly lower on SPY until August expiration would be about my best scenario.

Monday, August 02, 2010

Buy IWM (sell puts)

Buy IWM via selling Aug 60 puts, IWM@66.1 (edit: correction made on typo that read 61.1 should be 66.1). This yet another rebalancing trade using IWM to balance off a short SDS put. I am already short IWM Aug 58 puts. The massive stock market rally has my SDS position basically at the strike price of 31, and net short SPY delta.

I see my choices as variations of: sit tight, cover SDS and take the loss, rebalance back to delta neutral, or take half of the half and rebalance and stay net short SPY delta. I pick the last choice, still net short SPY, but not as much as before this latest trade.

Bonds via TLT continue to be weak. GLD is stabilizing.

SPY offset by SDS, net short SPY
TLT offset by TBT, net long TLT