Thursday, June 30, 2011

Missing the rally boat

For the most part, I missed this week's rally in SPY. I did not pull the trigger, often thinking that there would be some give back to this rally. Another factor, is that August sometimes spawns big moves. I don't have any open August positions. I may take on some smallish positions, but for the most part, am content to sit this one out.

QE2 is supposed to end today, and the bond ETF TLT has been falling the last few days. It is difficult for me to gauge the action, because the market is distorted by the intervention and traders jockeying for position knowing that the buy program is ending.

Saturday, June 25, 2011

Barrons "worlds most crowded trade"

... Investors began to unwind what might be the world's most crowded trade—short the U.S. dollar and buy commodities

The above quote is from a Steven Sears Barrons article "Reversing the QE2 Trade" (link). If the link is expired try searching on the article title, June 25, 2011.

The rapid two day smash in GLD might be part of that unwinding. Sears focuses more on oil and currencies in his article than metals.

It is sometimes difficult to tell where the crowd really is, and the second and third level observations. Treasuries as tracked by TLT certainly have the look of a crowd. Then again it might be more of a tug-o-war with shorts establishing positions while QE2 is winding down.

Friday, June 24, 2011

SPY Backratio

I sell some SPY Backratios, Sep 105/110 puts, SPY @126.80, selling two 105s for every 110 that I buy. Overall, it is net delta positive, meaning a bullish bet, with some twists such as a max profit with SPY @105 at Sep expiration, another breakeven point at below 100. I get a small credit, and it is theta positive, meaning it benefits from time decay.

Here is a YouTube link to the Beach Boys singing their song "Wipeout" (link). It is symbolic for my GLD calendar call spread.


Friday, June 17, 2011

4-1-1 for June

Four winners, one loser, one break even for the June option cycle. The winners include: tWo short SPY puts, short EEM and GLD puts, all expiring worthless, so I pocket 100% of the modest option premium.

The strangle on TBT/TLT that broke even, counting two winning short TLT puts expiring, against one covered TBT put at a loss. One loser was the lifted long leg of the SPY Jul 115/120 vertical put spread. The timing on that exit was terrible as the sold put more than doubled after lifting that leg.

Also in GLD, the Jun leg of the GLD calendar 160 call spread expired. I sold a GLD Jul 161 call to turn it into a 1-point-wide vertical call spread. That caps the profit at 1 point, which is decent given a cost basis of the position of 1/3 of that.

It felt like a very frustrating month, despite a modest profit, because many times it seemed like I entered or exited trades at near the worst levels.


Buy SPY (sell puts)

Buy SPY via selling Jul 110 puts, SPY @127.8. I am already short SPY Jul 115 puts. Looks like my short Jun puts are coming in okay, so I replace some of that delta with this layer of way out puts.

with EEM and TLT expiring today

Monday, June 13, 2011

Buy IWM (sell puts)

Buy IWM via selling Jul 69 puts, IWM @78.6. Another low risk, low reward, high probability put sale. IWM at support.


Saturday, June 11, 2011

Hall of mirrors

As summer nears, carnivals travel the country. One of the attractions is a "fun house," often with a hall of mirrors that distorts images and causes confusion. Right now, QE2 (quantitative easing) is causing distortions in the market.

As is often the case, the straight line analysis is only sometimes useful, as players try to guess what others are doing. With the purchase of $700 billion in Treasury bonds and notes winding down, many believe that interest rates are going to rise. However, if enough players are positioning that way, the second order impact may be something different.

Some believe that QE2 has been what has been propping up the stock and commodity markets, and when it ends, those markets will turn lower. It may play out that way, but again, in the Hall of Mirrors, not all is as it seems.

I have a few modest positions and a lot of dry powder. I don't particularly care for the distortions of the Hall of Mirrors, the in-person carnival kind, or the financial market Fed QE2 kind.

Wednesday, June 08, 2011

Sell GLD (sell calls)

Sell GLD via selling Jul 161 calls, GLD @149.8. This adds a layer of complication to a Jun/Jul 160 call calendar spread. I am long Jul 160 calls, short Jun 160s and short Jul 161s, and short Jul 138 puts and Jun 134 puts. Net long GLD, but this move reduces my exposure.


Monday, June 06, 2011

Buy GLD (sell puts)

I open a July position on short GLD puts. I am also long Jun/Jul 160 calendar spread calls and short Jun 134 puts.

* I mistakenly left GDX and IWM on some previous lists. Those positions expired with May expiration.

Friday, June 03, 2011

Cold streak

Song for the day is "Cold Day in July" performed by Carrie Underwood (YouTube link). Yeah, I know it is still June.

Anyway, I've been laying low, because it feels like I am out of step with most of the markets. Combine that with some recently closed trades where the timing seemed atrocious, and I have been reluctant to initiate new positions.

All traders go through cold streaks and I seem to be in one now. I am working through it by trading less, reducing risk, and paying less attention to the markets.

Wednesday, June 01, 2011

Sell TBT (buy back short puts)

Sell TBT via covering short Jun 33 puts, TBT @32.8. The short strangle blew up as TLT went on a strong trending bull rally (TBT is the inverse of TLT). I take a 180% loss on the value of the sold options. I remain short two TLT puts on the other side of the strangle and that would offset this loss, if they both expire worthless.