My option trades

Inputting tonight's data into the trading programs produces a mixed bag of call and put signals for me for tomorrow.
I am already holding puts from today (awaiting sell limit or Buy 2),
System 2 (rare signal output but 75% accurate in 12 years)
is saying puts. This gives my open put trade a little hope.
I may also attempt to open a call system trade tomorrow using system 5 or 6.


Date...Option....Prev.Open.High.Low.Close
04-25 MAY138C 2.02 2.44 2.83 2.42 2.79
2012..MAY139P 2.95 2.26 2.27 1.90 1.94

Mechanical Systems Outputs:

1: C=5 P=0 MAY138C
B1=2.10 X 1.3=SL=2.70 / B2=1.60 X 1.4=SL=2.25 / STOP=1.26


2: C=4-16-16 P=10-5-0 MAY139P
B1=1.60 X 1.25=SL=2.00 / B2=1.20 X 1.44=SL=1.75 / STOP=1.05


3: E=0 L=0 D=E R=0 S=0 C=None


4: C=20-27-36=L5 P=54-19-15=L1 3/4 (75%) MAY139P
BUY LIMIT=1.40 / SELL LIMIT=1.75 / STOP=1.05


5: C3 C11 C16 CL5=UP CM25=L5 MAY138C
B1=2.10 X 1.3=SL=2.75 / B2=1.60 X 1.4=SL=2.25 / STOP=1.26


6: C=63 EM=16 -++ P=1 EM=0 +-- R=63.0 MAY138C
B1=2.10 X 1.3=SL=2.75 / B2=1.60 X 1.4=SL=2.25 / STOP=1.26


Systems 1, 5, & 6 Calls (all the same entry prices.)
Systems 2 & 4 Puts
System 3 None

 

I still think this is a simulated trade. If not, cut your position. Take that hit and learn from it. No use trying to be a contrarian with such a huge position.

See what the condition is tomorrow morning. If shit is bad, hold on and take take some profit and cut your positions right away. Go down to like 60 contracts or something in total.. Not 1000!

Here's a simple rule: Establish your position size this VERY SIMPLIFIED way:

Say your account size is S.

You ponder and decide your risk tolerance is such that you don't wanna lose more than t% from a single trade and p% from the total portfolio as a result. The total capital allocation on that trade should be as follows:

S*(p%/t%)

Sample Calculation

Say you have a 150,000 account and on any single trade, you don't wanna lose more than 5% of your total account. You also don't wanna lose more than 50% from that particular trade itself.

So what's the maximum cash outlay?

150,000 * (5%/50%) = 150,000 * (5/50)

Which gives $15,000

That's the MAXIMUM you should have put into your puts given the above risk tolerance. You put in 90,000 which is 6 times your risk tolerance. CRAZY. That's heart attack level risk.

Cut your position tomorrow down to about $9000-$12000 regardless of a gain or a loss...

 

flipside,

1; Economic Reports this morning (Jobs & CFNAI) were both lousy,
so puts have a fighting chance.
2: Also every time in the last 6 weeks there is a large 1 day move up, its followed the next day or two by an equally large move down.

"But' I wholeheartedly agree with Babu about investment size per trade (10% of account size "maximum" or tier in with 5% + 5%) and using stops (-20% to -40%) to protect loss.

Also when your trading the opposite direction of gap openings,
its much safer to wait to enter near the close of the day.

As Oscar the Grouch on Sesame Street would say,
"Here's hoping for a rotten day." (for the markets)


Jeff

 

I closed my gangsta SPX weekly fly for a $50 loss... I had ONE such fly hoping to capitalize on an unexpected downward move... didn't happen...

So I'm out.

I guess I paid for information.

 

Those are tough. You really need to go ATM and at a neutral strike within the var (implied by the straddle). Even the ATM looked like a vertical bear in the weekly. If you're truly looking to generate a lot of deltas, then don't be in the fly at all.

The weekly (May04) 40/70/00 at 7.00 (mid) looks ok here. The skew is 200bp out to neutrality (70), so you won't get hurt badly on the vol-line on a touch, and you are short some deltas. I am in that trade due to the 200bp, but very small as the vol is very cheap here.

Vol is low so I would also include a 1:1 long calendar in there as well.

 

I actually like it a lot here at 7.20 mid. I am long the fly (max PNL at 1370) from 7.20 average. I don't think you can wrong with it. No more than 5% of portfolio. The SPY fly (34/37/40) is $0.68 mid, but you're holding an additional session (morning SET vs. close for SPY). I would probably take the discount and trade the SPY, but I am in the SPX.

 

Are you doing the calendar as well?

 

No, as it's a weekly and the deltas are sufficient to keep me from going long vol at the cost of the increased gamma risk. Just a caveat on vol.

 

I see the 200 bp vol difference between the strikes but not sure what you mean by "won't get hurt badly on the vol-line touch, and you are short some deltas"

Are you referring to the sticky strike rule? So if SPX goes down, the short 70 strike will now show IV 200 bp higher.. is that what you were referring to?

And how will you exit if it trends higher?

 

Derman, sure, but I am referring to a rise in the vol-line irrespective of strike. We will see a rise in the strips/vix (all strikes rise) on a touch of 1370 which is mitigated by the skew. Derman would say that a stationary vix (in the move to 70) would result in a lower 70-strike vol on a touch (than is reflected in the 200bp skew).

I will re-eval on any close above 1400-cash.