Long the AAPL Sep6 470/495/520 iron fly from 8.81 risk (16.19 credit). I think the chart looks like ripe for a small correction, and the currently elevated VXAPL should drop soon giving the position a nice boost. âIf your actions inspire others to dream more, learn more, do more and become more, you are a leader." - John Quincy Adams
In what will likely prove to be either a very smart move or a very dumb one, I added another 1-lot at 4.00. Edit: watching the index collapse after the close added a DITM SPY put as a partial hedge.
Went ahead and closed out the complete position as it is basically at a scratch currently, my position has become almost entirely dependent on terminal distribution and I am not sure if this little rally can continue. Some excellent lessons learned here. First, I probably should have closed the original 1-lot position earlier in the week. I put it on expecting SPX to quickly retrace part of its decline from 1695, which did not happen. However, instead of closing for a small loss I held on, and even doubled down just prior to yesterday's close. Unfortunately, the index dumped another few points right after I put the second calendar on, so I then put on a DITM SPY put as a partial delta one hedge. This backfired on me as SPX rallied hard overnight and through mid-morning, with the calendar up as high as 5.60 today, but I did not sell because I was only at a scratch due to my hedging loss. At this point I needed SPX to stay where it is or a few points higher for another day to have any kind of decent profit on the trade as additional time decay was needed to overcome my hedging cost. That doesn't seem like a good risk/reward to me so I closed for the small loss. Key points I am taking away from this: - Never hesitate to cut a losing position, especially a short vol one approaching terminal distribution. - Don't overhedge. - Hedging AFTER your position is in trouble is probably not a good idea since even if the underlying moves right where you want it to much of your potential profit may be eaten by the hedge unless you are able to precisely time the lifting of it. Hedging is an art and one about which I clearly still have a lot to learn. - Don't become married to a position. This ties in with the first point, but after holding the calendar for several days with the market going against it I started taking increasingly complex maneuvers to try to save it. I should have closed it earlier and reallocated my capital, time and energy to another trade. - If the market hands you a nice profit quickly after putting on a short vol trade, take it. Within half an hour after I put on the calendar at 4.70 it traded to 5.20, and it did it again the next day, but I held it as I was confident it would go higher. 10% gain almost immediately on a short vol position? In my opinion it generally makes sense to capture that and move on unless one has a lot of confidence about the future direction of the underlying. Average entry: 4.35. Average exit: 4.80. Hedging cost: 1.13. Net gain after commissions: -.38. Return on risk: -4%.
Out at 15.75 credit for a 4% return on risk after commissions. The stock dropped significantly as I had expected, and I tried to close the spread for a 10%+ gain at lunchtime but unfortunately NASDAQ crashed as I started working the fill. With the Icahn buyback talk and a dip having already occurred with a sharp rebound, I didn't think the r/r justified holding this anymore.
Out at 3.17 credit, for about a scratch after commissions. Gold hit a new two-month high this morning and may be breaking out; I wasn't going to wait around to see if it holds.
Out at 69.25 credit, for a 2.4% return on risk after commissions. I had planned to hold this a lot longer, but the market dropped hard right after I put this on due to the Kerry speech. I was lifted on a resting offer I had in the overnight to ensure that in case ES continued dropping I would be out of the position at around my body strike (1650). My return was helped by the move toward the body strike and by sticky delta, but hurt by the overall increase in implied vol.
Long the ES 13Sep 1580/1615/1685 2/3/1 iron fly from 26.25 risk (43.75 credit). I expect that we will see another leg down in ES by early to middle of next week. The nice thing about this leveraged fly is that it is pretty resilient to the upside if I am wrong, while also paying off well on the downside (helped by sticky delta). One has to be careful when putting one of these on though since it gains or loses value faster than a traditional butterfly, especially after spot moves through the short strike. "Perfection is not attainable, but if we chase perfection we can catch excellence." - Vince Lombardi