May expiry. My May RUT IC just expired worthless which is a good thing. But RUT got uncomfortably close to my short call at 1000. In the future I'm going to close my ICs if profit hits some percent of the maximum, maybe 80% or 90%. It was foolish of me to expose myself unnecessarily like that. My June ICs in NDX and RUT were both rolled up due to this annoyingly steady upward movement of the markets.
Entirely unsolicited opinion, I know, but FWIW (free advice & worth every penny) I'm selling 1635/1630 verticals next week if I can get a decent credit (1.25 or higher). 1635 was busted decisively on Tuesday, and there should be upside follow-through next week in SPX after the strength we had this week. Blue Mondays are a feature of bull markets so it should be possible to get a decent credit on this. I don't think selling calls in this market is at all advisable. Hedging with long VIX (or maybe VXX) June calls.
Any comments are welcome. I've discovered through banging my head against the wall that selling calls in a bull market is a bad idea. That said, I can't reliably predict what will happen in any coming month when I put on a trade. The bull market could end, right? Or at least take a pause for a month in which case I profit. So the VIX call hedge is for downside protection for the put credit spread? I haven't traded VIX at all. Also, are you using weeklies or monthlies?
Sorry, on vacation so not posting much, just to explain this and gaps you see in the coming weeks. Not going to be back to full time til June. Yeah, since the verticals are well south of where the market is now, VIX calls would be decent protection against an event that would put the verticals ITM. Using monthlies, matching the June expiring SPX against the June expiring VIX calls. Momentum right now is clearly with the bulls. Only a sudden political event would send the market south far enough to challenge these verticals, IMO, and any such event would be accompanied by a large move up in the VIX, so I figure it's a good hedge given that reasoning. A slow grind south would render the VIX useless as a hedge, but that's atypical behavior for a bull and would be a good reason to cut losses and sit tight and see if a bear is developing. Would buy June 14 VIX calls to match against the SPX verticals, at a value of about one half that of the credit received on the verticals. June VIX futures are at around 15 right now, so those calls are somewhat ITM. I always assume the hedge on anything I do will go to zero and so figure my net credit at the value of the credit on the sold side minus what I have to pay for the hedge. Given the upside potential if VIX takes off on an event, I have in effect a limited risk downside on the verticals vs unlimited profit on the VIX calls.
The deltas of my IC shorts for NDX and RUT June expiry are still nominal so no action has been required yet. I was filled on a July NDX IC very close (a nickle off) to the mid: + NDX OPT 20130718 2700P + NDX OPT 20130718 3250C - NDX OPT 20130718 3225C - NDX OPT 20130718 2725P 2.45 SMART(USD) 14:52:29 CREDIT Couldn't get a RUT fill today so I'll try tomorrow.
So you were right to think about that relentless advance ending. One quick note on selling SPX put spreads with VIX to hedge: works well, but another nice hedge is this: I had, leftover from a previous sale, 1600/1595s. I bought back most back when SPX was a lot higher, but left a few as a 1/2 ratio backratio: 1 1600 to 2 1595s, at a rate of one backratio to ten sold puts in the same month, in this case 20 points lower than the sold puts themselves. Been observing how that works as a supplemental hedge. Does very nicely. Kind of disaster protection, as the backratio will of course have unliimited profits once it's in the money. Having it this time was an experiment, but I'll be doing it deliberately in the future.
Not much to post since this sideways price action started. Every day that passes with the market generally going nowhere decreases my risk. I'm a little nervous about a sudden downside move so I may put on a hedge in that direction. Just in case.
My June ICs are safe barring a nuclear war. The July NDX short put at 2725 just exceeded my 20 delta threshold intraday. So I wait and try to roll down the put side on Monday. July RUT doesn't require any action yet.
I was able to roll the put side of the July NDX IV down from 2725/2700 to 2575/2550. Bought some breathing room for the next 3 weeks. I had mentioned buying a cheap OTM put as a hedge on the down side but never did it. When the market was moving back up I no longer felt the need to "do something" which was very shortsighted.