Unsurprisingly, Fed increased interest rates yesterday, which predictably pushed equity markets down. My short position on S&P500 (#288) closed in profit. Trade date: 31 October 2022 Security: ES Price at opening: 3,884.0 Structure: AtM/OtM Call Credit Spread Expiry date: 04 November 2022 Strikes: 3885 / 3940 Opening Spread: 23.00 Close date: 02 November 2022 Trade duration: 2 Closing spread: 5.50 Profit / (Loss): 17.50 Profit / (Loss): 54.7%
I use Kelley, calculated on actual trades so VaR% changes dynamically per performance. Currently, its ranging from 0.8% to 18% for different strategies/structures. I don't trust the 18% - particularly when I'm opening positions with similar exposure (e.g. short ES, AND RUT) so will limit exposure to 10% for that one, but I'll be putting orders in later today with c.6% and c.8% VaR. I would welcome your views on position size and VaR if you are happy to share.
Directional swing trade orders filled earlier today. Trade date: 03 November 2022 Security: ES Price at opening: 3,738.0 Structure: AtM/OtM Call Credit Spread Expiry date: 09 November 2022 Strikes: 3735 / 3785 Opening Spread: 21.00 Trade date: 03 November 2022 Security: NQ Price at opening: 10,789.0 Structure: OtM Call Credit Spread Expiry date: 09 November 2022 Strikes: 11120 / 11200 Opening Spread: 19.63 Trade date: 03 November 2022 Security: RUT Price at opening: 1,783.0 Structure: ItM/AtM Put Debit Spread Expiry date: 11 November 2022 Strikes: 1780 / 1820 Opening Spread: 21.63
It was a fairly lively opening, with this moving from profit into loss before closing orders filled in profit earlier in the session, after opening yesterday. Trade date: 03 November 2022 Security: NQ Price at opening: 10,789.0 Structure: OtM Call Credit Spread Expiry date: 09 November 2022 Strikes: 11120 / 11200 Opening Spread: 19.63 Close date: 04 November 2022 Trade duration: 1 Closing spread: 8.00 Profit / (Loss): 11.63 Profit / (Loss): 19.3%
US indices have risen slightly since Thursday so the outstanding positions are underwater, but I don't have a strong conviction to close. And saw a chance to profit from NQ with a fly to partially offset expected losses with this: Trade date: 08 November 2022 Security: NQ Price at opening: 11,077.1 Implied Vol 43.8% Direction: Put Expiry date: 11 November 2022 Strikes: 10725 / 11075 / 11425 Structure: 1 / 2 / 1 Opening Spread: 95.00
Strategy question: Do you mostly make your money from harvesting excess volatility risk premium, or are you just good in estimating direction/path? (and thus would have similar results if hypothetical excess vol risk premium didn't exist)
Good question @trade4succes The answer is not binary. I looked at volatility in some detail some time ago and couldn't find a bankable edge that I could exploit from trading volatility alone (*). My directional calls generally seem to be pretty good - although not so much this week! My strategies / methodologies: Directional (swing) trades ising vertical spreads further away from AtM are more purely directional, and relative volatility doesn't have a huge impact where possible - depending on skew etc - I bring the short side in closer to AtM to harvest gains from excess volatility risk premium, as you put it. the body for Butterflies can be far OtM or closer to AtM for similar reasons and also depending on my estimated / target return Calendars are much more dependent on Vol movement and there would be little point in trading them without exploiting the relative impact of IV across respective expiration terms. (*) Outside of this journal I do a couple of other things, including a 'no brainer' momentum strategy on individual equities to participate in changes in volatility over a month or two, which makes a useful profit vs the work involved but is not a particularly interesting discussion to put on a forum. Do you trade similarly? I would welcome your thoughts.
Unusual situation for me today. I want to turn around short directional trades (#294). The ES position expires today. At c.45 it has only 5 points downside if ES rallies. If ES falls, there is potential upside in the trade. Out of character for me but I'm watching the intraday chart! Escaped with a small loos on the Russell 2000 trade and nursing a near total loss on ES. Trade date: 03 November 2022 Security: RUT Price at opening: 1,783.0 Structure: ItM/AtM Put Debit Spread Expiry date: 11 November 2022 Strikes: 1780 / 1820 Opening Spread: 21.63 Close date: 09 November 2022 Trade duration: 6 Closing spread: 19.73 Profit / (Loss): -1.90 Profit / (Loss): -8.8%
Turned around Russell 2000 and added Nasdaq long directional positions. Trade date: 09 November 2022 Security: RUT Price at opening: 1,796.0 Structure: ItM/AtM Call Debit Spread Expiry date: 16 November 2022 Strikes: 1760 / 1795 Opening Spread: 19.59 Trade date: 09 November 2022 Security: NQ Price at opening: 10,943.0 Structure: OtM Put Credit Spread Expiry date: 16 November 2022 Strikes: 10510 / 10600 Opening Spread: 20.75 The (perhaps disturbingly) attentive will note that this is potenially contra to the fly (#296) so we'll see how they turn out as the AtM fly expiring a couple of days before this vertical spread are not necessarily exclusive, and Nasdaq staying between 10,600 and 11,300 would allow both to close profitably.