Closed a few positions today after the market moved in my favor (for the most part): AAPL for .24. $306 debit. 16% gain GS for .15. $198 debit. 18% gain PM is getting most of my attention today. I gave very serious consideration to sitting that out for the yesterday and waiting to sell a 109-110 spread; that or find another symbol. But didn't. Now we're sitting at tomorrow morning's soft stop price on the underlying, and at the very strong $110 resistance. I'll let this keep testing the resistance for today and decide how to proceed within the next hour or so. These are the really frustrating ones where your strategy says one thing, the chart says another, and the week's profit hinges on the decision. Beyond that, the tobacco stocks and PM look very much ready for a reversal with clear patterns showing on MO and BTI. PM isn't mirroring the pattern, but is bouncing off the resistance. JNJ, PM, and SPX (hedge) still open.
Quick note here, I should get into what I mean by "soft" vs "hard" stops. My hard stop is based on the option price and is just the point at which I scream uncle (generally around 2.5x the credit); but if I blow way past it on a gap, I'll often hold because the position gets very near maximum loss anyway. Soft stops are based on the price of the underlying, it's a range, and it's subjective to be informed by chart patterns. The soft stop will move up towards the top (short) strike less 2x the opening credit (for PM, $111 is top strike on a .29 credit means the Friday afternoon stop would be $110.42). And it's based on the spread moving entirely through that level--when the market maker's side of the BxA spread moves under the stop. Well, feeling mixed on my PM decision. It's just above today's closing soft stop, and just below tomorrow's (theoretical) opening soft stop. The volatility today favored the long side, and actually pushed the stop range to straddle the long strike. Because this coincided with the strong $110 resistance, the subjective read says hold. On the close (110.19) the soft stop range was about 110.05-110.15. So, if we looks at this from the 'is this a good trade?' point of view, the answer is yes; from the 'is this good risk management?' point of view, the answer is not really, but mitigated by strong patterns on tobacco generally, PM specifically (in particular, the 15 min chart looks very much to have rounded the bottom). So, I'll pretty much be looking for a gap up (or a quick move in the first 15 mins while liquidity narrows the spread). I suspect the soft stop will move quickly towards 110.30 early tomorrow and likely overtake the price. Given JNJ's chart pattern, I cannot imagine holding it past tomorrow, and I suspect I'll close before 10am. A 0.10 closing debit would give handsome profits here, and I'd be happy with that even in the illiquid opening minutes. SPX is killing me, but that's the point. I'm on the fence about letting this one ride or recovering a few pennies from it. If PM turns the corner, I'll probably ride it out...if I dump PM in a hurry tomorrow, I'll suspect I'll recover whatever little value is left on SPX.
So, JNJ was closed for $313 debit which gives a 25% gain (now that I'm actually at my computer rather than phone). PM is looking good, and after it's volatility increased, it has a lot left to give up in premium (it's now flat even though it's half way through its life). And for my reference on the new page:
And out of PM for .12 debit. $318 for a 20% gain. The SPX is all but certain to be a total loss and just isn't worth enough to close (and who knows, maybe we'll tank 2% tomorrow), so I'll go ahead and zero that out as a loss today for the purposes of here so I can recap the week. $10,000 account starting balance with $9,154 at risk. 8x SPX 2500-2510 for 1.10 debit - open -$893 ($893 at risk) - close $0 ($893 loss - 100%) 12x AAPL 150-152.50 for .63 credit - open $739 ($2,261 at rusk) - close $306 ($433 gain - 19%) 12x GS 235-237.50 for .59 credit - Open $727 ($2,273 at risk) - close $198 ($529 gain - 23%) 28x JNJ 130-131 for .30 credit - Open $806 ($1,994 at risk) - close $313 ($493 gain - 25%) 24x PM $110-111 for .29 credit - Open $667 ($1,733 at risk) - close $313 ($354 gain - 20% gain) In total: At risk - $9,154 Gains - $1,809 Losses - $893 Net - $916 - 10% gain New A/C balance $10,916. But, next week's positions not to exceed $10,000 at risk because the strategy is a loser if aggressively compounded--risk needs to be kept level from one week to the next. I'll see if I can't do a full post detailing this process because it's a huge risk and one that certainly merits it's own post. Also, previously I gave bad figures for the AAPL and GS realized gains--I calculated the percentage based on the whole spread (instead of spread minus credit). Numbers above are accurate, these weren't:
New positions for the 10/13 expiry: 8x SPX 2510-2525 (hedge) for 1.10 debit - $894 28x JPM 95.50-96.50 for .29 credit - $779 credit ($2,021 at risk) 12x AMZN 970-972.50 for .90 credit - $1,063 credit ($1,937 at risk) 28x DAL 50-51 for .29 credit - $779 credit ($2,021 at risk) ...still looking for one more fill. Having quite a bit of difficulty finding it. (Looking at PM, BUD, IBM, CAT...)
And 10x BA 252.50-255 for .60 credit - $585 ($1,900 at risk) 28x BUD 121-122 for .30 credit - $806 ($1,994 at risk) All positions (all put spreads, all 10/13 expiry): 8x SPX 2510-2525 (hedge) for 1.10 debit - $894 12x AMZN 970-972.50 for .90 credit - $1,063 credit ($1,937 at risk) 10x BA 252.50-255 for .60 credit - $585 ($1,900 at risk) 28x BUD 121-122 for .30 credit - $806 ($1,994 at risk) 28x DAL 50-51 for .29 credit - $779 credit ($2,021 at risk) 28x JPM 95.50-96.50 for .29 credit - $779 credit ($2,021 at risk) Totals: Total Credits: $4,012 Total At Risk: $9,891 Max expected loss: $2,967 Target profit: $1,800 Playing it a bit closer to the money this week with fully 29% of the spreads recovered in premiums (vs. just over 18% last week). Also getting a little more time premium in there. Picked up some VIX calls on a ratio spread (11/15 expiry - 4x 9.50 short, 8x 11 long. $1 net debit). They just provide a bit of systemic news risk protection.
FML...wrong week on my calendar! Both JPM and DAL have earnings releases next week. No wonder those premiums looked so good. I'll see if I can't pick a few pennies off of them before the release.