Trading with Krugman

Discussion in 'Journals' started by krugman25, Jan 5, 2019.

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  1. I trade stocks, futures, options, futures options. My current strategy is 3 pronged: Options selling, candlestick and price pattern trading, and high-yielding dividend stock buy-and-hold.

    My 2019 resolution was to start a blog and begin tracking my overall portfolio as well as each of my strategies. I did start my blog www.tradingwithkrugman.com on January 1st (good start to my new years resolution!). I plan on running my blog in parallel with this thread.

    Hopefully there is something interesting here for my fellow traders.
     
    Last edited: Jan 5, 2019
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  2. A First Look

    Without further ado, let’s take a look at my trading account to get a baseline where my positions currently sit.

    [​IMG]
    Account Overview

    I currently have 2 long stock positions in ABBV and MMP. These are long-term buy and hold positions that have a high dividend yield. On my ABBV position I am selling covered calls for additional yield. A 30 delta call with 60 days to expiration is currently yielding 2%.

    I also have 2 short straddles in QQQ and XLE that are currently inverted with 45 DTE. Those were straddles that I sold during the big selloff in December but I was forced to quickly roll them out in time and roll the calls down into inversion to protect myself. The big post Christmas rally has placed the positions in better equilibrium, but the situation was getting a bit hairy in that last week of Christmas.



    QQQ Core Portfolio Position

    Today I wanted to take a look at my QQQ options position which is the core position of my portfolio. What I mean by “core” is that this is where the bulk of my positive theta is coming from and also the position that I use if I want to adjust my portfolio beta-weighted delta’s.

    [​IMG]
    QQQ Options P&L Curve

    The graphic above show’s an inverted strangle (156 put/152 call) with an extra naked short call (161 strike) as a negative delta kicker. This is a 42 DTE position. Maximum profitability falls between 152 and 156 with $1,475 of credit. Breakeven is 137.50 and 166. The maximum potential credit would be about 8% gain to my overall portfolio. That is a huge gain when you consider this is for a position that will expire in just over 1 month. Also consider that this is not my only short premium position as I also have covered calls on ABBV and a straddle in XLE. Maximum potential profit on all of my current positions is around 15% in just 42 days.

    [​IMG]
    Chart of QQQ Position Break-Even’s

    I am not trying to count profits that I don’t yet have but rather taking the opportunity to show how profitable option selling can be. In the real world these positions will not always expire at max profit and may require defending which even result in a short-term loss.

    One key component of this position is that it is generating $20 in daily theta decay. The other is that it is generating almost -40 beta-weighted delta’s. That is important because in my previous blog post I had mentioned that I wanted a portfolio closer to delta neutral, especially while market volatility is as high as it has been. My QQQ position is doing just that as it is generating about 90% of my portfolio’s negative delta’s.

    This position will likely remain in place until volatility drops too low. In which case I will switch from dynamic delta’s(via short options) to static delta’s (short QQQ directly). This position may become “less core” as I add on more short premium positions down the road, but it will likely continue to be the dial that I turn to get my delta’s adjusted just the way I want.
     
    Last edited: Jan 5, 2019
  3. MACD

    MACD

    Your approach and first post to ET are of Interest. Welcome. Checked out your blog and it is well designed. Will follow. Thanks
     
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  4. qlai

    qlai

    You don't have an email subscribe option?
     
  5. It was just added
     
    Last edited: Jan 5, 2019
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  6. vanzandt

    vanzandt

    I read your blog post about Apple, and I totally agree. Stocks that make new lows tend to make more new lows. Apple really surprised me yesterday in that it went up so much. (stung actually)
    I still think it see's the $130's but who knows, if there really is a PPT of some form, that would be the one to save. It seems Apple has become the surrogate for the entire American economy for god sakes, and every index and every pension and every hedge fund and every other form of professional money management owns the damn stock. Effing stupid.

    Welcome. Look forward to your insights.
     
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  7. qlai

    qlai

    I don't know about PPT, but the big boys who got stung have enough money to push the stock up to get out of it at a better prices. Given the market is putting a V shaped bounce, I would not be surprised for AAPL to close that gap before it goes lower.
     
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  8. Thank you.

    There are a number of academic papers on this topic. There is a paper by Poterba and Summers that shows in the short term price tends to move with short term momentum but in the long term price is mean reverting.

    https://www.nber.org/papers/w2343

    In this Abstract Applications segment on TastyTrade Dr. Jim discusses a number of papers on the topic and the conclusions he has come to.

    https://www.tastytrade.com/tt/shows...ions/episodes/price-mean-reversion-12-10-2018

    I normally sell straddles after a post earnings plunge. After doing a few of those the day after, I began experiencing the post plunge drift. After the drop, often times price would be flat or even pop but sure enough within a week or two my short put was being tested already. There are always exceptions but it seems like the majority will drift or experience a second large drop.

    I don't have enough data under my belt to suggest a specific number, but I am thinking about 5 days after the post earnings crash is about the right time.
     
    Last edited: Jan 5, 2019
  9. sle

    sle

    You added a short option to flatten your delta? That's an interesting approach.
     
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  10. Yes. If volatility is low then I will short the stock and get statically short delta's since there is not much premium to be had with a short call. If volatility is high, as it is right now, I add dynamically short delta's via options. That way I get both short delta's and a juicy premium.

    I also may create a synthetically short position, with a long call/short put, if there is call skew (for example in gold or oil). That allows me to get synthetically short the stock and also pick up a little premium. The best of both worlds.
     
    Last edited: Jan 5, 2019
    #10     Jan 5, 2019
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