Thoughts to start the day: 2 weeks ago I was wondering if the market was ever going to stop dropping. Today I am wondering if it is every going to stop rising. 10% swings every couple weeks is doing me no favors. None-the-less, stick to the plan.
That was a great call btw Qlai. Apple certainly has made an effort to back-fill that gap. I appreciate that insight.
Note to self: ABBV options markets are way too thin. Find a more liquid proxy or double check that corr. to QQQ's are high enough.
Cleaning House I did some house cleaning this week in more ways than 1. First I removed a covered call in ABBV due to a low liquidity options market with huge spreads. The next thing I did was implement a few new strategy rules in my never ending conquest to reduce risk and improve performance. Finally I sold part of my ABBV buy-and-hold position because it was far too large for my account size. A cleaner portfolio The Week Behind Overall my portfolio held out much better this week than I expected. Even through holding negative delta's all week and the markets constant rallying, I was able to end the week at 1% profit. This is not the blowout week I was hoping to have but it is not the massacre that a short premium portfolio like mine could/should have had. Tough being a short premium trader this month Many people over complexify options. At the end of the day options sellers are making money due to IV regularly overstating RV. This is similar to how insurance companies profit, because they regularly take in more in premium(IV) than they pay out in claims(RV). The next article sums it all up pretty well. In 30 days time we had the worst December and worst Christmas Eve in history with the Nasdaq selling off over 20% from it's highs. Followed by the strongest comeback in 10 years. YahooFinance article today Cleaning House As I mentioned at the beginning of the article, this was a week of house cleaning. First let me remind everyone that this is my first attempt at this type of portfolio. One that implements buy-and-hold, options selling and price-action trading. This portfolio is rough around the edge but I am tiding things up as I go along. One of the first things I wanted to do is to ensure going forward that all of my options are in a liquid market. Unfortunately ABBV does not fit that bill. The answer was simply to close my covered call and rely on short delta's from my QQQ's position to provide some covered call effect. This was also a week where I looked at my strategy and thoughts about any new rules that might help moving forward. One of the rules I decided on was to ensure no single buy-and-hold position took up more than 10% of my account balance. I will be injecting my account with some more capital next month, so for right now this rule is being violated, but will naturally correct itself next month. Even after the added capital my ABBV position was still going too be to large so I cut it in half, from about $10,000 to around $5,000. The Week Ahead While I was able to stay green throughout the rallying this week, that will not be the case next week if the rallying continues. The delta's in the position are getting increasingly negative (-43 as of this post), my gamma is increasing, and a lot of volatility has been sucked out of these options, not giving me a lot of buffer from contracting vega. I would like to believe that the market is due for at least a small pullback, but I also know the market will do whatever it wants. It may decide to rally another 12% next week, who knows. With that in mind I am going to simply stick to the rules and stay mechanical. That means my QQQ position will be rolled up(in strikes) and out(in time) if price reaches my break-even at around 166. If this does occur then my P&L will likely be a few percent red on the year. Price is nearing my short QQQ positions break even On a final note, I am still glad to have negative delta's in place for now because I know how quickly markets change. All it would take is one materially down day and those negative delta's quickly become positive.
Don't insurance companies use reinsurance companies? How is this done in finance? GS offloads risk to "Muppets?" I agree, but this week's price action feels like market is expecting good news soon. Roll'em up (Who the f@#$ asked for my opinion!?)
I don't know, I am just one of the shlubs paying the premium, haha I am feeling the same way. From a technical standpoint there is a rising triangle on the hourly charts with bullish implications. There is also a rising wedge and overhead resistance with some bearish implications. I call these situations "dueling patterns" **queue the banjo's**. If the rising triangle breaks out and up I may very well find myself rolling and adding another month to this darned position. Oh well, not too bad of an outcome for one of the largest selloffs, followed by the largest rally's in a decade. Everyone looks like a pro until the tide rolls out. I was just hoping I could get some good positive P&L in the account before the tide rolled out, but this one wanted to start on day 1.
Krugman25, Interesting thread and well done for having the balls to be transparent about your trading. Will you be posting your real returns on the blog? 1. What kind of annual returns are you hoping to achieve for this strategy? Since you are all about picking up premium it shouldn't be a silly question. 2. However, if you answer with a figure higher than 30% per annum then I'll lose all respect and immediately unfollow the thread. On the other hand, it seems like a bad trade to put in so much hard work for only a $5,000 gain? 3. With the amount of trading and the products you're trading I can't see how transaction costs (especially spread) won't kill you. 4. How did you perform or how would you have performed during last February's Vixplosion event? Cheers and good luck, Nomad.
Some of these questions you asked are answered in my intro video and previous posts so watch and read those if you haven't already. My ultimate goal is to outperform the general markets on both an absolute and risk-adjusted basis. I am not sure where you got the impression that I have high trade volume? I make 0-4ish trades a week with a low cost broker. My broker only charges on opening a trade, not closing. This week I made 2 trades, both closes, so there were no broker fees. VIX was higher in December than in February, and price moved further on a relative basis, so I would consider that the worse of the two. I am up 1% on the year and down 0.5% since the mid December crash. I don't sell premium when IVR is low so I am often not in a short premium position when these events start. I jump in after they start and vol has spiked. Overall I expect to come out better than a long stock position. The reason being is that my short premium will have about 1/3 to 1/2 of the delta's of long stock and eventually the theta decay lowers cost basis even further. Keep in mind I am not just selling premium. I am also long buy-and-hold stocks and price action trading, both being directional plays.