Turning Silver into $$: Shortie's Hedge Fund Trades SLV Option Spreads

Discussion in 'Journals' started by shortie, May 23, 2011.

  1. This is a two-month project aiming to sell volatility in SLV. Right now the plan is to sell the front month and/or weekly vertical spreads on SLV catching SLV price oscillations. Some or all of the spread will eventually be converted to Iron Condors and Iron Butterflies.
  2. [​IMG]

    Entered my first position today.
  3. The Plan.

    I. Assumptions:
    1. SLV will exhibit mean-reverting properties
    2. I will be able to capture some of the turns to leg into Iron Condors (Butterflies) at favorable price levels
    3. Implied volatility will go down in the next few months, hence, selling volatility will add profit to the good entry points above

    II. Money/Risk Management

    1. Have a pre-set amount of capital to utilize in the strategy (can't be exceeded under any circumstances)
    2. Have a pre-set maximum amount of risk (can't be exceeded under any circumstances)
    3. Attempt to maximize the use of capital. The capital has to be working so I will try aim at reasonable number of entries. There is a trade-off between the frequency of trades and the quality of entries so they must be reasonably balanced.

    III. How

    I want have simple rules that control capital allocation and risk. These are the simple rules I have come up with. They are not perfect but good enough not to lose track of the position size/risk.

    Split capital into 12 units. 5 units is the max exposure to one side (Long or Short) at any given time. Right now I have 1 unit Short.

    I try to enter the vertical spread units that are similar to the one in play right now. Per unit I get ~0.90 credit and the risk is ~1.10 (diff between strikes - credit). So I risk 3.1% to make 2.5%.

    I can approximate the risk by subtracting the total Long and Short units because the credit on Short essentially covers the risk on the Long and vice versa. This appears to be not perfect but close enough for me and easy to keep track of.
  4. added 2nd Unit Short here ~36.77
    SLV +7% in 2 days but the beast may run up further so i am not in rush to load up on Shorts
  5. I will add another rule: not to enter more than 2 Units in one direction in a single day. This is not a hard rule so I might violate it occasionally if we get an extreme price move (max 3 Units/day - is the hard rule).

    It is good to pace oneself while attempting to stop the runaway train.

    Shortie "The Philosopher" Out :cool:
  6. not much changed in position P&L by EOD
  7. added 1 Long Unit ~36.
    total Units: 2S, 1L. PL has improved to ~ breakeven
    Looks good so far. I moving rapidly towards building my full position of 12 Units without exposing myself too much to one side
  8. no trades on Friday. Unrealized PL -19 as SLV went up 1.4%
    Summary of SLV level entries:
    35.72 - Short 1 U
    36.76 - Short 1 U
    36 - Long 1 U

    I would like to be able to enter >=1 Unit per day. Hopefully SLV will provide enough volatility for me to do that.
  9. did not get a fill on another Short Unit around 37.6
    PL -19 > -29 as SLV moved +1.5% today.
  10. Added two Long Units: ~36.4 and ~35.7. Too bad was too early on the 1st entry, the drop was something!
    2 U Short
    3 U Long
    PL: ~ b/e
    #10     Jun 1, 2011