I’m back! …

Posted by: Admin: "The Vol_Trader"  //  Category: Uncategorized

Hello again friends, I’m back.

As I mentioned in my last blog post in October, 2010, I’ve been very busy with two new projects recently. I’ll tell you about them in a bit.

As my regular readers know I usually prefer to trade bearish. Well, I picked a good 5 months to start my new businesses and not trade as the market has been going straight up since December, until now.

I like to use exponential moving average cross overs on daily and weekly charts of the S&P futures in order to guess (predict?) general market direction. As you can see below the 5 day moving average has been above the 20 day moving average since December. (Click any picture to make larger)

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Interestingly, you can also see above, in the November – December pull back the 5 day MA never went far below the 20 day.  The recent pull back is much more severe with the 5 day well below the 20.

Monday I decided to get a little short delta and long Vega. Good timing considering Tuesday’s big decline. I put on an OEX May back ratio spread: short 10 May 580 puts, long 20 May 540 puts for a net credit of $3.35 per one by two spread. The P&L looks like this as of today:

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I’m already out of most of this. From 20:10 to 6:3 left. I sold portions for credits of $2.80 and $1.80. My remaining 6:3 is bid at $0.25 and I have an order to get out of the rest at $0.05. Net profit so far is $1,585. Not bad for two days.

Going forward if the market decline continues will be looking for more OEX spread and some individual equities.  I’ll keep you posted.

AND NOW, FOR MY NEW BUSINESSES:

The first business is up and running with new clients already. in April 2010 I decided I wanted my podiatry practice to be at the top of the Google Maps Search. Along with a web developer friend of mine we worked and worked and got me there.

I started seeing new patients right away. A year later, I’m up to about ten new patients a week from it. It worked so well, we decided to start a business to help get other businesses to the top of the local search engine results pages. Check out our site: www.bestmarketingnyc.com and try it for yourself. We are currently accepting new clients. We offer two months for free with a commitment to pay for just the third month and then it is month to month. If not happy, quit the service at any time. Feel free to ask any questions and contact me at bestmarketingnyc@gmail.com

The second new business is a topical medical for nail fungus. Being a podiatrist, I’ve tried every topical medication for nail fungus on the market with my patients. None worked that great so I set out to make my own. I took all the active and inactive ingredients that I thought worked best from other products and formulated my own medicine. I’ve tried it on dozens of patients, and while it doesn’t work for everyone, it worked on many more patients than anything else I’ve tried. I’ve also used it for non-fungal nail problems and it works there too. The medicine is made and I’m just waiting on my web site to be finished and the labels and packaging to be finished at the printer. Any day now… I’ll post the website here when it’s done!

Thanks for reading and I look forward to getting back to trading and sharing all my trades with you.

See you soon, Lawrence

ASML update

Posted by: Admin: "The Vol_Trader"  //  Category: Uncategorized

On 6/17/2010 I put on two diagonal spreads in ASML.  (Click here to see the original post.)

Unfortunately, I put on the post right at the bottom price for the day.  Subsequently, ASML moved up the next two days to a high of $31.41 and past our upside breakeven point.  I didn’t like this large upside risk so I decided to limit it. 

In order to limit upside risk I decided to buy some Jul calls.  I choose to buy ten $32.50 calls for $0.45 and twenty five $35 calls for $0.10 (Total $700).

These cheap calls give me excellent protection in the face of a big rally.  In hindsight, they would have been even cheaper had I bought them when I placed the initial trade, but I’m okay with spending money for good protection.

These long calls will allow me to exit the trade at my breakeven with a substantially smaller loss while still allowing me good profit to the downside, i.e. cheap insurance.

The new P&L chart looks like this: (click any picture to enlarge)

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At the current IV, if I stop out at $32 I’ll lose around $800.  Prior to buying the calls the same trade would lose $1,800.  That’s good use of cheap insurance in my opinion.

Additional note: Although I am okay with losing the entire premium in my long calls for protection, as the market goes down my long calls will benefit from being long Vega.  This will allow them to maintain some premium and I’ll take them off as I take off my diagonals and don’t need them for protection any more.  Small amounts of money in question, but every little bit helps.

(This is not a trade recommendation, it’s for education only.)

APC update – profitable diagonal spread

Posted by: Admin: "The Vol_Trader"  //  Category: Uncategorized

APC is down an additional $1.30 today.  I just took off an additional 5 contracts for a credit of $2.90.  Yesterday I took off 10 contracts for a credit of $2.80.

This is a good example of how I exit this type of trade.  It’s very tempting to look at the profit at expiration and leave these trades on when they are working in your favor but I’m sure a lot of you can relate to the frustration when the trade goes your way early and then closer to expiration moves away from the short strike erasing profits or even turning a winning trade into a loser.  Trust me, I know that feeling way too well.  I’ve become good at removing these trades in pieces and taking smaller profits.  If you’re beginning and only trading one lots, I’d recommend taking the whole trade off for profits when you can, or if you can tolerate the additional risk, trade two lots, and taking half off for profits.

Below is the current P&L for this APC trade.  I still have 5 contracts open and have entered a limit order to sell them for a credit of $3.05. (Click to enlarge)

You can see the underlying is below the short strike… time to get out.

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As I was publishing this post, the remaining 5 contracts executed, sold for a $3.05 credit.

Summary: bought 20 spreads at $2.35 on 6/7/2010.  Sold 20 contracts 6/8 and 6/9/2010 for average of $2.905. $0.555 x 2000  = $1,110 profit on margin requirement of $1,500 (portfolio margin at Thinkorswim).  My calculations show that’s a 74% gain.  Not too shabby for two days.

Skew trade in APC

Posted by: Admin: "The Vol_Trader"  //  Category: Uncategorized

Today I was scanning for  “exploding IV30’s’” in LiveVol Pro and came across APC, Anadarko Petroleum.  Headlines said that they were being investigated in their involvement in the BP oil spill causing IV to increase.  You can see the Skew chart below showing the Jun options inflated over the back months and a pretty steep horizontal skew as well. (Click any picture to enlarge).

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You can see in the below chart of front and back month IV that the IV spiked and is now trending down for both front and back months.

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With the underlying trading at $45.44 I bought a diagonal spread: +20 Jul $45 puts (65% IV) / –20 Jun $42.50 puts (79% IV).

Trade Logic: I’m taking advantage of both horizontal and vertical skew by buying back month lower IV and  selling front month higher IV, and also selling lower strike puts with higher IV.

The Thinkorswim Analyze tab looks like this:

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After my entry APC closed down a little today to give a small profit in the trade.  Interestingly, you can see in the above picture that had the underlying not moved all from my entry at $45.44, the white line is above the breakeven line indicating that the volatility differential has closed a bit between back and front months allowing some profit (helped by just a tiny bit of theta).

Exit strategy: I’ll stop out on the upside if APC goes above $47ish.  I’ll take small profits one spread at a time as either the underlying goes down or Theta / Vega work in my favor.  Stay tuned

*note: No posts are trade recommendation and merely for education and entertainment.

Guest blog post

Posted by: Admin: "The Vol_Trader"  //  Category: Uncategorized

Hello traders,

Today, I’m very pleased and honored to announce that I’ve been asked to post a guest blog-post to Mark Sebastian’s blog:  http://www.option911.com

I’ve been a long time reader of option911.  I have tremendous respect for Mark as a trader, teacher and a good friend.

So, check out http://www.option911.com and I’ll see you back here soon.

Lawrence

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