Options Mentoring

[wayneL]

I bailed from my IC position at the close today, that was one wild ride.

I don't want to divulge my exact positions, but it won't be too hard to figure out. It all started on 16th July with a fly @ 930 sold strikes on ES.
Adding additional flies morphed it to a condor with 955 mid point.
Morphed to a BWB with sold strikes @ 980
Morphed to a straight fly @ 980
Morphed to IC with mid point @ 1005
Had some 950 put calenders at one point that I could have added to if necessary.
I also added a little bit of size as I went along.
Exited today with the market at 1005ish.

Escaped with a nett profit of about 1/3 of the original Iron Fly credit (normal goal is 50% of original fly credit) and considering where we started from, I'm as happy as a pig in mud.

These were all low prob spreads with the full intention of adjusting morphing as we went along.

This cycle was an awesome test of the low prob philosophy. It works.

High prob ICs would have been a nightmare during this cycle IMO.

FWIW

 

[mazzatelli]

Awesome...You are the master!!!
Thank you for sharing

BUT you initiated the fly on my b'day so in reality you were divinely blessed

I only took first order vol bets on indicies last month. Was too chicken to initiate any short index gamma

 

[mazzatelli]

Let's play CSI :cowboy:
These are assumptions - not Wayne's actual position

It all started on 16th July with a fly @ 930 sold strikes on ES.

Assuming 50 point fly [880/930/980] ~ $36.00 credit

Adding additional flies morphed it to a condor with 955 mid point.

Added 930/980/1030 fly

Morphed to a BWB with sold strikes @ 980

Sell 880/930/980 BWB [-1/+3/-2]
Becomes 930/980/1030 BWB [+2/-3/+1]

Morphed to a straight fly @ 980

Up on embedded vertical in BWB
Bought back 930/980 Bull put
Becomes straight fly [930/980/1030]

Morphed to IC with mid point @ 1005

Long the 980/1030/1080 fly

Had some 950 put calenders at one point that I could have added to if necessary.
I also added a little bit of size as I went along.
Exited today with the market at 1005ish.

I like it

 

[wayneL]

Pretty close.

The exact trades don't matter. It was the concept I was trying show... how one can go about collecting premium without trying to write strikes ten million standard deviations away from the action; how you can write much closer to the action and shift the goal posts as you go along.

The side benefit is that in the event of a bona-fide black swan overnight move, the total dollar risk is significantly lower than a high prob IC.

The downside is the cost, in terms of contest risk and locking in delta losses, of the frequent adjustments. Effectively, it's gamma scalping in reverse. Understand that that is what it is and it helps with the timing of adjustments.

In other words, try to minimize the amount of deltas that are manufactured, and allow sister theta to do her job without gamma butting in and spoiling the show.

 

[sails]

Well done with your trade, Wayne. It's definitely my favourite style of options trading - low risk with with lots of morphing as the market gives opportunity.

However, contest risk makes it a useless exercise in the Oz options market - any profits are so often exceeded by slippage and fees. No one has ever yet convinced me that the Oz option market makers don't want customers except for the new suckers who will pay their prices.

Mazza - yeah it's good to be back and to get some time out for me. Though, it will be somewhat intermittent for a while yet...

 

[wayneL]

However, contest risk makes it a useless exercise in the Oz options market - any profits are so often exceeded by slippage and fees. No one has ever yet convinced me that the Oz option market makers don't want customers except for the new suckers who will pay their prices.

This is something I cannot figure out about the Oz options market... self defeating numpties I reckon (though I'm sure they rake in the dough).

Two other things inhibit liquidity (IMO)

Too many strikes, spreading the OI out too thinly
The 1000 share contract size

 

[cutz]

However, contest risk makes it a useless exercise in the Oz options market - any profits are so often exceeded by slippage and fees. No one has ever yet convinced me that the Oz option market makers don't want customers except for the new suckers who will pay their prices.

G'Day sails welcome back,

Yeah that's me playing around with MQG options, they see me coming a mile away.

On a serious note XJO aren't too bad, they're my main play at the moment but it's been a challenging month, managed to collect premium moving put verticals up several times as the market ploughed higher but i also left some lottery tickets on the table, (i.e only partially closing out the wings) the other side of the coin is i'm stuck in the valley of a call backspread which i unfortunately flattened out a little early last week perhaps prematurely.

Anyway it should be interesting to see how next week pans out.

 

[sails]

This is something I cannot figure out about the Oz options market... self defeating numpties I reckon (though I'm sure they rake in the dough).

Two other things inhibit liquidity (IMO)

Too many strikes, spreading the OI out too thinly
The 1000 share contract size

I am concerned if they drop the contract size down to 100, both brokers and ASX will use it increase their revenues somehow.

 

[Grinder]

http://www.sfomag.com/article.aspx?ID=1260

WayneL: The Supertrader of Index flys.

I bailed from my IC position at the close today, that was one wild ride.

I don't want to divulge my exact positions, but it won't be too hard to figure out. It all started on 16th July with a fly @ 930 sold strikes on ES.
Adding additional flies morphed it to a condor with 955 mid point.
Morphed to a BWB with sold strikes @ 980
Morphed to a straight fly @ 980
Morphed to IC with mid point @ 1005
Had some 950 put calenders at one point that I could have added to if necessary.
I also added a little bit of size as I went along.
Exited today with the market at 1005ish.

Escaped with a nett profit of about 1/3 of the original Iron Fly credit (normal goal is 50% of original fly credit) and considering where we started from, I'm as happy as a pig in mud.

These were all low prob spreads with the full intention of adjusting morphing as we went along.

This cycle was an awesome test of the low prob philosophy. It works.

High prob ICs would have been a nightmare during this cycle IMO.

FWIW

nicely done.

 

[wayneL]

http://www.sfomag.com/article.aspx?ID=1260

Cool

Obviously a different approach, but 100% agree with the general philosophy.

Thanks for the article.

 

[wayneL]

With the SP futs down about 20 points, I have some thoughts in the third person:

wayneL is extremely happy to have jagged an excellent exit at Friday close.

wayneL is extremely happy to have dodged the Gamma Monster that is coming out to play today.

wayneL was thinking of legging in this time, with something +vega -delta to start with.

wayneL thought there is no hurry, he'll do it on Monday.

wayneL is kicking himself.

wayneL would be about 20k up if he had taken the position he was looking at.

But wayneL consoles himself with the fact it could have gone the other way.

wayneL shivers.

wayneL reconsiders the wisdom of legging in to =delta spreads.

LOL

 

[Grinder]

know how ya feel, been there many times myself. Have been waiting patiently with my time spreads for a vega storm for what felt like an eternity, to finally close em out... only to see the storm on the horizon Fortuntely have held onto a few DDs.

I sooo want to leg in, but Mr market seems to know that & thats what keeps me from doing it.

have a few beers and it will all miracously disappear.

 

[mazzatelli]

mazzatelli experienced excrutiating pain and anxiety Wed, Thurs and Fri last week as SPX danced near 1,015.

With the SP futs down about 20 points, I have some thoughts in the third person:

mazzatelli is extremely happy with this development

mazzatelli will laugh like a maniac very soon :bananasmi

mazzatelli hopes he will not have to eat his words LOL

 

[cutz]

Nah, this sounds too good to be real, the prospect of leftover wings turning into golden tickets, dow futures nearly down 200 points, grinder's vega storm about to erupt.

Gee i luv options.


(oops i think i may have jinxed myself )

 

[wayneL]

mazzatelli experienced excrutiating pain and anxiety Wed, Thurs and Fri last week as SPX danced near 1,015.



mazzatelli is extremely happy with this development

mazzatelli will laugh like a maniac very soon :bananasmi

mazzatelli hopes he will not have to eat his words LOL

LOL

Should get a nice vol rush too.. just at the right time?

 

[mazzatelli]

LOL

Should get a nice vol rush too.. just at the right time?

LOL
Wish I was booking vega gains

I was short the bear NT at 1,015, expiry 19/8
Closed that and can sleep well now
hahaha

It would have been aces being up 20 G's!!! But you're right Mr Murphy always lurks

Upon cleaning out my computer I came across a Gamma scalping article I saved a while ago. Turns out it was by Dean Mouscher, the same person that Wayne posted the VIX links to.

Thought I would link it here, before I erase it:

Gamma Scalp

 

[Grinder]

Waynel,

I was going over Mazzas guesstamation of your something from nothing fly trade in a hellish month and was wondering with the beauty of hindsight that is, do you think a CTM IC with fewer adjustments would have performed better or worse than your IB with more adjustments (factoring in contest risk, fees etc..) I know it all depends on the adjustments, just trying to gain a better understanding of the trade offs between the 2 in a unidirectional month.

 

[wayneL]

Waynel,

I was going over Mazzas guesstamation of your something from nothing fly trade in a hellish month and was wondering with the beauty of hindsight that is, do you think a CTM IC with fewer adjustments would have performed better or worse than your IB with more adjustments (factoring in contest risk, fees etc..) I know it all depends on the adjustments, just trying to gain a better understanding of the trade offs between the 2 in a unidirectional month.

In hindsight, yes.

In hindsight I will always look back and say I didn't need to make x,y & z adjustment, or learn something to improve what I'm doing. But in hindsight I could have just bought 500 futures and retired rich.

My philosophy (and it's only my philosophy, it might not suit others) is to:

1. Collect premium every single month
2. Be able to sleep at night

There is always the balance between the market whipsawing on you and having to de-adjust, or having to adjust having waited for the whipsaw and it not happening - and having to lock in a higher loss.

What you are doing here is sort of like gamma scalping in reverse. The thing with close to money strikes is that it is likely you will HAVE to adjust at some stage. The question is whether less adjustments with less contest risk and possibly higher delta losses is better than more contest risk but possibly less delta losses... AND a higher chance of an overall loss.

Obviously spreads are important. Try this on SPX or some other instrument with wide spreads and get cut to ribbons. I've traditionally used ES because of tighter spreads than SPX. I've never used SPY because of some margin factors in the way I used to trade.

But actually for this sort of thing SPY has the tightest spreads and I've just started using it instead. It makes quite a bit of difference, even with higher commission costs because of the smaller contract size.

The adjustments are a subjective judgement, there's not a lot really mechanical or rule based about when and where to adjust. At the end of the day, you try stuff and see how it works out for you.

That's what I did and found this works well for what I'm trying to do, what others do has to suit them and where their circumstances are. That might be a different philosophy altogether.

 

[wayneL]

The other point I should mention is that adjustments need not be all in one block.

Supposing (for ease of example) you have 20 x 950 straddles and the market starts moving up. You can morph that to a 950/1000 strangle by trading 950/1000 call verticals. But you don't have to do them all at once, you can do one at a time if you want in a process.

FWIW

 

[Grinder]

I definitely get what your saying & share the same philosophy. I've put in alot of hours on my IC manouvering & am becoming pretty comfortable with managing em on the SPX & RUT. IBs just don't sit well with me (think I just don't fully understand them well enough) but would like to add them to the arsenal at some stage so I appreciate you posting your war stories.