Double Diagonal

I have a new AAPL trade today. I bought an AAPL Double Diagonal for 20.20. I'm looking to earn 10% on my Reg-T margin. You can see the numbers on the pic below. This is not a directional play but an earnings play. This is not my favourite strategy, but in a range bound market it can do OK. It will take a while as you can see from the Theta (premium erosion) number at the bottom of the pic.

RUT Profit Taken

The market did it's thing and dipped to allow me to take my profit as planned. I'm sitting the next day or two out until I see which way the order flow will go. Although my strategies are of the so called income type, the basis of the way I trade is directional bias as it makes the trades work so much more quickly.

Broken Butterfly

I added a couple of butterflies on Friday: RUT (Russell) and XLE (Energy).


The first pic is the XLE. I put the position on at a credit to me of 0.28. I took it off today at about 0.20. The position I put on is known as a Broken Butterfly -  a trade I like a lot as you only have to figure out where the price won't go, but if it goes there you can still make a windfall profit. I do tend to take profits quite quickly because I don't have a problem finding another trade to put on.

The RUT trade moved considerably in my favour today too. As you can see in the pic below, there is a $33,000 Reg-T margin and I'm up 8% over the weekend. The position is a regular PUT Butterfly and I had hoped to scal into a larger trade. I'm working an order at the moment to exit at a 11.5% profit. I'm the only offer of the butterfly at that price at the moment. I have a few more on than the number in a pic as I run a number of different accounts so I may get part filled with one broker but not another. I don't know why that happens but it does.The kind answer is that one is put on at an earlier time than the other.

If you haven't traded options much and want to follow along, I'd read as much on the web as you can find about option strategies. They are not as complex as they seem although a lot of people add unnexessary complexity. The basis of my option trading is the same as the basis of my day trading: I envision the probabilities and put on a trade that fits. The extra advantage of options is that I don't necessarily have a losing trade if my vision is wrong. I usually need to be vilently wrong for there to be a loss.


I'll report on my RUT trade as it develops.

Taking RUT Profits

I started taking profits on my RUT position yesterday as the down move began. The RUT position was comprised of 4 separate overlapping butterflies. As per the pic below, I had taken 3 of them off. At that point, I had realised a profit of about $1,100 or 2.6% .  That left the position with a $2,300 profit in it as you can see from the stats at the bottom of the pic below. This is over 5% on my max theoretical margin. My actual margin is less due to Portfolio margining, but I calculate my returns on the Reg-T margin as I allocate those funds to the trade.

The position left was 800/750/700 July PUT Butterfly. I placed a SELL order in the market for this butterfly at a higher price than current. The position was within the tent and any move against this would mean a new adjustment, either buying a call or call spread or adding another butterfly. It would have depended on when and how the move took place. I had a smell of a possible RUT rally as we had poked our heads through support, so taking profits like I did was prudent. The "first rule of fight club" as the movie said, is PRESERVE CAPITAL.

In fact, the market continued the down move and allowed me to harvest some nice profit. I exited the last RUT butterfly as the market fell to about 766.75.

I earned over 7% on the trade overall. It is important to note that the position was against me by over 12% during the trade but that was within my trading plan. My goal was to scale into the position and then scale out to take profits.

I have other trades on at the moment in GLD and FXE and will be looking to put on a new trade today, probably in the RUT. Not sure whether it will be a flavour of Butterfly or an Iron Condor.



Widening the Tent 2

I didn't finish the previous post as I had not finished my additions to the RUT trade yet.


The pic below shows two additions to the trade as I progress getting the full position on. I'm about half way to my maximum margin allocation, although there is a large reserve in addition to this if anything unexpected happens.


I have used almost $50,000 Reg-T margin which is the basis for my percentage profit calculation. I need a pullback in the RUT to make my profit or alternatively, that the market expires within the risk tent which is the heavy line in the pic.

The numbers along the bottom of the pic show my current Greeks. Still negative delta, which is as planned. Adding to the position as I have, has mitigated negative effects to a certain extent. If the pullback happens now rather than after a further up move, I'll be able to make the profit I want more quickly.


I've been in this trade just 8 days and we are about 30 days to expiry. The fastest theta decay has now kicked in and there is still enough time premium to make any needed adjustments. I'd really like to be out of the trade within 14 more days.

Widening the Tent

Firstly, good to see your comments guys. Thanks.


Option Net gives both a visual and a mathematical representation of risk and a what the position can do under different scenarios. But perhaps the most powerful feature is that I can go back in time and use the 5 minute historical data to fairly accurately back test strategies. If you are a reader of the EL day trading blog you will know what how important I think back testing is. The P&L in the software is cumulative for the strategy I am doing. That is to say, I put the position on and then I make adjustments and the software keeps track of each adjustment. In this way, if I am trying to make, say,  10%. It shows the 10% based on all adjustments and calculates it against the maximum margin I have used.


Margin is another issue. If you are a regular retail customer with less than about $100k in your options account, you get Reg-T margining which is a SPAN based margin. If you are a bigger customer, you can get Portfolio Margins which are much lower. I calculate my returns on the Reg-T even thought I get the benefit of Portfolio.


As we get going with the blog, I will try and explain more about the strategies.


You should understand that my strategies are so-called income strategies but based on a directional bias. This means that my trades can mature much more quickly and that my capital turns over more often = higher percentage return per year.

AAPL and Europe

I took my profit at 11% on my AAPL position, as was set in my trading plan. Pic below shows how it looked on Friday when the trade was made.

The Greeks voted but things seem far from over. The guy that failed to form a coalition government in May now has to try again. A tough ask. Maybe I'll have an opportunity to add another butterfly to my RUT position if the market can rally a little more. As of writing early in the morning London time, ES is trading at 1343.00. I need the equivalent RUT price to be higher before I can add.

Added To RUT And Apple Still Cooking

I added to my RUT position as planned. I added another butterfly centered at 750 PUTS with 50 wings. It gave me a bigger tent by moving the break evens out. I should hit my target within 7 to 14 days if we stay in the range within the tent. I will add another butterfly if the market rallies - GREEK ELECTIONS !!!!
Pic below shows what the position looks like now. The position is down 8%, which is expected as the market rallies. It needs a pullback to become profitable. A rally will allow me to make the position larger and earn more.

The Apple trade is still cooking. I'm in profit but haven't yet hit my target.


As with my daytrading, my option trades are pretty structured and easy to manage.

AAPL

This is a trade I added on Tuesday late. It's developing, as you can see, and I'm up about 4%. My target is 10% on margin. The first pic is the entry and the second is how it looks today.

The options software is OptionsNet.

Butterfly

This is the first post in this swing trading options blog. I'll start off with a trade from last week. It was a directional butterfly, as are most of my trades. The short strike is in the direction I expect the market to go. My goal is to make money from the both the directional move and time decay. In this way, I can make money even when my direction choice is incorrect. I use my usual methodology to choose direction with daily data.

There are times when the position will need to be adjusted, but I do not monitor these trades throughout the day, just once a day.  I have profit taking orders in GTC and alerts by email in case something unusual happens.

The pics below show the opening of the trade on 11 June and the closing  on the same day with an 11% profit. This is highly unusual. My expectation is to run a trade for 3 to 15 days. You can see the positions annotated on the risk chart. My commissions are about 75 cents a contract.

I put on another trade yesterday - a butterfly. It's the first tranche of a position I want to put on as the market rises. I'll add similar butterflies with different centres as the market rises. If the market falls then I'll take profit on this butterfly.