State of Play

Here are a couple of the positions I have on at the moment: a butterfly and an Iron Condor. These, I guess, are bread and butter trades. I'm looking at putting on some bear cll vertical spreads now that there is some topping indications. AAPL is quite hard at this level in case it does break the psychological $700 convincingly. But somehow I think it's all in the price unless iTV or a mini iPad rear their heads.

Below is a learning trade, for me, at least. I trade Calendars badly. I think it's because I never liked trading them on the floor and I usually only made markets in the front month where the volume was in those days.

This SLV position started off as a -10/+10 calendar that went negative. I wrapped it in a butterfly which I do like to trade so I could get to break even on the trade. The way I trade calendars at the moment is to require almost instant gratification. This one went negative too quickly so I did the butterfly adjustment. It's a tiny position as I'm still trying to find a better way of trading calendars but I'm showing the trade as an example of the adjustment.

Rally, Rally, Rally!

See my "I told you so" here in the day trading blog.

Covered All Open Positions

I covered the SPX Iron Condor position at -1.25 after buying it at -2.30 making a profit of over 10% for the trade. I also covered my RUT Butterfly at 2% profit. I am waiting for the ECB announcement tomorrow before I take any more swing trades. I'm smelling a possible rally from here. I say "smelling" because there are only the earliest of technical signs that may not result in the rally coming. However, due to the uncertainty, I'm sure I'll be able to put on bigger size at a better price when I'm confident in what I'm seeing.

Time is on My Side

I try and develop option trades that give me plenty of time to make decisions. Option trades can be much more forgiving of timing and that means not being stopped out unnecessarily - one of the main reasons people lose trading.

My RUT trade is a perfect example. I took some profit yesterday but ended up with a delta/theta ratio that was unfavorable. I saw it and knew it and remarked upon it in yesterday's post. But the good thing was that I could wait until today and see if the market co-operated before I had to make an adjustment.

Well, the market did co-operate and I sold the second butterfly right at the ES support. The total trade made almost 10% on my max Reg-T margin of $102,000 since August 6.

My "problem" now is to get re-invested by finding another trade with a high win rate. Well, no problem really because I just put on a new RUT butterfly for the October expiry. As you can see in the pic, the delta/theta is normal around 1 to 1. If the market moves down to my level, I take profit and if it rallies enough I add another butterfly to the position to make my teepee into a marquee. Having a very specific trading plan for the trade makes it easy to manage in less then 5 minutes a day.

The SPX Iron Condor trade is still cooking. I'm up about 3% at the time of writing this.

Took Some Profit

I took some profit on the RUT trade by taking off the higher butterfly. I'll put it back if RUT rallies to around 820.00 again, depending on context. Pic shows current RUT trade. My delta/theta ratio is a bit high, so I'll need to decide whether to do anything about that today if I can't take more profit on the other butterfly.

State of Play

I have two positions on at the moment: a RUT butterfly play and a SPX Iron Condor. Both were underwater for a couple of days. The RUT trade was a scale in trade and was expected to show an unrealized drawdown. Full details are on the pics.

Both are getting into profit as the market topped here. I have orders in to take profits in the market although I don't expect to have them all filled today unless the coyotes see that they have walked over the edge of the cliff.

Marquee Trading

I've had a few questions about my option trading, so here is a description of what I do. In addition to the very directional trades I make, as I have said before, I also do so called income trades.

These so called income trades are structured like the trades I did on the floor. On the floor, I made my money in two different ways:

• The edge from making markets and selling above fair value and buying below fair value. I made money off the spread I made. The more volume there was, the more I made. We - me and two traders I employed -  traded about 2,500 contracts a day on busy days, usually with a tick edge at least.
• Price erosion due to the passing of time. For this to happen I traded within a very firm structure: short the middle strikes and long the wings. I had to make a choice of whether to be long or short gamma taking into account possible changes in market direction and volatility. We used futures to balance delta when needed. My usual stances was to be short gamma so I could benefit from the erosion. How short of gamma depended on my view of price movement and volatility. Of course I sometimes was wrong in my opinion and lost money.

On the floor, I was to a certain extent at the mercy of the "paper". My job was to take the other side of their trades while at the same time having a directional view, volatility view and strategy.

Since coming off the floor, I have, until the last few years, concentrated on futures trading rather than options, as the technology and liquidity of trading options from off the floor was not something I felt comfortable with. However things changed as option volumes have grown exponentially and I have done well since I started trading options again.

To trade options from off floor, I needed a strategy. I based what I do now on what I did on the floor with the added benefits of:

• being able to choose my trades rather than take the other side of customer trades
• creating a rule based strategy that is objective not subjective and that has been validated with backtesting.
• a written detailed trading plan

My income trades are designed to more than double my money every year. I call the strategy Marquee Trading.

Going forward, I'll show the Marquee Trading trades as well as the more directional ones.