In light of new analysis by DayByDay and EcoQuant, plan on executing a small hedge to $EWZ trade.
Sell 5 6Jul $29 puts, buy 5 17Aug $29 puts for $.63 debit. That's $322 in capital used. The plan is to sell the $29 put every 2 weeks as long as we are in this area. Sell off the whole $EWZ position if $EWZ reaches $29
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The $USO trade from the newsletter is a little past delta neutral. This actually worked perfectly as I planned.
Sell it off as a credit of $.11, a gain of 37%. Yesterday's pricing was a little strange. Nice to see it normalize today. ALERT: Sell $TLT 115 calendar @ $.58 credit.
A quick retrospective on this trade: We initiated this trade 3 months ago at $1.41 debit. $TLT proceeded to obey and fall to a good target point. In the middle of the month, we rolled the short strike from May to June, creating a $.75 credit, making the total invested $.66. In the next newsletter, we sold half of the remaining position at a credit of $1.36 insuring a credit of $.70 profit. Last newsletter we sold the July Strike at $.33 giving the full position profit value of $.185 (since we sold half) profit, and now sold the position at $.58 giving a full position profit of $.29 which means the total profit for this trade was $1.175, a 83.3% profit. Hadik is talking about a spike in bonds. it may be a safe-haven type of spike, or perhaps a melt-up type of spike. Since I will not be long bonds in this fundamental environment, I will sit on the sidelines for a period of time. I am closing the $USO calendar trade at a $.25 credit.
We paid $.11 for it, so that is a 127% profit for this trade. $EWZ trade executed at $.17 debit.
Buy 21Dec $45 call, sell 21Dec $46 call in a 1/1 ratio. Longer term vertical. If you searched online for options trading, you have undoubtedly run into talks of “adjustment”. I did a search myself for option position adjustment, and ran into lines like this:
“Making trade adjustments incrementally can improve your performance by helping you to manage risk and reduce losing trades.” “Understanding and using Trade Adjustments produces confident and consistent traders. Don’t hope that your winning trades outweigh your losing trades, but instead master the art of adjusting trades and take control of your financial future” “Making options spreads adjustment trades, by closing option legs with trading method setups, can increase the overall profitability of the spread.” Wow, by the sounds of it, adjustments can turn any losing trade into a winning one! And better yet, any winning trade turns into an epic trade! All you have to do is master this fuzzy art of adjustments, and you will be rich! Of course, this isn’t true. By using buzzwords that resonate like “manage risk” and “taking control of your financial future”, lines like this give a false impression. “Adjustments” is a nice way of saying that you have to change your position because something unexpected happened or you are trying to be prudent with your capital. Many of these sites also tell you how to adjust, where this is not a good practice. I will agree with one thing these sites say, and that is adjustments are an art. There is no one way to adjust, nor should there be a “schedule” of adjustments; that is, when something happens you automatically adjust a certain way. It is a good idea to have a plan for adjustments when you put the position on, but know that the adjustment plan can change for any number of reasons. One of the hardest aspects about options is the fact that there are multiple variables that need to be considered when applying and adjusting trades. To the option trader, an adjustment isn’t so much about capital, it is more about the greeks. Further upside projection to a trade that already is positive delta may require an adjustment that increases delta. A projected announcement of a catalyst that isn’t realized in options yet would mean you want to increase vega. In my mind, there are two kinds of adjustments, expansive and corrective. Expansive adjustments are when a risk to the thesis plays out, say a possible drop happens instead of not, and you decide this is a good time to apply more capital to a trade because the drop increased your degree of confidence in the thesis has increased, or there are now fewer risks. A good comparison using stock is “dollar cost averaging”. A stock heads down to support before it heads to resistance, so the stock trader buys more stock to take better advantage of the bounce. Can the stock plunge through support? Absolutely, and the stock trader loses double. Hopefully the stock trader has a tight stop so it isn’t as much of a problem. With options, on an OTM vertical, sometimes I will add to the same position as an expansive correction. The advantage is that it costs much less capital to do so, like dollar cost averaging. But the position needs to be traded by the greeks, not by the capital or worse yet, the profit. Another example is if an equity goes up faster into an OTM calendar than I anticipate (a theta positive position), I may adjust the position to realize more profit if the thesis projects further upside like moving the short strike up. In short, expansive adjustments would be increasing the greek exposure you think will move most. Usually that is delta, and usually it is based on the thesis, not on the trade itself. Corrective adjustments are when something unexpected happens and you need to reduce your exposure to a greek. That unexpected happening could be a good thing, like your price target is reached before you anticipated… therefore you take your position off and you collect your profits. Perhaps a position goes against you, but you still believe it will bounce, you can use a corrective adjustment to reduce the pain if it never does. Maybe IV has gone up way too much, and you have a vega positive position… you can make moves to reduce your vega. Here are a few things I have learned to avoid when adjusting:
Hadik's weekly update about gold states:
"They have begun to rebound but need to produce daily closes above 1345.5/GCM & 16.62/SIK to show any signs of new strength and remove remaining downside risk. More importantly, Gold needs to give a weekly close above 1334.2/GCM to re-enter its weekly uptrend and project new highs. I know it may feel like we missed a chunk of the GLD trade. We needed to be cautious since Hadik had made several warnings, and now that Hadik has given us clear lines in the sand to rise into May, we can be confident in the GLD trade we put on very soon. If we are seriously looking at a precipitous rise into May, I will design something with an excellent R/R that will take advantage. Right now, I'm looking at a GLD 140 Apr/May call calendar. I know most think of IV as declining when a stock is going up, but if you look at its history, GLD acts the opposite. I will put this on towards the end of the day if it looks like these closing levels will be breached. Why are newsletters only released once per month?
The trades that the newsletters address are swing trades designed to address a 1 month thesis. There are some reasons for this: 1. When the option trade lasts a month long, it is more forgiving if the trade goes against you. As the trade gets closer to expiration, the sensitivity of the trade (in other words, the gamma) increases. 2. This is a newsletter meant for people who may have another job or are otherwise not sitting at their computer all day. These trades are meant to limit risk and provide a good return while being low maintenance. 3. A thesis lasting a month has plenty of reward to leverage. It is easier to control for a risk. 4. Monthly option classes have the most volume, so it is easier to get execution on trades. These updates will be available to subscribers only starting in April.
It is time to close the USO trade at $0.16 credit. Previous Update on USO (2/28/2018): USO has jumped almost a full dollar since the March put was sold, and has eaten into some of the profits. This was to be expected somewhat, remember this is a longer term plan. Including the profits that are locked in, you are up 38% on this trade. These updates will be available to subscribers only starting in April.
T – We picked up T when it was trapped in a bit of a range between 36 and 37. We picked it up at a $.38 debit, and it has since gained 15.8% on basically no movement. Suggested Action: None. USO – USO has jumped almost a full dollar since the March put was sold, and has eaten into some of the profits. This was to be expected somewhat, remember this is a longer term plan. Including the profits that are locked in, you are up 38% on this trade. Suggested Action: None. JNUG – JNUG has moved against us over the past couple of weeks, and currently sits at $.57. That is a decline of 4% of the capital required for this trade. This is a trade over the next couple of months, so hold on to it. Suggested Move: None. TLT – Hadik let his TLT trade expire and took small gains, however even Hadik believes TLT will still maintain upward pressure, as does many of the other analysts that I follow like Jake and Elliott Wave. This was a short-term trade, however, so I’m inclined to sell it off at a small loss. Suggested Move: Sell at $1.95 debit (2.2% loss) |
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September 2023
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