End of Week 2

I ended week 2 at $5,406.06. Thursday and Friday were both loss days. The loss on Friday was exacerbated by the major bid-ask spreads that I had to pay for starting the Week 3 spread. Lesson learnt - start at least one hour before market close.

Also the ordering of the trades has to be structured so that each trade has sufficient buying power. In one of the trades, I did not have enough buying power as there were more open positions in $ terms than closed. So the order has to be (a) execute open trades, (b) create new trades. Each trade needs around 15 minutes for execution, so total with calculations I need around an hour.

Also, this is the plot of the daily market value of the trades for the past two weeks (baseline as before is $5,000):

Week 2: Day 3

Trade 1 analysis: 

Apple beat its earnings handsomely. The bull put spread from yesterday would have earned 5% in a day. Pity I couldn't do it.

Ongoing spread trade:


The spread trade is moving on handsomely, with daily gain of $370 and total value of $5,601. It is at the center of the 139 mark that I set for SPY. If it stays there for another two days, more profits can be expected. However, it is bound to move lower after 2 days of gain. There in will come the downside protection. Lets see how that goes.

Week 2: Day 2

Week 2 Day 2: 

Trade 1:

An attractive bull put spread on Apple is out there, before they release earnings today after close. Unfortunately, I cannot invest because I did some pattern day trades a few weeks ago and I have to get that sorted out - it takes 2 biz days. The trade is as follows: Buy May 460 Puts and Sell May 470 Puts. You make 8% in a month if Apply stays above 470 during that period. Regardless of what Apple earnings are today, it stands to reason that it will not go below 470 in the next month. In addition, there is a vol crush that is accompanied with the earnings. Out of the 8%, 3-4% will be made today itself. There will be more Apple earnings later on.

Ongoing spread trade:

My prediction of SPY closing higher was right. But it didnt close as high as I would have hoped. Anyways, any upward or sideways movement is good for the calender spread. The position is now worth  $5,296 up $147 from yesterday, when it was $5,119. Yes, the numbers dont add up. This is so because the spread gains value each day (option value time decay), which does not get accounted by the broker. This time the automatic gain is around $30. Should be more around closing and if SPY settles around 138.5

Week 2 Day 1

Close of last week: $5,263
Somewhat different as the SPY options market closes 15 minutes after the main market and thus the prices change a bit as bid ask spreads widen.

Day 1: Beauty of downside protection:

S&P fell 0.8% and went outside my protection range of 137 to 141. However, given the additional downside protection I had on my spread trade (due to higher weight and higher volatility), I lost only around $150, which I hope to recoup in the coming days. Any movement to the north will take me into positive territory very quickly. Ended the day at $5,119. I expect a positive day tomorrow.

First trade closed, next opened

The first SPY trade closed today on Friday. I have moved it forward one week. SPY did not end exactly where I would have liked it to be, but still a good portion of yesterday's gains were locked in. At the end of first trade, I am at $234 positive. It went as high as $417 yesterday and as low as -$200. Volatility of returns is high but the hope is that the positive trend continues.

I have increased the contracts from 8,6,6 to 8,8,10, though cash in has decreased. While the portfolio is worth $5,000 at start, only about $2,500 is at work now, rest is cash.

Option analysis

Yesterday I conducted an analysis of option volatility and bid ask spreads as the day comes to a close. This is around 4pm EST. Also, this is not the expiry of options but just as the day closes. This was done to ascertain the right time to close out option positions based on optimal vol levels and bid ask spreads.

I took 3 short dated options around ATM. Thus when S&P was at 138, I took options expiring in 3 days with strikes of 135, 137 and 139. I also took the next dated options expiring in 23 days with the same strike prices. These are also the current options spreads that I am in. Below is how the vol behaves in the last 20 minutes - 1 mins increment for the first 15 minutes and then 30 second increments.

139L is the long dated option which I am long. 139S is the short dated option which I am short. Note that the longer dated option vol does not move much during the last 20 minutes, which the short dated option vol is quite "volatile". Also short date option vol decreases in the last 30 seconds, which suggests a good time to cover. However, that may also increase the risk of not completing the transaction. Overall, no useful indications of ideal trade time. Which means I can close out of positions anywhere in the last 20 minutes as far as vol is concerned. Also shown are the bid ask spreads of the same options

Note that the bid ask spreads of the short dated options are much larger that the long dated options. They widen at close which is expected. There is a time around 5 minutes before close that the spreads contract. This may just be an anomaly but indicates a good window for closing out positions. This needs to be investigated further. Apart from above observations, nothing major comes to attention.

First trade in

Amen!

Optionshouse slow

Optionshouse is slow. I put in a request for a margin trading account last week and it is still "processing". Hopefully, it will be done by Friday so I can make my first spread trade.

Spread trades on the SPY

Tomorrow once I have my account funded in Optionshouse, I will start making some spread trades on the SPY. I will use this blog to document my strategies and how they do...