EWZ Crashes, and I'm out

Closed EWZ call spread today for 0.20 profit around 9:45am. Now the only position left on is GDX. Volatility is down across all markets, so it might be a little while before I reload and take on more trades. The only place you will see high vol right now is in individual stocks due to earnings season. I have not decided whether I will play earnings at all in this account, as they can be frustrating and stressful. I may place some paper trades and see how they do, and might change my mind going into Q2 earnings season.

FXE Brings Win Count to 2

Closed FXE iron condor today for a 0.43 debit, realizing a 0.52 gain. Did not want to hold this through FOMC, despite the fact that probability of a rate hike is super low. You never know. This trade went pretty much perfectly.

With EWZ tanking today, probably because of Roussef's regime collapse and oil headed lower, the account is now down only ~0.50%.

GDX is down a whole point from where I sold the iron condor, but the position is only down 0.04.

SPY Position Closed

I attempted to roll the 194/196 puts up to 198/200, but then that fucked up all my risk metrics and profiles and I had no idea where or what my maximum risk was, so I closed it. Spent an extra $20 in commissions doing so but hey, now I won't do that next time. Overall, SPY lost $225. Not terrible, and about half of what I could have lost from the original trade upon expiration. We had a truly massive rally in February that I, and every one else for that matter, did not expect. Live and learn.

Trying to take off FXE as we speak. Mark is @ 0.38, I have a limit buy order in @ 0.40. We'll see if I have to modify it in order to close it today. Surprisingly, liquidity has been stellar, with delta 0.05 options trading within 2 cents of each other.

Put on GDX on Friday and, sure enough, it's down 0.71 today or 3.5%. Will roll calls down if it hits 17.5 but please, GDX, for the love of all that is Holy, DON'T MAKE ME ROLL AROUND AGAIN!!! PLEASE!!!

Friday Position Update

GLD - closed @ 1.32, up from 0.78.

• Comments: Losses happen, I'm glad that it was small though. I did every thing right on this trade, just sometimes the market moves against you. Total loss was reduced thanks to rolling to about 0.32.

SPY - March-24 192/194/198/200 @ 0.84, mark = 1.80. (-0.96)

• IVP = 14
• DTE = 14
• PoP = 18%
• Comments: Another big rally today. Looking to go inverted on Monday. I mean, I can only lose 0.20 more, and it's early on in my fiscal year, so I'm going to use this opportunity to experiment with some funky trade management, so long as risk isn't added. I mean, how often do you see a 200 point rally in the SPX in a month period? Never. Just got unlucky - that's my story and I'm stickin' to it.

FXE - April-1 102/105/110/113 @ 0.95, mark = 0.63 (+0.32)

• IVP = 14
• DTE = 22
• PoP = 71.23%
• Comments: After the ECB IV was crushed, which was expected. Despite yesterday's big rally, this position is still very positive. Plan on taking this off next week for a profit. Yay! An actual profit?! *knocks on wood*

EWZ - April 23.5/26 @ 0.40, mark = 0.57 (-0.17)

• IVP = 76
• DTE = 36
• PoP = 58.88%
• Comments: Boy, I know how to pick em. Looked like EWZ was going to drop, then it shoots up ~1.16 in three days. Nothing has changed, still looks overextended, and I have plenty of time before expiration to let EWZ drift downward and for IV to decline. Not currently worried.

GDX - April-4 15.5/17.5/23.5/25.5 @ 0.45, mark = 0.46 (+0.01)

• IVP = 65
• DTE = 43
• PoP =  69.04%
• Comments: Put this trade on at about 3:20pm today. I considered the GLD trade bad luck. Had I put that position on ONE DAY LATER, it would have been a profitable winner. This time, I'm pricing in a larger move to the upside for GDX, the gold miners ETF. It has to go up about 25% to reach my break even and 16% down to reach my break even. Consolidation on the chart hopefully means a decline in IV, but who knows. Hopefully 2nd time's the charm in gold ETFs, right?

Portfolio Comments: Since inception, I'm down about 2%, ex-commissions and capital contributions. A couple of unlucky trades got me here, nothing to do with execution ... although I definitely should have gotten John Holmes on the market once we bagged-and-tagged those 1812 lows on SPX. Oh well. The year is 12 months long, I've been through one. Here's to a profitable March ... ! (Oh who am I kidding I'll probably lose $$$$$$ :P)

EWZ Short

Filled around 3:10pm

26.5/28 Apr16 bear call @ 0.40. Position was filled very quickly and only 0.02 from mid. Nice!

This position has 39 DTE and a 68.3% PoP. IVP = 78.

Basically, EWZ is looking a little overbought. Top end of the BB's and RSI, as well as the top end of it's IV range. I'm about 7.5% above the market currently, which is comfortable. EWZ did have a 46% rally off of the lows set on January 21, though. I think it's nothing more than a bear market bounce. In a bear market, you do the opposite of what you do in a bull market; you short the rips instead of buy the dips.

I think EWZ may retrace and fill the gap it left on Friday, leaving it at the 23.80's. We'll see.

~Charts



____________________________________

I like how SPY is selling off going in to the close, obviously. Never went green today, which is good. Can't worry about missing the TLT move because missed opportunities happen all the time. Still not opposed to shorting EEM if it fails at the resistance I mentioned earlier today, but it has to get there first. Keeping an eye on TLT then subsequently for when it becomes a short opportunity. Unfortunately I have to get directional because the market just isn't welcoming to us traders who prefer to be delta neutral right now.

GLD Has Abused Me Over the Years...

Closed out the GLD position today for 1.32, realizing a loss of 0.54. Could have been much worse. I basically just got unlucky with this trade; it shot up 6.XX% literally the day after I opened the position. I did all I could to reduce losses, and decided against rolling the position out. After all, rolling out does in fact reduce overall risk, however, I'd rather take a loss of ~$150 right now than have a 70+% chance of losing $300 in 40 some days.

In my first 6 months of trading, I bought GLD the week of April 8, 2013. Gold proceeded to have a fantastic meltdown, dropping from 1500 per ounce to 1100 per ounce over the following weeks. I got rekt. I will never forget that trade, because it was probably my worst of all time. So, I have a bias against doing anything in GLD. I have been burned on this ETF several times over the past four years. But, you gotta sell vol where it's high, and unfortunately that brought me to GLD.

SPY is down today, but as of writing only by about -0.60%. If SPY can decline to 196 by next week I'll consider closing out this position. But, unlike GLD, I have a larger break even span on SPY, 193.16 and 198.84. Therefore, rolling out to a new expiration isn't out of the question, so long as I can get a good credit. This one has been a headache.

The FXE position is looking good, trading at 0.74, down from 0.95 where I sold it. The ECB meets in two days to determine monetary policy. It is widely expected that Draghi will come out announcing more stimulus, but of course nobody knows how much. I think it will be in line with whatever the market expects, i.e., it probably will be stimulus and in the amount expected, probably not more.

Thinking about getting short EWZ, the Brazilian stocks ETF, today. Problem is liquidity. It may not be there when I need it. The other problem is being "double short" the market. EWZ and SPY have been trading in tandem since the beginning of February. Not in lockstep, but they're both up and down on the same days typically. Both have rallied since the SPY bottomed. EWZ however gapped up big a couple days ago, and has very high IVP. It is also coming down quite rapidly, having been 93 two days ago and at the time of writing is sitting at 78.

Unfortunately I did not get long bonds, that is, TLT. TLT gapped up 2 points today, a rarity. I was contemplating getting long yesterday but was unsure, and now the opportunity has been lost. I think there's a good chance TLT rallies two more points to 135ish over the next few days before stopping.

Nothing else is coming under the radar in terms of high IVP, and that's not surprising with the VIX at 18. Really the only sector experiencing high IV is metals and materials, but unfortunately that ETF, XME, has a lack of liquidity. As do all of the stocks within that sector that have high IV.

EEM, the emerging markets ETF, looked like is was going to test resistance around 33.36, but it's down about 0.43 or 1.31% as of writing. That doesn't necessarily mean a reversal. So, if EEM tests that resistance and fails, I will contemplate getting short.

Another Roll, this time in GLD

GLD is rallying again today, and that means I have to roll up those puts. Similarly to the new SPY iron condor, GLD's cost basis is now 0.78, mark at 1.39. Maximum risk was reduced by $90.

We need GLD to decline down to 120ish by March 14-15. If it's not there, we will roll this position out to a later expiration to avoid assignment and to take in a larger credit.

Same goes for SPY. We want SPY to be around 196ish by March 21-22. If it's not there, we will roll this position out to a later expiration and take in a larger credit.

What's important to remember about high-probability trading is that high-probability of profit does not mean 100%. The days after we put both of these positions on there were massive rallies in both GLD and SPY. In this business, we can't be afraid to have losers. What separates a profitable trader from not is the ability to reduce large losses into smaller losses. That's what we aim to do at this point.

Also, remember the importance of capital contributions. Yeah, the account is down a bit right now. It won't look pretty on the performance metrics and all that, but what's more important is keeping your risk pool stable and/or growing. I put a fixed amount of money in to my trading account every Friday.

I believe 2016, as it already has been, will continue to be a tough year for all investors and traders. Hopefully I can at least stay alive out there, but I'm sticking to my guns. No need for hunting for a new method.

It's also tough to go out and add more risk when you're already down quite a bit in the account, but you have to. I will probably look to add a position or two next week, not today.

I'll be back around the close to publish the weekly position update.

Mistakes Were Made ... But It's OK

SPY has completely ripped my face off today, up about 4.25 points as of writing. What a rally.

I made a (quite large) error in my earlier post about rolling. I grossly overestimated the amount of risk that would be reduced, and that's because I did the math wrong, and also partly because I failed to recall exactly what happened last September. But I figured it out, explained in this picture:

Maximum risk has been reduced, yeah, but not by NEARLY as much as I had thought. So, here's the game plan now:

We can only lose ~0.45 for it to become a full loser, or another $150. If SPY remains between 194 and 198 for a two week period, then we'll cut the loss as it would be equal to about $100 (the spread would be worth ~0.33 less than what it is worth currently). If SPY continues to rally, which it certainly may given today's strength, we will roll up the puts again and collect more credit, or potentially roll out to another expiration if it can be done for a credit or a small debit (>0.05).

In the above picture, that little "@ 0.84" ... we want to get that as close to "@ 2.00" as possible by taking in more credit. I don't mind paying more commissions if it brings the maximum risk down on the position more than what those commissions cost. This position is a loser and must be treated as such.

God, what a headache. It's a good thing that I've had years of training with virtual money to prepare myself for the plunge, because these kinds of things can and will happen. This is why we ALWAYS ALWAYS ALWAYS analyze what our maximum risk is whenever we place a trade and assume that the worst will happen from the get-go. Always look at any trade by how much you can lose, not by how much you can make!!!!!!!

There are 5 outcomes to any trade:

1. make a lot of money
2. make a little money
3. make / lose no money
4. lose a little money
5. lose a lot of money

 As long as you can cross out 5, you will be a successful trader. This is what we're aiming to do.

This also highlights the importance of capital contributions, which help:

• reduce the psychological effect of losses by replenishing capital
• reduce the actual effect of losses by replenishing capital
• helps maintain a stable and/or growing risk pool

The first two are straightforward. What's a risk pool? Your account size. It's a pool of money that you can take risk with. You should always size your positions in relation to how much of the total pool is at risk in percentage terms. For example, if your account size is $10,000, and you risk a maximum of 5% per position, then you have a max risk of $500 per position. If you have a big loss, and now your account is worth $9,700, following the same rule your max risk per position is $485. By stashing more cash into the account, you help keep the risk pool more stable than it otherwise would be.

Now let's say 6 months have passed, you've had mostly profitable trades, and the account is up 10%, now worth $11,000. Your max risk per position becomes $550. However, if you added $100 per month to your account, it would be worth $11,600, and max risk would be $580.

Remember, adding max risk (in dollar terms, not percentage) also means you're adding more max profit, and if you're a successful trader, that means more $$$ in returns.

I was hoping that I wouldn't have to deal with a loser like this so soon, but I guess it gives the opportunity to educate. Hopefully the rest of the week isn't as painful.......

XOP Finally Profits ... But SPY Counters It

Finally was able to take off the XOP position today around 11:20am. The bid/ask got so wide ... at the open it was -0.13 bid and 0.97 ask! But it got filled two hours later. I had had enough trying to constantly adjust my limit with such a wide spread that I just put in a 0.42 limit GTC (good-till-cancelled). Realized a 0.43 profit on that one, which is pretty good! Other than some issues closing the thing, this trade went perfectly.

Now, on to the loser.

Today SPY is up better than 3.5 points as of writing. I certainly know why. Fed. It's the Fed. I was nervous about originating this position in the first place. If you can remember, I was contemplating getting long the market instead of neutral. 

SPY has been rallying non-stop through the middle of the day on what appears to be low volume. Nevertheless, I anticipate we will see a test of 197.60 by day's end. It looks like we're going to have to make an adjustment to the position. I had to do this last September as well. Twice.

The mark of the position is currently around 0.98-1.00, so down about 0.35-0.37. I'm getting demolished! The put spread of the condor is trading for next to nothing, might as well bank that one.

What I plan to do is roll up that put spread to the -0.30 delta puts, wherever that may be. That will probably take in a credit of around 0.70-0.80. Here's a risk profile to put it in perspective:

Either way it's only 12:45pm and any new adjustment should be treated like a new position i.e. traded on the close. I'm not going to roll at the highs of the day!

Doing so does two things: It reduces maximum risk and, if SPY falls a bit, makes a larger profit / loses less than if the original position were left on. Once the trade is deemed a loser, reducing losses is absolutely paramount!