HUH's crash and burn trading thread

So the market keeps going up on NO VOLUME because everybody on wallstreet was busy standing around celebrating CNBC's 20th anniversary. I work from home today and get subjected to hours of morons reminiscing about the good old days. At one point I thought Bob Pissonme was gonna grab his kneepads and go to work on Mark Haines! The only useful piece was a guest that started to rip CNBC a new one before being interrupted by Cramer.....but they didn't let the guy finish when he started to talk about how a non-matching 401K is just garbage. Anyway just sour grapes on my part because this market refuses to pullback! :)

Today I made the following adjustments:
bot jun 410/400 put/short junQ 49 iwm put@ credit of $327.77

I went ahead and sold the 410/400 piece for $187.64 so this results in
short junQ 49 iwm put @ credit of $515.41

I also moved up one of my calls.
I closed bot jun 430/440 call @ cost of $552.36 for $697.64 resulting in a profit of $145.28
Also opened bot jun 470/480 call @ cost of $532.36
I still think that we will get a sizeable pullback before we can go significantly higher (500+). I also think RUT will stay above 400 so at this point I am waiting to get the pullback and will look to start exiting if the RUT enters the 430 range again.

Its the end of the April cycle and it was disappointing as my analysis was that we would rally off the bottom in march, unfortunatley my analysis was wrong on how far the rally would go! :mad:

Here is the list of positions that were closed this cycle and an update on the returns so far.

CLOSED POSITIONS
bot jun 420/430 call @ profit of $50.28
bot jun 380/370 put/short junQ 49 iwm put@ profit of $138.74
bot jun 440/450 call @ profit of $55.28
bot jun 430/440 call @ profit of $145.28

Total profit for Apr cycle = $389.58

So far we have the following returns:
Jan cycle = $683.17
Feb cycle = $2051.06
Mar cycle = $796.14
Apr cycle = $389.58
Total gain = $3919.95
Percent return = 3919.95/30000 = 13.06%
Goal = 30-13.06 = 16.94% until goal reached.
 
Here is a list of the open positions I'm taking into May.

OPEN POSITIONS
bot may 370/380 call/short may 38 iwm call@ cost of $168.06
bot may 370/380 call/short may 38 iwm call@ cost of $188.06
bot may 360/370 call/short may 37 iwm call @ cost of $193.34
short may 39 iwm put @ credit of $29.58
bot jun 480/470 put/short junQ 47 iwm put@ credit of $56.89
short junQ 49 iwm put @ credit of $515.41
bot jun 480/470 put/short junQ 47 iwm put@ credit of $16.49
bot jun 330/340 call/short junQ 34 iwm call @ cost of $120.06
short junQ 39 iwm call@ credit of $394.53
bot jun 360/370 call/short junQ 37 iwm call @ cost of $118.34
bot jun 320/330 call/short 33 junQ iwm call @ cost of $153.51
bot jun 350/340 put @ cost of $492.36
short junQ 38 iwm put@ credit of $144.34
short junQ 39 iwm put @ credit of $44.10
bot jun 330/340 call/short junQ 34 iwm call @ cost of $155.06
bot jun 410/400 put/short junQ 40 iwm put @ cost of $115.06
bot jun 360/370 call/short junQ 34 iwm call @ cost of $153.51
bot jun 420/410 put/short junQ 40 iwm put @ cost of $128.51
bot jun 450/440 put/short junQ 44 iwm put @ cost of $118.54
bot jun 380/390 call/short junQ 39 iwm call @ cost of $138.06
bot jun 450/440 put/short junQ 44 iwm put @ cost of $98.06
bot jun 450/460 call @ cost of $552.36
short junQ 49 iwm put @ credit 0f $527.30
bot jun 470/480 call @ cost of $532.36
 
Hi huh!

I like your journal, its cool. I am an option newbie so, if you have time to answer this question I pose, thanks a lot!

In your original post you say:

The goal is to have the long RUT spread stay in the money and gain value while the short IWM option loses premium value and HOPEFULLY by the time experation comes around, the RUT and IWM prices are close to where we started (similar to a calandar spread).

Question: From what I understand, being long options lose value as expiration nears; so how does the RUT spread gain value?
 
Huh never seems to post anything over weekend so I will take a privilege to answer your question and than Huh can correct me if I am wrong.

With Huh's strategy two things could happen.

Scenario 1:

In the money RUT spread and hence IWM stays in the money at the time of closing the position.

In this case, when originally Huh sells IWM, the price received for IWM piece = (IWM strike price - IWM's actual price) + time premium. As the expiration approaches, the in the money RUT spread will gain in value whereas the naked IWM position is going to loose the time premium. The value of naked IWM will come close to index value itself. So Huh gets a benefit of the fact the IWM is loosing time premium.

Scenario 2:

In the money RUT spread and hence IWM goes out of the money after the position is opened.

In this case, as the expiration approaches, only value left in IWM is time premium and it's loosing it faster than what RUT spread is loosing. Why? Because both legs of RUT spread are loosing the time premium so effect of time premium loss is not as severe as IWM.

So it's win win situation in both scenario. The issue occurs when it moves too far in the money or goes too far out of the money and that is when Huh is adjusting - the trick I wish I can figure out. :(
 
Quote from valpak:

Huh never seems to post anything over weekend so I will take a privilege to answer your question and than Huh can correct me if I am wrong.

With Huh's strategy two things could happen.

Scenario 1:

In the money RUT spread and hence IWM stays in the money at the time of closing the position.

In this case, when originally Huh sells IWM, the price received for IWM piece = (IWM strike price - IWM's actual price) + time premium. As the expiration approaches, the in the money RUT spread will gain in value whereas the naked IWM position is going to loose the time premium. The value of naked IWM will come close to index value itself. So Huh gets a benefit of the fact the IWM is loosing time premium.

Scenario 2:

In the money RUT spread and hence IWM goes out of the money after the position is opened.

In this case, as the expiration approaches, only value left in IWM is time premium and it's loosing it faster than what RUT spread is loosing. Why? Because both legs of RUT spread are loosing the time premium so effect of time premium loss is not as severe as IWM.

So it's win win situation in both scenario. The issue occurs when it moves too far in the money or goes too far out of the money and that is when Huh is adjusting - the trick I wish I can figure out. :(
More...

Nice job valpak. You've essentially got the basic strategy down. You just have to remember that for instance being long the in the money 320/330 Rut call vertical spread is essentially the same as being short the 330/320 Rut put spread. So basically, when dealing with basic spreads: In the money spreads gain in value as a result of time decay and out of the money spreads lose value as a result of time decay. This is the reason why the in the money RUT spread gains value due to time decay.

As far as the adjusting, I am planning on putting together a more precise explanation for the when and why of the adjusting that I do. For right now, I am not going to post the explanations until the goal of the strategy is reached. If I don't hit my goal of 30% then I'm going to scrap this anyway so whats the point of going through the trouble :) If I do meet the 30% then I will post an explanation specially since I'll have real world examples from the journey of getting the 30%.

Anyway its a good day, now if we can just get one more day like today I'll be happily exiting May positions!
 
I went ahead and made an adjustment on one of my may positions. I did the following today:
bot may 360/370 call/short may 37 iwm call @ cost of $193.34

I went ahead and sold the 360/370 piece for $947.64 and used the proceeds to purchase the may 440/450 spread for $712.36 which results in the following position:

bot may 440/450 call/short may 37 iwm call @ credit of $41.94

Kicking and screaming I am making some adjustments in case we go higher. It is appearing that a test of 500 could be in the cards in this option cycle . I'm not as afraid of a selloff because so far the 20 day avg is holding strong. Right now the 20 day EMA is around 450 and the 50 day is close to 440. So basically I am making this adjustment based on 2 assumptions:

1) The 20 and 50 day will support this market above 450 so this spread should counteract a couple hundred bucks of loss on the IWM if we do hold above 450 on RUT.

2) Since the 440/450 range is an important support level, if the market slices through this level (20 and 50 day EMA), we should get a pretty big move down as the bears all start piling on with short positions because of the breakdown. This should send the RUT waaaay down into the 400 - 420 range. So if the RUT is down in that range then I will experience a small loss on this position, however I should be able to make a good return on the other positions. Remember my preference is to have the RUT around 400 so I would actually prefer to have this adjustment fail!

So that is my current market assumption, and once my assumption is proven wrong by mister market we'll do some more tweaking if needed.
 
I added the following position today:

short may 50 iwm put @ credit of $408.82

I like the added flexibility. This position is along the same line as my current short junQ 49 put positions. I still think that 500-520 range should be a tough area to crack. So if the market rallies through 480 as it seems likely then I can use the 408.82 from this position to go ahead and establish the 510/500 may put for a very small cost or credit. I'm looking to do the same with the 49 junQ puts. Right now the credit on those two positions is $515 and 527 so if we get a rally then I'll be looking to add a couple of jun 500/490 or 510/500 puts depending on pricing.

If the market sells off then thats fine, this essentially is a small band-aid. The bad thing would be if the market gapped down to 350 and I never got a chance to start closing (hey you never know!). Right now I'm looking to go ahead and start closing positions if we enter the 420 zone.
 
Still going higher so I made another change today:

bot jun 410/400 put/short junQ 40 iwm put @ cost of $115.06

I sold the 410/400 put piece for $177.64 which leaves me with the following:

short junQ 40 iwm put @ credit of $62.58

Heres a list of my current open positions:

OPEN POSITIONS
bot may 370/380 call/short may 38 iwm call@ cost of $168.06
bot may 370/380 call/short may 38 iwm call@ cost of $188.06
bot may 440/450 call/short may 37 iwm call @ credit of $41.94
short may 39 iwm put @ credit of $29.58
short may 50 iwm put @ credit of $408.82
bot jun 480/470 put/short junQ 47 iwm put@ credit of $56.89
short junQ 49 iwm put @ credit of $515.41
bot jun 480/470 put/short junQ 47 iwm put@ credit of $16.49
bot jun 330/340 call/short junQ 34 iwm call @ cost of $120.06
short junQ 39 iwm call@ credit of $394.53
bot jun 360/370 call/short junQ 37 iwm call @ cost of $118.34
bot jun 320/330 call/short 33 junQ iwm call @ cost of $153.51
bot jun 350/340 put @ cost of $492.36
short junQ 38 iwm put@ credit of $144.34
short junQ 39 iwm put @ credit of $44.10
bot jun 330/340 call/short junQ 34 iwm call @ cost of $155.06
short junQ 40 iwm put @ credit of $62.58
bot jun 360/370 call/short junQ 34 iwm call @ cost of $153.51
bot jun 420/410 put/short junQ 40 iwm put @ cost of $128.51
bot jun 450/440 put/short junQ 44 iwm put @ cost of $118.54
bot jun 380/390 call/short junQ 39 iwm call @ cost of $138.06
bot jun 450/440 put/short junQ 44 iwm put @ cost of $98.06
bot jun 450/460 call @ cost of $552.36
short junQ 49 iwm put @ credit 0f $527.30
bot jun 470/480 call @ cost of $532.36
 
Well came close to 500 but not quite today. As exciting as that is, I actually have been keeping an eye on the Nazz rather than the RUT over the last few days, specifically the qqqqs (I prefer to follow qqqq since I trade these more often). Why have I been ignoring the RUT and watching the qqqqs when this portfolio is trading rut and iwm? Reason is because the qqqqs have showed a LOT of strength and have been coming closer and closer to reaching a critical point.

The major indices SPX, RUT, Naz tend to move together (the percentage move might be slightly different like by + or - 10 to 15% but the direction is essentially the same). This also means that technically these indices will move the same. So if the leading index breaks through a resistance level and that resistance level becomes support then the probability is very high that the other indexes will also break through their resistance levels. Based on this I've been watching the qqqqs because they are performing the best and are getting closer to the all important 200 EMA test.

Going into today we had the following 200 day lines:

SPX -- 954.63
RUT -- 515.67
IXIC -- 1740
qqqq -- 33.98

The qqqq shot over 34 meaning that it broke through the 200 day line, so if it held above 34 for a few days and confirmed 34 as support then watch out, other indexes should be steamrolling higher. But we'll have to wait because the qqqq pulled back and closed at 33.94 just below that line. So this is it, over the next couple of days we will either gap down on qqqq as the test fails which will pull the rest of the market down as well meaning we start to pullback to around the 445-450 level on RUT. If the qqqq breakout and confirm support at 200 then the RUT is most likely headed towards 540-550. So what the qqqq do over the next few days is key for RUT/IWM as well......and I realize I basically just said that the market is going to either go up or down
:)
My point was we have been sideways consolidating for a couple of weeks and I believe that now we should get a clearer direction for the market for the next two weeks.

As for the portfolio I made several adjustments today:
bot may 370/380 call/short may 38 iwm call@ cost of $168.06
I sold the 370/380 piece and purchased the may 440/450 call so I have the following:
bot may 440/450 call/short may 38 iwm call@ cost of $47.78

I went ahead and added
bot may 510/500 put @ cost of $632.36, I am combining this with short may 50 iwm put @ credit of $408.82 which forms:
bot may 510/500 put/short may 50 put @ cost of $223.54

I sold the jun 420/410 vert from:
bot jun 420/410 put/short junQ 41 iwm put @ cost of $128.51
so now this becomes:
short junQ 41 @ credit of $39.13

and finally I closed the following position:
short may 39 iwm put @ credit of $29.58
I covered the above for $13.45 which resulted in a small profit of $16.13

Strap on your seatbelts, its about to get interesting.
 
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