nfamous option spread journal

N

nfamousyoungest

Keeping a journal of a simulated option spread in SPY. This is a good time to put it on, market 'oversold', because it has the most risk to the upside, so I can practice hedging upside risk.

Position is: +50 104 calls @ 3.23 / -67 106 calls @ 2.04.

Will get to the description in a minute.
 
Okay basically its like a short straddle but its skewed a little bit so it has extreme upside risk and a fixed loss on a bearish move. To me, I can handle upside risk, or so I think anyway, by buying calls to hedge. First way to find out is to simulate it. Market conditions for rally mode are a little bit easier to manage, rather than downside risk on an employment figure or greek debt or any other macro event, IMO.


the other problem i haven't figured out yet is if the short calls go ITM, what is the expectancy for being called on them. I guess I could switch to european, but, spy liquidity is important too, if I ever had to put on size, hah.


welcome to criticism, I have no live experience with this.
 
Two adjustments.


Short -2 103 calls @ 3.64 as we headed south off of Bernanke @ 10am. Premature decision by me, planned not to hedge downside until we broke 1037, but, I did anyhow.

Bought +3 105 calls @ 2.68 as we rebounded.

Unrealized p/l right now sits around -$350, and my risk graph certainly sits in a precarious situation, exactly how I need it to be to see if I can withstand a major move.

A move to 1100 swiftly is a possibility, adding long calls along the way. A slow move up can easily be maintained, but that's unlikely following the recent vola, imo. The moves off of the Feb 5th and July 1st bottom's are what I'm looking for. I simulated the spread during those vertical moves and I took heat but came out ahead.

If we head south again, short vola will certainly affect the p/l but no adjustments until we break 1037/104 on SPY.



unrealized p/l:$-350
 
Reviewing the spread after market, Monday I would factor in 1080/108.50 on SPY as an upside target, p/l would be roughly around -$500 there without any adjustments, and without factoring some more vola coming out of the calls.

No econ #'s out Monday morning. Asia/Europe may bring market higher overnight. Will have to hedge on any bullish move through 1070.

On the downside, don't need any adjustments Monday until 1042/105 on SPY.

Any neutrality between 105-107 SPY /1042-1064 ES would be ideal for the spread.
 
Last night we moved through 1070 on the BoJ announcement/Nikkei strength, I was looking at the ES chain in case I had to make an overnight adjustment, but we retreated.

Around 1:45 right now the market has drifted back to my short strike 106, sitting on roughly -$80 p/l right now. I did kind of want to see the spread blowup if we went straight to 1080 and having to hedge in an uncomfortable situation, but oh well.


No adjustments until we move through 105 or 107 SPY/1042 or 1064 ES.



unrealized p/l:-$80
 
At market close the spread is delta neutral around 105.08, position is pretty much breakeven/slightly positive. Was looking for the worst but ended up with the best,, at least for RTH.

Hedging on the downside if we get to 1037/104.30 SPY, upside is clear to 1064/107.

Now, the downside could come in overnight, there is a plethora of reports coming out from Asia/Europe. If any type of emergency I would be looking at the ES chain again. Nonetheless, the spread is in a sweet spot right here.

unrealized p/l: $0
 
We did get down to around 1037.50 around Europe opening, but another bounce off that level, I guess S&R traders are liking the range. The spread is liking the rangebound activity also but I suppose it can't last forever.

Market is fluttering around my 106 short strike, -33 deltas at 105.53 here @ 2:33 est, though the market does look like it's rolling over.

Downside adjustments somewhere around 104 SPY/lower than 1037 ES.

Don't have to worry about upside until 107 SPY/1064 ES still.

If the market moves lower I'll start to add short calls/long puts to keep the unrealized p/l afloat, if we get any type of rally then it's jackpot.

A good range is -300 deltas to +200 deltas.


unrealized p/l: +100
 
Moved higher overnight to around that 1064 range, was sitting on a decent +200 unrealized after the open, then ISM came out. Bought upside calls after the spike, juiced up premie of course,

+4 108 calls @1.83
+2 108 calls @ 2.00
+1 108 call @ 2.10

sitting on -$400 unrealized right now, at -179 deltas @ 108.30, delta neutral right around 107 SPY (1064 ES).

On the upside, will add calls to stay higher than -300 deltas, which is right around 109.20 SPY/1086.50 ES.

On the downside, selling calls at delta neutral 107 SPY/1064 ES area to keep p/l afloat.

Price does sit in a good part of the spread, as long as I don't let it run away on the upside (which is why I'm trying to keep -300 deltas as a boundary) it's manageable.

unrealized p/l:-$400
 
SPY flirting with 109 SPY, another adjustment:

-2 110 puts @ 2.72.

This widens out the upper breakeven a little, giving more time for some neutrality/reversion to play out.

On the upside hedging again approaching 109.50 SPY.

On the downside, delta neutral is now around 108 SPY/1074 ES, so once/if we approach those levels have to buy some puts to balance out the short put exposure.

IB has some order type algos for options, would need an execution strategy in and of itself to exit this spread live.


unrealized p/l: -$450 (does bounce between $380-$450 with so many legs of course, does include commissions)
 
Alright the spread got ugly pretty quick here, it was what I was hoping for initially but now some other problems are present.


1. Execution. Executing the exit of these legs would require 'work'. Not just market orders on ES, hah. I know IB has some option execution order types that can facilitate some conditionals, but I'd have to study them. The first time I bought an option I had no clue what was going on, imagine exiting this spread.


2. Short Puts. The risk graph wasn't going to stay propped up buying anymore calls, so I sold some puts today. This does bring black swan risk into play, something that I've been trying to avoid ever since I thought of some type of short premium strategy. Fixed loss on the debit of the calls is one thing, but 'unlimited loss', ehh, not sure if I could sleep with that. Mainly because I watched Dubai World move ES 20+ pts overnight (thin book I guess) last November, and ofc flash crash on May 6th.

So I guess this spread doesn't have much practicality unless I had a really good execution strat and an automated system to hedge with ES while I'm asleep.....yeah. But I'll continue hedging the spread to see where it ends up by expiration.

Anyway, sold another put,

-1 110 put @ 2.32.


Really need some neutrality or reversion sometime soon to bring p/l up. Even if we get some reversion and price stays within the spread, positive p/l probably wouldn't show up until expiration week.

Delt neutral around 108.30 SPY. If we cross it I have to buy puts quickly to hedge those short puts.


unrealized p/l: -$715
 
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