Selling Premium from a Macro Trader's Perspective

[tnatrader]

Another week is in the books. I truly get it when these old stock traders are still surprised with the markets even though they been trading since Calvin Coolidge was president. No way I saw that late afternoon rally coming, but with hindsight it seemed so damn obvious with that consolidation:

That's why I'm not a technical analysis trader, I guess.

Sold 4 more puts near the open today and I will need to buy 600 shares at the open on Monday. My 54.5 puts were super in the money and I was counting on them being put to me, then I watched some Netflix, and bam the deltas were 0.

I'm still bullish, but we may need to meander aimlessly around this resistance for a few more weeks. Dumb money is super bullish right now, but no signs of an impending crash. Thesis of no crash = sell more covered strangles.

Open Positions after Assignments tomorrow:

Closed pnl for this week:

 

[tnatrader]

Hello friends: another late day rally most likely means I'll have buy shares tomorrow morning at the open. Aside from that, not much has changed as we will keep selling these covered strangles.

 

[tnatrader]

With hindsight, it was obviously a mistake to buy shares at the open, but it's what happens when you need to add delta quick. It was only 400 shares so not a big deal in the grand scheme of things. Looking to sell 3 54 puts at the open tomorrow assuming no big gap. I'm still bullish.

 

[tnatrader]

It seems for a second week in a row, UPRO gets stuck near a nice even number, which is also where I have the lion's share of puts/calls. This probably means I'll get my shit pushed in for next week, so we'll see. I believe my calls will be exercised and puts will expire and the spreadsheets will be updated to reflect that.

Moving forward, there's an ongoing issue of liquidity with UPRO, particularly on Thursdays. It seems randomly, the MMs won't even provide a bid sometimes for atm strike even though they should be worth ~$.30 according to IB. Next week, I'll move one week out so on Mon I'll sell the 5/17 contracts. Assuming we don't gap, looking to sell 4 55 puts Monday morning. If we gap up, I'll sell the slightly ITM puts, either 55.5 or 56 puts instead of buying the shares outright. Tired of top ticking this thing.

Oh yeah I'm still bullish, if you couldn't tell. PS: don't read dest's journal, makes my trading look like a huge waste of time.

 

[tnatrader]

Finally some volatility! I'm still bullish, but it looks like we have to hang around this area for a while before breaking new highs. We are near support levels at ~285 on SPY, which is the broken resistance from March, as well as the lower 25 day bollinger bands, and 50 day MA. If we drop below this, I will have to seriously revisit my bullish expectations.

I will start selling calls above 52.5 and looking to sell at least 4 more puts tomorrow.

 

[tnatrader]

Since the market's been down a bit, I have been thinking about how to visualize drawdowns for option sellers: compare the unrealized losses to the amount of option premium collected (realized gains). See how many days/weeks/months back you have to go before the unrealized losses are smaller than the gains. So currently, I know I'm doing well as I am still showing a slight gain for May and I know the index is down for this month. Actually nevermind, I just looked again and I'm slightly down. But the point remains.

Taken one step further, this is a good way to determine whether collected premium should be counted as gains or lowering basis to determine breakeven. B/E is important in my system as I use that as the minimum ATM strike for selling covered calls. I am currently doing this weekly as premium from open contracts are combined with open pnl from shares to determine break even. But as soon as the options expire, they are put down in the gains column.

It would be great if we can start carving out a bottom here. We do have some great MA support that we just tagged and bounced off of today. Looking to sell another 2-4 puts tomorrow morning and start selling 52.5 calls if it gets near the money.

 

[tnatrader]

Bake em away toys, another week in the books. I remain bullish and this area on SPY was good support as I thought. For this week, I'll have 600 shares put to me which is perfect. Next week, looking to start slowly selling some slight OTM calls when it trades near 52. I will continue to sell 2-3 puts per day as well. Closed trades here.

 

[tnatrader]

So I have been obviously wrong on my short term bullish thesis, but this brings about a good point about what actually constitutes being a good macro trader. There's two distinct parts to this; the first is the obvious: how correct you are about how the market will react to macro events. Here I shit the bed and I'll be the first to admit my short term macro swing trading needs some work. But the second part to being a good macro trader, and a good trader in general, is understanding your limitations and what you are good/bad at. I know my short term timing suck, which led me to selling premium to express my position. It's the simplest way to make a delta bet with a built-in cushion.

With that out of the way, let's vivisect my losses. Compared to any index, it ain't so bad, but I really did not expect this level of ferocious selling since a lot of the big guys are already cautious and hedged on equities before the selloff started. It has been a hated rally and thus I expected any dip to be minor (<3%) and to be bought. Moving forward, I remain bullish--the old rule is would I buy here? The answer is a resounding yes. The last strong support was good for a one day bounce and today's entire candle is outside the 25 day 2 st dev BB, which is usually at least good for a short term bounce. There is also strong confluence of support at ~275 level on SPY. I will not become bearish unless we break decisively below that.

There is also some misconceptions about the trade war in general. It's not Trump v China. When Trump tweeted hardball against China a week ago, guess who came to his defense? Chuck Schumer. So if somebody like him defends Trump against China, this isn't just an ego-driven Trump going overboard. This is Cold War 2.0. Trump can get impeached tomorrow and whoever replaces him, Dem, Republican, or even Jeb! it won't matter. This is just a prologue of a decades long simmer between these two world powers. It just so happens Trump doesn't know how to do subtle, but this kerfuffle would've happened with or without Trump.

Sold 4 more puts today and I'm keeping these trades small, about 2% of portfolio each. Since I'm bullish I will sell a few more tomorrow and looking to do CCs if we can trade to 51.5.

 

[Specterx]

Nice journal. Is there any particular reason you're confining yourself to just one symbol? If you think you have an edge in macro then it seems like you'll get far more opportunity, plus diversification benefits by adding a few other symbols. Also, often the clearest macro plays occur outside of the crowded developed markets - eg USDTRY this year and last was/is a classic Political Economy 101 situation.

I'm asking mainly because you say your strategy is macro, but in practice it seems more like SPX short-term trend following. Nothing necessarily wrong with the latter, but it's hard to make things work unless you know exactly what your niche is, what your edge is, and where it comes from.

 

[tnatrader]

Nice journal. Is there any particular reason you're confining yourself to just one symbol? If you think you have an edge in macro then it seems like you'll get far more opportunity, plus diversification benefits by adding a few other symbols. Also, often the clearest macro plays occur outside of the crowded developed markets - eg USDTRY this year and last was/is a classic Political Economy 101 situation.

I'm asking mainly because you say your strategy is macro, but in practice it seems more like SPX short-term trend following. Nothing necessarily wrong with the latter, but it's hard to make things work unless you know exactly what your niche is, what your edge is, and where it comes from.

Hi Specterx, thanks for the reply. I guess it was a bit of clickbait to call myself a macro trader. My niche is the US market so in effect, you are correct: I'm more of a SP500 market timer where I try to be long delta by being short premo during bull/sideways market and in mostly cash during bear markets. However, my benchmark is a balanced global portfolio because if my analysis ever concludes that the US market will begin to lag behind on a secular basis, like French or Japanese equities, I will look elsewhere.

I also view the stock market as the simplest vehicle for volatility, especially with these relatively liquid 3x etfs. Even though on average the stock market (SP500) returns ~8% per year, it actually very rarely returns 8%/year. The returns are lumpy, seeming to trade in different "regimes" where they either do nothing, or return outsized returns/losses. Knowing this, my whole analysis revolves around avoiding those shitty years. That's my specialty, but you can argue that isn't an edge since it's what every investor out there is trying to do, but you need to have some conviction in your abilities in this game.

My next step with my education would be moving into futures, but I am not at the point yet to trade with real money. It took me 7 years to move from equities to options!