Steve Osborne's Journal

S

steveosborne

Consensus on the state of the economy has shifted towards a strong, accommodated, economic growth scenario.

Recommended position:
- Buy DJIA
- Sell 30 Yr Bond
Monday morning (05/16/2005).
 
THE WEEK IN REVIEW

The stock market's reaction to price and employment data released this week confirmed that there was a building consensus that the Fed is not alarmed by the healthy pace at which the economy is growing.

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Transactions made:

May 16th, on market open
- bought 2 JUN05 DJIA 10200 calls at $1,650 each to open a position.
- bought 2 JUL05 30 Yr Bond 116'00 puts at $1,625 each to open a position.

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Portfolio Value:

May 16th (at market open)
2 x JUN05 DJIA 10200 calls @ $1,650 = $3,300
2 x JUL05 30YR 11600 puts @ $1,625 = $3,250
Total = $6,550

May 20th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,325 = $6,650
2 x JUL05 30YR 11600 puts @ $1,625 = $2,281.25
Total = $8,931.25
 
Erratum:
The second to last line in the previous post should read
2 x JUL05 30YR 11600 puts @ $1,140.62 = $2,281.25

(with $1,140.62 instead of $1,625)
 
THE WEEK IN REVIEW
A new stock market rally was interrupted a week ago on Friday, May 20th, and postponed until next week, after Memorial Day weekend. Bonds should have started going down but benefited from the interest of international investors, who are switching from European equities to US dollars and bonds.

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Portfolio Value:

May 16th (at market open)
2 x JUN05 DJIA 10200 calls @ $1,650 = $3,300
2 x JUL05 30YR 11600 puts @ $1,625 = $3,250
Total = $6,550

May 20th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,325 = $6,650
2 x JUL05 30YR 11600 puts @ $1,625 = $2,281.25
Total = $8,931.25

May 27th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,700 = $7,400
2 x JUL05 30YR 11600 puts @ $781.25 = $1,562.50
Total = $8,962.50
 
THE WEEK IN REVIEW
The stock market was very quick in moving from a phase where it doesn't fear the Fed anymore to believing that there is not enough growth.

I would dump my long DJIA position if I believed that employment was slowing down but I don't think it's the case after looking at employment data in details. The market appears confused in an early phase of a bull market that should bring the Dow to 11,000.

-----------------------------------------------------------------------------
Portfolio Value:

May 16th (at market open)
2 x JUN05 DJIA 10200 calls @ $1,650 = $3,300
2 x JUL05 30YR 11600 puts @ $1,625 = $3,250
Total = $6,550

May 20th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,325 = $6,650
2 x JUL05 30YR 11600 puts @ $1,625 = $2,281.25
Total = $8,931.25

May 27th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,700 = $7,400
2 x JUL05 30YR 11600 puts @ $781.25 = $1,562.50
Total = $8,962.50

June 3rd (at market close)
2 x JUN05 DJIA 10200 calls @ $3,000 = $6,000
2 x JUL05 30YR 11600 puts @ $265.63 = $531.25
Total = $6,531.25
 
JMHO, you can make a buck with long-only option trades as an underlying sub. That is, if you have a good system with an edge that gets you in at the proper time.

It's a tough trade sometimes (most of the time!), but it can work out...

But not if you don't take profits after you get a good move . This can mean writing some ops to spread your long ops and grab some prem, or just selling them when a good target is reached.

You are down 27% from May 27 to Jun 3. Ouch, big hit. Sure, they were profits, but they were still yours :(

Good luck and I hope it works out. :)
 
Thanks Choad for your comments.

I have a confession to make about my original decision to buy Treasury puts. I never commented on why I shorted bonds because my decision was simply based on the output of a program I built to select that position as an hedge to my long DJIA position. I was never convinced it was a good move (and never commented on it indeed) and, sure enough, when revisiting my code this week, I realized my program had a bug. After fixing the bug, it was clear it was not the right thing to do but it's too late now -- not worth selling at $265.63 a piece.
 
You certainly made a good trade with the long DJ!

But I've found that an underlying move of 10-12% (for stocks) over 20-40 days is a good spot to take, at least some, profits. Trying to get more than that has cost me too many times! Reverses come fast and furious...

Good trading to you.

Regards.

C
 
THE WEEK IN REVIEW
Deadlock. The recent spike in oil prices is keeping many buyers on the sidelines.
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Portfolio Value:

May 16th (at market open)
2 x JUN05 DJIA 10200 calls @ $1,650 = $3,300
2 x JUL05 30YR 11600 puts @ $1,625 = $3,250
Total = $6,550

May 20th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,325 = $6,650
2 x JUL05 30YR 11600 puts @ $1,625 = $2,281.25
Total = $8,931.25

May 27th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,700 = $7,400
2 x JUL05 30YR 11600 puts @ $781.25 = $1,562.50
Total = $8,962.50

June 3rd (at market close)
2 x JUN05 DJIA 10200 calls @ $3,000 = $6,000
2 x JUL05 30YR 11600 puts @ $265.63 = $531.25
Total = $6,531.25

June 10th (at market close)
2 x JUN05 DJIA 10200 calls @ $3,175 = $6,350
2 x JUL05 30YR 11600 puts @ $234.38 = $468.75
Total = $6,818.75
 
Liquidating my short position on bonds at 25/64 per option. Not much money but better than nothing, which is where I've been expecting the Jul 116 Put to go after identifying the programming error that made me select this position to hedge my long DJIA position.
 
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