Trade Critique

A

Andy_Trade

Hello all,

I'm new to trading, spent the last 3 months or so learning about options and stocks, and esp. the last month learning about Delta Neutral trading.

I lack a lot of knowledge about DN trading, particularly the proper way to calculate your adjustment strategy.

Anywho, I decided to jump into paper trading for a good long while until I get the hang of things, so I entered some trades this past week. I would like to post them, if I may, and it would be most helpful if some experienced options traders would critique these trades along the way.

I've made some colossal errors, most of all adjusting the deltas completely backward for the trades!

Please try to not give any advice as to what to do next, only critique the past and tell what I should have done instead. We'll see where things go as the trades unfold.

Thanks!
 
WYNN Short Strangle Delta Neutral entered on 10/22/07. WYNN trading @ 151.39

Sold 4 175 Calls @ 2.25 Delta .24
Sold 8 125 Puts @ 1.30 Delta -.12

Delta = 0

10/23 WYNN closes @ 158.50

4 175 Calls 2.25 - 2.75 = -200 loss.
8 125 Puts 1.30 - .75 = +440 gain

-200 + 440 = +240 unrealized gain.

Delta of calls .19 x 400 = +76
Delta of puts -.09 x 800 = -72

Total delta = +4 (I know this is incorrect since I'm selling positive delta and vice versa the delta should be -4, but this is where I messed up and I want to post the trades as they actually happened)

10/24

WYNN closes @ 155.54

Delta of calls .24 x 400 = +96
Delta of puts -.08 x 800 = -64

+96 - 64 = +32 Delta.

Again this is wrong but I did not yet catch my error so I wanted to neutralize by selling a 170 call @ 4.00 with a delta of .32.

So at the end of the day the position is as follows:

4 175 calls 2.25 - 3.50 = -500 loss
8 125 puts 1.30 - .82 = +384 gain
1 170 call 4.00 - 3.00= +100 gain

-500 + 384 + 100 = -16 unrealized loss.

Delta is at 0 (or so I thought, it's actually at -64)

10/25

WYNN closed @ 156.68

So today was the day I saw my gross error and after calculating the delta it is now -70.
(4 calls .25; 8 puts -.07; 170 call .26)

So to gain 70 delta I immediately bought back the 170 call @ 4.20 for a realized loss of 20 but a gain in delta of .26. Then I sold 2 140 puts @ 2.00 with a delta of -.23 for a gain of 46 delta.

Now my delta error is corrected and real delta is +2. (-70 + 26 + 46 = +2)

Position is as follows:

4 175 calls 2.25 - 2.75 = -200 loss
8 125 puts 1.30 - .63 = +536 gain
2 140 puts 2.00 - 2.45 = -90 loss

-200 + 536 - 90 = +246 unrealized gain.

-20 realized loss on the 170 call.

10/26

WYNN moves up to close @ 164.65

4 175 calls .24 x 400 = +96
8 125 puts -.07 x 800 = -56
2 140 puts -.22 x 200 = -44

+96 - 56 - 44 = -4 but for me this is +4 delta because I'm selling.

At yesterdays close the position was as follows:

4 175 calls 2.25 - 3.70 = -580 loss
8 125 puts 1.30 - .30 = +800 gain
140 puts 2.00 - 2.00 = 0

-580 + 800 + 0 = +220 unrealized gain.

-20 realized loss on the 170 call.

This is where the trade stood when the day ended yesterday. I checked the deltas this morning and they are now as follows:

175 calls .32 x 400 = +128
125 puts -.05 x 800 = -40
140 puts -.14 x 200 = -28

+128 - 40 - 28 = +60 but this is a negative for me because I'm selling so the real delta is -60.

So I need to start thinking about how to neutralize on monday.

Thanks for all advice and critique. I'll post a couple other trades that I'm in later.
 
MSFT Short Straddle Delta Neutral entered on 10/22/07. MSFT @ 30.55

Sold 6 30 Calls @ 1.25 Delta .54 = +324
Sold 7 30 Puts @ .73 Delta -.46 = -322

Delta is +2 (supposed to be -2 for my trade)

10/23

MSFT closed @ 30.90

Delta of calls .60 x 600 = +360
Delta of puts -.40 x 700 = -280

Delta is +80 (or so I thought) so I decided to "neutralize" my trade by shorting 80 shares of MSFT @ 30.85.

Position:

6 30 calls 1.25 - 1.53 = -168 loss
7 30 puts .73 - .62 = +77 gain
80 short 30.85 - 30.90 = -4 loss.

-168 + 77 - 4 = -95 unrealized loss.

10/24

MSFT closed @ 31.25

While trading @ 31.03 the deltas were as follows:

6 calls .65 = +390
7 puts x -.35 = -245
80 MSFT short = -80

390 - 245 - 80 = +65 delta (or so I thought) so I decided to "neutralize" by buying a 32.50 put @ 1.88 with a delta of -.73, leaving a delta of -8, so I bought back 8 shares of the shorted MSFT @ 31.05.

So I'm thinking my delta is 0 when it's actually -290 EGAD! :eek:

As for the position:

6 30 calls 1.25 - 1.81 = -336 loss
7 30 puts .73 - .52 = +147 gain
72 short MSFT 30.85 - 30.98 = 1.04 loss
1 32.50 put (long) 1.88 - 1.83 = -5 loss

-336 + 147 - 28.80 - 5 = -222.80 unrealized loss

10/25

MSFT closes @ 31.99

I realize my error and see that the delta now is actually -348

So I bought back the 72 shares @ 31.79 to gain 72 delta. I sold the long 32.50 put I had @ 1.31 for a delta gain of 66. Then I sold 7 more 30 puts now @ .35 with a delta of -.30 so I gained 210 delta.

-348 + 72 + 66 + 210 = 0 Finally the delta is actually neutralized.

Position:

6 30 calls @ 1.25 - 2.30 = -630 loss
7 30 puts @ .73 - .31 = +294 gain
7 30 puts @ .35 - .31 = +28 gain

-630 + 294 + 28 = -308 Unrealized loss.

Realized loss of 67.68 on 72 shares.
Realized loss of 1.04 on 8 shares.
Realized loss of 57 on 32.50 put.

67.68 + 1.04 + 57 = -125.74 Realized loss.

10/26/07

Here's where things really get ugly. I should have kept in mind the deal with Facebook that MSFT just got...DOH!

MSFT gaps up and trades up to about 36 then closes @ 35.03

I decided to cut my losses and get out of this painful trade.

I bought back the calls @ 4.90 for a loss of 2,190. Bought back the 14 puts @ .03 for a gain of 714.

-2,190 +714 - 125.74 = -1,601.74 loss on what was supposed to be a DN short straddle.

:(

More to come...
 
Sorry I made a mistake in the MSFT post. The realized loss on the 8 short MSFT shares is actually 1.60, not 1.04.

So the total loss is off by .56.
 
GOOG Short Strangle Delta Neutral trade entered on 10/22/07. GOOG closed @ 650.75.

Sold 5 730 calls @ 1.70 Delta .08 = +40

Sold 5 570 puts @ 2.40 Delta -.08 = -40

Total Delta = 40 - 40 = 0 Delta.


10/23/07

GOOG gaps. closed @ 675.77.

Delta of Calls = .08 x = +40
Delta of Puts = -.07 = -35

(So of course again I'm thinking the delta of this trade is +5)

Bought back 2 730 calls @ 4.10 with delta of .08. for a realized loss of 480

This leaves us with 3 730 calls each with a delta of .08. 3 x 100 x .08 = 24 Delta

The 570 puts delta is -35.

24 - 35 = -11 delta. (or so I thought)

To offset the negative delta, sold 1 590 put @ 1.50 with a delta of -.12.
-11 + 12 = +1 (but it's really +23)

Position:

3 730 calls 1.70 - 4.40 = -810 loss.
5 570 puts @ 2.40 - .75 = 825 gain.
1 590 put @ 1.50 - 155 = -5 loss.

-810 + 825 - 5 = +10 unrealized gain.

Realized loss of 480 on the 2 730 calls.


10/24/07

Price of sold options now:

3 730 calls Delta .16 = +48
5 570 puts Delta -.03 = -15
1 590 put Delta -.07 = -7

I think delta is +27 when it's actually -26

Because of this I sold 2 740 calls @ 2.60 with Delta of .13 to "neutralize". -26

I think my delta is now +1 when it's really -52.


10/25/07

GOOG closed @ 668.51

So now that I know I'm really -52 delta, I can adjust properly.

I sold 4 620 puts @ 3.60 with delta of -.13 to neutralize.

-52 + 52 = 0

Position now consists of the following:

Sold 3 730 Calls @ 1.70 - 3.00 = -390
Sold 2 740 Calls @ 2.60 - 2.30 = 60
Sold 5 570 Puts @ 2.40 - .65 = 875
Sold 1 590 Put @ 1.50 - 1.10 = 40
Sold 4 620 Puts @ 3.60 - 3.30 = 120

705 unrealized gain.

480 realized loss


10/26/07

GOOG closed @ 674.60.

Deltas:

3 730 Calls .14 = 42
2 740 Calls .11 = 22
5 570 Puts -.03 = -15
1 590 Put -.05 = -5
4 620 Puts -.14 = -56

Delta for trade is +12.

Decided to adjust.

Bought back the 590 @ .73 for a 77 realized gain.

Bought back 2 570 @ .40 for a 400 realized gain.

477 total realized gain.


Position now consists of the following:

3 730 calls @ 1.70 - 2.45 = -225
2 740 calls @ 2.60 - 1.70 = +180
3 570 puts @ 2.40 - .40 = +600
4 620 puts @ 3.60 - 2.05 = +620

+1,175 unrealized gain. 480 realized loss, 477 realized gain.
 
The best advice I received in trading was to look at my positions every day and decide if the current price is one that I would enter at now. If so then continue with the current trade. If not, then adjust or exit.

With that said:
1) Why did you enter the short straddles to begin with? Short vol, distro play, etc.

2) Why did you adjust as you did? Certain delta or price level, or some other reason?
 
Even tho it may be a bit more work for you, here are some suggestions:

Start a separate chain for each position that you want to discuss. If people reply, the intermingling of responses to MSFT and WYNN (and other possible positions) is going to make it tough to keep track of.

Redo your format with the correct sign and total delta rather than perpetuating it forward. Where you were say -70 delta when you thought that you were neutral. you can make a note as to the mistake that caused it. Having to go forward every day with the error and with a notation for what it should be rather than what it is makes a complex position more difficult to follow.

For you to process... WYNN is scheduled to report earnings on 10/30. IV is inflated so you will benefit from a contraction. OTOH, how many contracts do you want to be short going into an earnings release and are you comfortable with the distance that the stock is away from them? What will you do if WYNN blasts up (or down) during after hours? At what price will you do it (buy or sell stock to protect your royal nakedness)? How many shares will you buy or sell? What's the game plan?

Just some random thoughts...
 
AAPL Short Strangle Delta Neutral on 10/22/07. AAPL @ 173.74

Sold 10 210 calls @ 1.05 Delta +.11
Sold 10 140 puts @ 1.00 Delta -.11

Delta = 0.

10/23

Apple goes up big.

Delta of calls +.09
Delta of puts -.07

Delta is off but since the puts are now trading at .15 I decide to take the money and run.

10 140 puts @ 1.00 - .15 = +850 realized gain.

This leaves a delta of +90 on the calls so the trade is -90 since I sold them.

To neutralize I sold 10 160 puts @ .59 with a delta of -.09. Position is now at 0 delta.

AAPL moves sideways the rest of the week closing fri. @ 184.70.

10 210 calls @ 1.05 - .53 = +520 unrealized gain
10 160 puts @ .59 - .54 = +50 unrealized gain

520 + 50 = 570 unrealized gain

850 realized gain on the 140 puts.

Delta of calls is .07
Delta of puts is -.06

Total delta = -10
 
Quote from nikko309:

Even tho it may be a bit more work for you, here are some suggestions:

Start a separate chain for each position that you want to discuss. If people reply, the intermingling of responses to MSFT and WYNN (and other possible positions) is going to make it tough to keep track of.

Redo your format with the correct sign and total delta rather than perpetuating it forward. Where you were say -70 delta when you thought that you were neutral. you can make a note as to the mistake that caused it. Having to go forward every day with the error and with a notation for what it should be rather than what it is makes a complex position more difficult to follow.

For you to process... WYNN is scheduled to report earnings on 10/30. IV is inflated so you will benefit from a contraction. OTOH, how many contracts do you want to be short going into an earnings release and are you comfortable with the distance that the stock is away from them? What will you do if WYNN blasts up (or down) during after hours? At what price will you do it (buy or sell stock to protect your royal nakedness)? How many shares will you buy or sell? What's the game plan?

Just some random thoughts...
More...

Thanks for your reply, nikko309.

I just put the trades in separate threads and will leave WYNN here. I'm sorry I didn't quite get what you said about redoing the signs and perpetuating forward...:confused:

Yes the earnings report is a concern. I like the short strangle delta neutral because of the big drop in price earlier this month. The China resort is bringing in a lot less than what was expected for now. I don't expect the report to be so dismal, however, that it plummets. I would be more suprised if it went down 20 points than go up 20 but anything can happen. I put it anywhere between 150 and 180. So to adjust, as of now, I may buy back half of the 175 calls to bring the delta almost to 0. At least I won't be as at much risk should the stock make a huge jump. Or I could buy back 1 call and sell 2 more 140 puts. I'll be watching this one by the tick. We'll just have to wait and see.
 
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