$SPY options update

Posted in Options by Jay S on April 20, 2014

20140419 Options Positions

One month in. So far, so good. Profits are back up, with less commissions as a proportion this time around. Churn is bad. There were a few days last week where I thought I would lose my 181/180 short put spread. I’m still considering closing it, given that the implied 2 std dev risk in strikes leans to the downside. The odds are still in my favor, at about an 80% chance of SPY staying OTM relative to both the call and the put spreads.

Pattern statistics agree (see the info box on left side of the chart). With “Inside Week” patterns on the SPY, there is about a 50% chance that the range will duplicate (+/- 10%), with only a 25% chance of an expansionary range. I’m more worried about the expansionary range, of course — but if that were to unfold, I would expect a projected extreme of less than $6.50 ($6.20, according to the model). There hasn’t been a range greater than $6.50 since September 2013.

20140419 SPY Stats

20140419 Options Analysis

This week’s event risks seem normal, with only political tensions in Ukraine being the “known unknown”. I’m still early in the learning curve, so let’s see how this plays out.

Correction: The 171 Short June 14 trade is a put, not a call. Chart is corrected.

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Second week in options sim

Posted in Options by Jay S on April 12, 2014

20140412 Options Trades





This week I changed things up a bit and evaluated trades from a longer term perspective. My understanding of how current underlying prices affect premium at a given strike — in the context of timing when selling premium — is not even at a basic level. The timing of most of the trades was very poor. If I’m being honest, anyone with some experience in this business would probably say that’s because I don’t know what I’m doing. There is so much more to learn.

I’ve given up most of my gains from last week (net of commish).These are current positions. (Numbers in parentheses represent days to expiry.)

20140412 Options Positions

1. The 171 put has a June expiry, not a May expiry.
2. The put spread is long at 180 and short at 181, the opposite of what is represented on the chart above.

Statistically, the calls and puts at the extremes have a good chance of staying OTM, as does the 194/195 spread. The 181/180 spread is about 50/50.

Ideally, I would like to build a profitable strategy where I am able to sell OTM puts and calls with a 90-95% chance of staying OTM. What I’m seeing this past week is that options premiums can evaporate in a hurry. And options that are far out of the money — such as the 171 put — can still cost me a lot of money even though the strike is well OTM. Needless to say, I have some work to do.

For the next couple of weeks, I’ll trade more spreads with smaller size, mainly in SPY. The objective will be to enter at price levels of varying significance, when the right conditions are met — deltas of at least 30% of the bid/ask spread, OTM probability of 68% or better, etc. I noticed that this past week, those opportunities were difficult to find on both the weeklies and the monthlies, so trading may be sparse.

And then there is the issue of finding the time in the morning to enter the trades. The tempo at work will be a little higher through the rest of the month….


Currency trading update

Posted in Currency trades by Jay S on April 6, 2014

201403 Currencies

March profits came early. The last week of the month was pretty much a holding pattern, with only a few more positions added since the beginning of April. I managed to hold NAV to no greater than -2% of my account balance, and finished out the month at just -0.4%. Keeping NAV volatility low — i.e. less than 2% in either direction — is a mainstay objective.

Less than 1% of realized gains for the month were from position interest. (Account interest is negligible.) I expect that number to be slightly higher for April, because I expect to hold onto higher yielding trades and add a bit more exposure over the next few weeks. I also expect my realized gains for April to be less than 2%.

March trades:

201403 Currency Trade Log

Currently, NAV is sitting at +0.22% and it looks like the euro trade is about to roll over in my favor. (I hope so.) I may need to adjust my strategy to accommodate positions with a negative roll, depending on whether we see a bounce in the yen this month. At this point, I’m not a big fan of long yen positions, directly or by proxy. Still not convinced that there will be a pullback in yield, so I’m holding AUD and NZD trades.

First two weeks in options sim

Posted in Journal, Options by Jay S on March 29, 2014

Two weeks into verticals and selling a few OTM puts with the simulation account on TOS.

Options Sim for March 2014



Over the past two weeks, I’ve grossed $2,310. The downside is that I paid $1,354 in commissions. They said TDA was expensive and now it is good to see just how much. I paid about $1.25 per contract. At IB, I would have paid between $0.45 and $1.00. At OptionsHouse, I believe I would have paid an average of $0.55. Someone please correct me if I’m wrong. Taking a serious look at them for a second account. I don’t think I will ever go back to IB — too many clicks to execute anything more complex than a simple put or call, and I will never trade options in the way SangLucci does. Call me a herb, but I don’t have the stomach for it.

Either way, this won’t do. I’ll have to negotiate with the brokers at TOS for a lower rate. A much lower rate.

I’ve reached out to a few guys on how to do this and will report what I find.


Equity curve snobbery

Posted in Blah blah blah by Jay S on March 24, 2014

I love it when people ask me about my equity curve in FX. Especially other punters.

Them: “So what do you earn in a year?”

Me: “So far, I’m earning an average of 8%pa since inception, but that includes my time in Afghanistan from 2010 to 2012. This past year, for example, I made more than 12%.”

Them: “Oh…” [Read: Trying not to sound too disappointed.]

Hah! Let’s see *you* do that then. And while we’re at it, let’s see how the very large and in charge currency-only hedge funds did — and then let’s see what their average NAV was over time, and how it tracked their equity curve. And then let’s see from month to month how volatile their accounts were. That’s right, there is nothing to see…most of them were under water.

And those that outperformed, will do so only temporarily because they are exploiting anomalies in the markets that will soon normalize…and then they will crash. I’ve seen it happen with some regularity.

Ladies and gentlemen, I’m just fine with my paltry 12% per year, because it is robust. And it isn’t affected by high frequency trading or anything close to it.

I’ll probably hit 14% this year. That will be very nice. Thank you very much.

#LOL #youdontknowjack #idontgivea #toomanybourbonstonight


Long $AUDJPY 93.49

Posted in Currency trades by Jay S on March 9, 2014

AUDJPY 20140308


Still short EURUSD, which is negative on the roll. Looking for offsetting trades, and this one popped up. No target for this one as the overall view is still developing. Already up approximately 1% for the month after closing several trades last week.


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Currency trading update

Posted in Currency trades by Jay S on March 1, 2014

20140228 Currencies

I’ve begun increasing position sizes based on account balance and NAV, and should start to see a slight acceleration in the equity curve going forward. This accounts for the above average returns in February, although it is difficult to calculate just how much. There were several short term trades contributing to gains this month. Long term positions are under water at the moment — at about -1.8%. I expect further movement to the downside, and in keeping with the Knotty Warhol, will add to my positions in higher yielding pairs at key price levels over time, capturing more yield and adjusting my cost basis to take advantage of the inevitable retracements.

Trades taken this month have been in the following currency pairs:

201402 Trades

On the blog generally, I’ve found it difficult to keep up. Plans to include the futures and options models are on hold for now, as I’ve just started a new assignment. I will probably be posting more over the weekend on longer term chart structure and stats for futures and some equities.

Short $EURAUD 1.5363

Posted in Currency trades by Jay S on February 20, 2014

EURAUD Short 20140220

EURAUD short order triggered overnight at 1.5363. First target is a little optimistic, at 1.4664. I’ve been playing around with this pair for a few weeks — moving entry orders around to find the right price. It looks like there is some potential with this one, but that’s what I thought about my CAD trades…

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Long EURJPY 1.3962

Posted in Currency trades by Jay S on February 17, 2014

EURJPY 20140216

An emerging triangle on the daily charts has me thinking this pattern will break. This is a continuation pattern in my judgment, given that the high and low sides are roughly symmetrical, and given that volatility remains low.

I’ve entered one unit long at 1.3962 in anticipation of a choppy move higher. The bandwidth of that chop in the first few days to two weeks after completion of the current pattern should see opportunities to take profit in the 142.xx to 143.xx range, with opportunities to add at 133.xx if the first break is to the short side. The alternative scenario, if the pair breaks below and continues lower, is to scale in with the Knotty method, and wait for a return to balance in the next distribution.

This conversion from a directional play to a range play is possible because of the long term chart structure — EURJPY is currently sitting at an inflection point. If the pair falls to last summer’s range (128.xx to 134.xx), and the Knotty is fully deployed at levels within that range, I will have an average cost basis of 135.15, which should be achievable. Total risk would be roughly 7-8% on a long term position, which the Knotty is designed to handle comfortably.

So let’s see how this plays out.


Short CADJPY 93.10
Long USDCAD 1.0966
Long EURJPY 139.62
Short EURUSD 1.3529

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Currency trading update

Posted in Currency trades by Jay S on February 14, 2014

Knotty January 2014

January proved to be a little volatile. I have a gift for stating the obvious, I know.

I’m staying with yield trading strategies for now. AUD was the single greatest contributor there. Anyone trading currencies — or any asset class that offers premium, for that matter — should definitely take advantage of yield. 12% of my gains this month were from trading in the direction of higher interest rate differentials. This makes a huge impact.

My largest trade was an AUDUSD position with an average cost basis of around 89.15. Quick gains were made from EURNZD and GBPCAD crosses as well. I am staying away from the USDJPY for now. Currently short EURUSD, long AUD via USD and JPY, and long CAD via both USD and JPY. These are all very long term positions, with significant possibility for directional moves against my initial entries.

I released some AUD longs in January which contributed to about half of my gains, and anticipate holding (and building) a core position for the long term depending on the interest rate outlook. If data out of China take a turn for the worse — which is entirely likely — I’ll have to reassess. The outcome of that assessment will probably mean that I add more at lower price levels, consistent with the Knotty Warhol method.


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