***Closed***SPY calendar spread initiated on 4 Aug 2009
10 Sep: Close Trade
SPY (Standard & Poors Dep Rec) Calendar Spread initiated on 4 Aug 2009
Trade Type: Bonus Trade
Trade Summary
10 Sep 2009
SPY at 104.67 (+0.92)
8 days to Sep expiration
Action: Close put spread (close entire trade).
Buy to close SPY Sep 100 Put
Sell to close SPY Sep 98 Put
For a net price of $0.13 debit or better. [All TOS autotrade participants were filled at $0.13 debit.]
Profit or loss: -$33 per entry
Analysis
We’re taking advantage of the current rally to close up this trade. In summary, we entered this SPY calendar on 4 Aug 2009 for $1.37 debit. On 21 Aug (expiration), we let the short Aug 98 put expire worthless. We then sold a Sep 100 put against our long Sep 98 put on 28 Aug for $1.17 credit. Today, we closed the entire trade for $0.13 debit. This trade made a loss of $33 per entry.
On hindsight, we could have made a pretty neat profit from this trade. But we miscalculated. Fortunately, we managed to reduce our loss and finally ended up with a manageable loss.
We’re scouting for new trades for Oct and we should have some new trades coming pretty soon. Hopefully, we can make more profits for the coming months.
Good trading,
Gary
*****Trade History*****
28 Aug: Adjustment
SPY (Standard & Poors Dep Rec) Calendar Spread initiated on 4 Aug 2009
Trade Type: Bonus Trade
Trade Summary
28 Aug 2009
SPY at 103.15 (-0.25)
21 days to Sep expiration
Action: Sell Sep 100 put against the long 98 put.
Sell to open SPY Sep 100 Put
For a net price of $1.17-1.19 credit or better. [All TOS autotrade participants were filled at $1.19 credit.]
Net margin required: $220 per entry
Analysis
Like I said in the previous update, this is a good trade gone bad and we’re in damage control mode. Holding on to a long SPY 98 put is not a good idea because day after day its value will decay and eventually go to zero if SPY trades above 98. And there is a high chance that SPY will trade above 98 for the next 20 days.
Basically we have a few ways to adjust this trade to try to turn it around. The most straight forward way is to close up the long puts and suffer a loss. Selling these puts now for $0.80 will result in a loss of $57 per entry. This is not something we like. Instead of locking in this loss, we can try to minimize our loss by selling the Sep 100 puts against our long Sep 98 puts.
We will now end up with
+Sep 100 put
- Sep 98 put
for a net $0.18 debit. Now, this is now a bull put spread (it is a bullish spread). In the best scenario, we lose $18 per entry. In the worst, we lose $218. Of course we won’t let the loss of $218 to happen! Remember that we could have closed this entire thing if we’re willing to take a loss of $57 today. As long as we end up losing less than $57 eventually, this adjustment is a success.
Now, while it sounds like a lose-lose situation (either we lose $18 or we lose $218), there is a silver lining out there. If we’re lucky enough to be able to sell a bear call spread in the coming sessions and collect more than $18 in credit, we’ll have an iron condor for a net credit! In another words, we will attempt to leg-in another call spread to complete the iron condor. We will try to sell the call spread on a up day to squeeze the most credit from it. While this idea of selling a call spread to complete the iron condor sounds good, we must always remind ourselves to watch our risk. It will be pointless to sell a call spread to complete the iron condor and then end up with a bigger loss.
Let this be a lesson to all of us. And let this be the last good trade gone bad.
Good trading,
Gary
*****Trade History*****
21 Aug: Update
SPY (Standard & Poors Dep Rec) Calendar Spread initiated on 4 Aug 2009
Trade Type: Bonus Trade
Trade Summary
21 Aug 2009 (Aug expiration day)
SPY at 102.62 (+1.63)
0 days to Aug expiration, 28 days to Sep expiration
Action: Do nothing, let Aug put option expire worthless.
Analysis
This calendar was showing a pretty profit just 2 days ago. If we had closed the entire trade back then we’ll have locked in a pretty neat profit. At one point it was trading at $1.95 credit. If we had closed up this trade then we would have profited $58 per entry on a margin of $137 per entry. That is a cool 42.34% profit!
But we didn’t.
So not only we didn’t pocket the profit that we almost had, we’re now facing a paper loss. We made a bad call. We thought the correction would continue on for one more day. We were that close to closing this trade 2 days ago!
For now, we’re in damage control mode for this trade. We’ll let the short Aug put expire worthless today and hold on to the long Sep put for a while. As you know, we don’t like holding on to decaying assets. So, we’ll try to get rid of it as soon as we can. We’re waiting for a sharp move down to near the 98 level. As long as this sharp downward move happens quickly (in the next few trading sessions), we might even get away with a pretty decent profit comparable to the one we missed out a few days ago.
Our stop-loss signal will be when the Sep 98 put trades below $1.00 and the SPY is showing good strength in the rally.
This is a good trade turns bad… hopefully, we’ll be able to turn it around again!
Good trading,
Gary
*****Trade History*****
4 Aug: Initiated new SPY calendar spread (Bonus Trade)
SPY (Standard & Poors Dep Rec) Calendar Spread initiated on 4 Aug 2009
Trade Type: Bonus Trade
Trade Summary
4 Aug 2009
SPY at 100.63 (+0.19)
17 days to Aug expiration, 45 days to Sep expiration
Action: Buy a Aug/Sep calendar spread.
Buy to open SPY Sep 98 Put
Sell to open SPY Aug 98 Put
For a net price of $1.37 debit or better. [All TOS autotrade participants were filled at $1.37 debit.]
Net margin required: $137 per entry
Analysis
This bull-run is very much overdone. But is is still advancing on with pretty resilient strength. This bull run is making our current positions in the red. There is a high chance that a correction will be developing in the coming days. Exactly when we don’t know. Can our positions hold on to the pain until the pullback happens? We’re monitoring the situation. We surely don’t want to wait until it is too late before we take some evasive adjustments. On one hand, the bull-run seems unbeatable. On the other hand, a pullback seems imminent. In view of such dilemma, we are opting to trade lightly and not take on too much risk.
This third trade for August is the answer to the situation we’re in now. VIX is low and a pull back expected soon. This calendar spread will take advantage of the current low IV. This calendar spread has a negative bias given that it has a delta of -6.60, which makes it a bearish trade. However, do note that a calendar spread is long vega and will be profitable if IV is rising.
This is only our second calendar spread this year so far. The first worked our pretty well so we hope this trade will add more credits to our August income. The maximum we can lose is $137 per trade. We will set out stoploss at 50%. This means that if this trade doesn’t work out, we’ll take our losses when this spread is trading at or near $0.69.
Good trading,
Gary
