Position Updates - adjustments, the benefits of negative delta

Written on May 5, 2008 by OptionsRopeaDope

 As I have been updating, my deltas were heavily negative the last few sessions. The payoff came today across the board, and I’ll go into detail below. In my last post I described how sometimes you can read some clear signs of market sentiment in liqiud options. It’s never a sure thing, but it worked out well over the last few days, as I’ve built up some strong profit.

Two adjustments since last time - Closing one half of the SPY condor, and spreading out the EEM calendar.

Here are my open positions:

SPX Double Diag - 1335 May/ 1315 June Puts, 1425 May/1455 June Calls 

Delta/Theta = -.30

All the numbers look even better. How bout that Gamma? Vega still a minor concern. Actually a bit dissappointed even though my profit zone is plenty wide. My max profit will probably be in the 5-7% range, which is low considering that a double diag should have more built in… and I’m only at break even right now… dropping vols hurt though. Honestly it would be nice if every trade turned out this way, but I did hope fr a stronger winner. 

RTH Calendar - 95 May/June Puts 

Delta/Theta = 1.29

RTH fell back toward 95 over the last few sessions turning this into a nice profit. Up around 10% right now, and all of the numbers look better. With small movements, I could get over 20% from this trade easily as Theta decay kicks up.

EEM Double Calendar - 145/150 May/June Calls 

Delta/Theta = -.57

I adjusted today to a double calendar (moving half my spreads from 145 to 150). My loss was about 10%, and I did not need to adjust, but it was failing the “can I sleep at night” test. With the adjustment, I reduced my deltas by 2/3, had no change in theta, and have a wider profit zone. I did give up some potential, if EEM fell back down to 145, but the chances of that happeneing were not good enough. Also have a little more exposure to Vega, but that might be a good thing - even though vols have hurt me so far by continuing to drop, that just means they are even lower. In fact, they are the lowest they have been in a year. Very pleased with this adjustment. Still down about 10% or so, but I have a wide zone (about 143-152) to get a 20% plus profit in the next 13 days, and little chance of taking a loss. And that’s the best kind of adjustment to make.

SPY Iron Condor (Bear call spread) - 145/147 May Calls 

Delta/Theta = 5.1

I closed the put wing last week for .04, giving an 8% return on my margin just on that wing. But that is a big reason why the greeks are so out of whack. I looked into opening another put wing (at 132-134) but I wasn’t comfortable being so close to expiration. So, I am very exposed here on the delta side (didn’t notice till working the numbers, damn). My short call has a delta of 13, but I’ll take this off if I hit my profit target for thw whole spread (which would mean closing this put wing out for no profit, which is fine. Will definitely exit by the end of the week barring something drastic.

Overall, looking great. Everything but EEM is profitable, SPY and RTH especially, and it’s heading toward a great finish over the next wek and a half.

And this probably deserver a seperate post, but I’m considering tweaking my RR numbers. Specifically, it is all scaled toward max loss, but the more profitable you get, the less significant the numbers become. What’s wrong with that? Nothing. But just like a stop loss, I might set the “max loss” yardstick up to break even at a certain point in the trade, once a certain level of profitability has been hit. Also, considering adding another metric - a loss-on-std-dev-move number. The RRDelta is great and works for me, but across the portfolio it means different things. An RRDelta of 20% on RTH, when at 95, is much different that an RRDelta of 20% on EEM at 150. Simply put, the chances of a one point in EEM are a lot higher. So looking at the impact of a 1 std dev, one day move on the value of a position would be valuable. Look for it coming up.

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Posted in Real Trades, Iron Condors, Calendars, Double Diagonals, SPX, EEM, RTH