Thursday, February 26, 2015

Flattening of Emotions AUD/USD

Hello Traders!

I haven't posted a currency trade in a while, so here's what I have going on...

I just went long the Aussie against the US dollar at about .7873.

I had been looking for weakness and a break below .7835, and was in fact short before the London open. When I saw that I was clearly wrong directionally on the break to the upside at .7860, I reversed fields, positioning for a break above .79 on anticipated continuing upward momentum.

So, long AUD/USD at .7873, stop is .7835 and limit is 80.0.
I posted this trade as noteworthy because I find that I am notorious for digging in my heels based on what I want instead of clearly taking in what the market is trying to show me. Even if the trade fails later due to market conditions, I feel as if it is a victory to disconnect from what I feel should be and trade what I see.
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Good luck in your own trades!
P.S. I had to add that I was able to close the long for a modest 8 pips as AUD/USD reversed again!
Here's to staying nimble! I was intending to catch a rise in Aussie on low vol in complacent markets. Perhaps I should have written about my short EUR/GBP trade. More on that later...

Thursday, February 19, 2015

2015 in Full Swing! SPY SPX GLD TLT

Good Morning Traders!

I've been busy with work and other things, and have not been able to post as I trade. I've got a couple of minutes before I grab some sleep to catch up on a few things for those of you that are interested. I also like to post to organize my thoughts a little, and later to be able to take a big picture view of the portfolio and the trades as a whole. This usually ends up as: "What the !@#$ was I thinking!". But every once in a while I make some money.

So, When the VIX was last at 20 just before Feb '15 expiration, I sold a 2 standard deviation strangle in SPY for $.65 net credit about 55 days to March 31q '15 expiration at 217c/167p.


I was kicking myself the next day, as the trade could be sold for $.80, but now after a couple of weeks I'm back to even at about $.67. As you can see by the above charts, I was able to get a pretty fair credit, and my short strikes literally don't even show on the chart. I am most in danger (As I always have been, and probably always will be) on the call side. The S&P 500 has had a propensity at times to grind inexorably higher regardless of market fundamentals sometimes for weeks, slowly but surely running over call strikes like lava from that volcano on the Big Island in Hawaii that overran that unfortunate town. On this trade, I'm still in the game.

In my previous post on the S&P 500, I had purchased a butterfly below market hoping to capitalize on continuing volatility that never materialized. What a surprise. I was going to roll right in to March expiration with the same butterfly the next day, but I got cold feet and thought; One, the market is going higher from here, and I don't want my butterfly left out in the cold. Two, I thought that there might be a better way to manage my directional exposure based on my TLT butterfly. More on that later. I held off on my March butterfly until last night.

To maximize my Theta in the middle of the butterfly, I decided to leg in. I bought to open the SPX March 20 '15 2075/2025 put debit spread for $11.00. I did this because volatility is lower than it has been in the whole of 2015. Also, if I'm successful, and the SPX trades towards the 2025 level in the next week or so, I can get a lot more credit for the lower half of the put butterfly, and could possibly lock in a profit, and take risk completely off the table. If we bounce off the 50 day MA when/if there is a decline I may decide to close for whatever profit there is at the time, sans butterfly.

In my previous post on GLD, I had gone long with a Sep'15 call at 122, reducing my basis on the call by selling the 122/112 Sep '15 put spread.

As you can see, my entry was horribly mistimed. Though because duration is my friend on this one, and I am still above trend as GLD looks to be putting in a higher low, this is in the danger zone for the following reasons. I can be put 100 shares of GLD per short contract at 122 at any time. GLD can very likely continue lower. I am close to stopping myself out on this one, as I can still salvage 50% of my capital. On the positive side, 7 out of 10 of the days that GLD traded above 10 million shares after gapping up from 119 were on green days as GLD works to build a higher low after this pretty convincing rejection from 125.

In my previous post on TLT, I discussed how my would be victory spread was blown up by having been exercised on short calls that were In The Money when TLT peaked at 138. Though not a revenge trade, I went back into TLT as soon as I could short at 135 with a long put, because my thesis had not changed. If TLT is extremely overbought at 135, it was even more so at 138. Anyway, being in hind sight correct about the direction of TLT, and having a nice profit on my long 135 put, I turned my exposure to a butterfly to take advantage of the elevated volatility in TLT to sell some premium.


I'm sitting pretty with the TLT butterfly having locked in $1.69. I would love for TLT to rise in the next couple of days to the 130 level. I have a limit order to sell at 1.65 net credit, or double per contract over my locked in profit, of which I have no doubt will be filled if TLT can rise above 130 again.

In closing, I'm net short stocks, neutral to bullish Bonds and long gold.

Wow! That's quite a bit to catch up on, but there's where I stand going in to March. I'm working hard to recover from my OVX fiasco, which were two big complete 100% losers caused by trading in a product that had no liquidity in an underlying that I have very little knowledge of, going through it's most INSANE period in the better part of a decade. Lesson learned.

Good luck in your own trading, and please leave comments or questions here or on the Small Time Trader Facebook.


Saturday, February 7, 2015

Taking advantage of overbought bonds. TLT

Good Morning Traders!

Last week I got exercised on some calls that I had sold short as part of a spread in the TLT on a thesis that bonds were overbought and would soon be coming down to earth. The particular structure I had chosen was a 50/50 bet as far as probability of profit, which based on the extreme overbought levels was a risk I wanted to take. That position would have been profitable again at the end of last week, but no regrets. I must move on.

I still felt the same way when I was covering the TLT shares that I was assigned last week, but I didn't want to expose myself to the level of risk as my last "victory spread". I still have no idea why they call it that. Anyway, I decided to dip my toe back in by going long the March '15 monthly TLT 135 put for $3.00 net debit, when the TLT was about 135. I entered this net debit with the following plan for exit and/or expansion. I put in an alert for TLT at 138 on the high side, and 131 on the low side. The 138 alert, which would've been my stop, as the short term decline would've been invalidated by the rise of TLT above 138. And the 131 alert which would be my catalyst too turn my long TLT 135 puts into a butterfly, and locking a profit into the trade.

I was fortunate enough to get TLT close enough to 131 after the release of the Friday jobs number to sell the 131/127 Mar '15 put 2:1 ratio spread for 4.69 credit.

What that means is that I now have the 135/131/127 TLT Mar '15 put Butterfly on for a $1.69 credit which is also my max risk.

 In other words, baring any early exercise/assignment of any of the options involved in the spread, I will make at least $1.69 credit no matter what TLT does.

I will update this trade on the Small Time Trader Facebook.

Feel free to drop comments or questions. I love a good conversation. Let me know what works for You!

Good Luck trading!

Thursday, January 29, 2015

Time to let it shine! GLD

Good morning traders!,

Over the last year as the US Dollar began it's massive run, the myriad of Gold related products has been generally out of favor as the performance of these products has been poor. 2015 is a year of change. There are rotations in many asset classes, and price extremes in a few. One of the things I have noticed on my own charts is how well Gold has been performing in 2015.

Above is a simple chart showing the relative performance this year of the GLD ETF versus the S&P 500 index. With the SPX down about 3% and GLD up about 5% I have hatched a plan for long exposure to gold upside with limited risk to the downside.

Back on 15 January, I noticed a large increase in GLD trading volume on the breakout of the 120 level, which was also the level of the 200 day SMA. Obviously charts don't guarantee anything, but every once in awhile I like to think that I see a bread crumb or two left by a group of traders or institutions that move a whole lot more money than I do. After that 120 breakout to the upside, momentum drove the GLD to 125. I was tempted to chase (unfortunately I always am), but this time I figured that GLD would roll back a little and give me the entry I was looking for. Today it has.

So here's how I'm exposing myself to GLD upside for 6 months above the 122 level:

The easiest way to explain this is by saying I sold a put credit spread lower the cost of a long call. I sold the 122/112 Sep '15 GLD put spread to buy the Sep '15 122 call, all for $3.05 net debit. So, I have unlimited (theoretically) profits to the upside, but I'll probably put a limit order to sell at $20.00 and check on it in a couple of months. My max risk at expiration is $13.05, which is the distance of the put spread plus the net debit for the upside call. My near term risk is contained somewhat by the premium contained in the structure of the spread.

I'm giving myself a lot of time to be right on this one. What I'm looking for is a breakout above the 125 level, and hopefully a higher high around 135 or 140 on sustained momentum. If January is any indication of how gold will perform in 2015 as the US dollar rises, I think I will be find.

Happy to join all of you gold bugs in 2015.

I will update this trade here and on Twitter @B50cal1978

Checkout the Small Time Trader Facebook for  more content from me and my influences in trading.

Good Luck Trading!


Tuesday, January 27, 2015

Currency Headwinds. SPX

Good Morning Traders,

After 2013 and 2014, I developed a sense of the market that served me well in that environment. 2015 is whole new ball game. I'm finding myself having to unwind a couple of positions in assets that in this environment, I want no part of. I also find that I am a little too short volatility for the current environment.

Some of the latest earnings reports for companies that are sensitive to slowing world economies and lower energy prices have reported major currency headwinds, and some have revised down earnings estimates for the whole of 2015. As good as Apple is, I don't think that one name can float a ship that may be taking on a little bit of water moving forward.

VIX generally averaged about 14 in 2014, now that average is higher. I am planning to hedge my short term exposure to VIX by entering an OTM put butterfly in the SPX. The debit I am incurring to hedge my short VIX is about 25% of that position. The OTM butterfly also has a chance to fully balance the VIX position if I can get 300% of the initial debit.

My Butterfly is 100 points wide, so I have a pretty large potential profit area  to the down side. I am buying one Feb 2025 put, selling two of the 1975's and buying one of the 1925's. The first long strike of the Butterfly is near current prices, and the short strikes are centered on the 200 day SMA which I believe price action may be seeking.

I was filled at a $6.50 net debit, and I put in a limit order for a 19.5 credit, but I will close on a touch of 1975 no matter the price.

I will update this trade here and on Twitter @B50cal1978

Leave questions or comments! I enjoy a good conversation.

Good luck trading!