Charlie McElligot at Nomura is issuing a lot of gamma red flag warnings for a vol shock. What the heck…a nice time to dust off a fuzzy in VXX.
Dec 20 Bot 17.5 call
Dec 20 Sold 17.5 put
Dec 20 Bot 15.5 put
Net price: .18 debit
I would guess vol stays steady here due to upcoming tariff increases on Dec 15, so I think not much decay on this–it’s a cheap way to get on some long gamma.
Did anyone catch Benioff’s interview two nights ago w/ Cramer? I found it troubling. I’ve always been a Benioff fan, but I’m seeing that he’s maybe losing focus. He spotlighted a stupid “Einstein Doll” that is supposed to talk and answer questions “you can buy it on Amazon”….huh? The doll didn’t work, it was an awkward moment. He seems to be losing touch w/ any kind of shareholder focus. I put a short on yesterday by selling shares and buying a protective call. I sold shares at 163.25, the call was an expensive January 165, so I need a sharp move down to make money, but it was in the 140’s not too long ago. Earnings coming up. Curious if anyone else saw it, if it hit you differently.
#SueCollar new TGT
I needed a new position in one of my accounts and went back to the well on TGT. The vols and spreads are bumping around big time this morning on TGT, I probably should have waited before locking this in. But I saw favorable vol spreads so grabbed it. Jan 3rd opened up on TGT, but the spreads and liquidity were really poor, so I went with a Dec 27/Dec 13 starting setup.
I’m spending a lot of time now looking at the volatilities on the chain for the setup, and comparing them to realized volatility. The most expensive part of this strategy is buying puts, if you can buy puts “cheap” relative to realized volatility it should help the overall success (that’s also why I’m now comparing put vol to the call vol being sold–trying to eek out a bit more edge). As you know, OTM puts have a higher volatility, and that vol drops as you approach ATM. It’s typically opposite on the call side of the chain (except for tickers with upside danger like Vix and Gold)–ITM calls have a higher vol than OTM calls. It dawned on me recently that tightening the vol spread between the short call/long put strikes would further tighten risk on these. It does in fact lower the delta even more, which is great risk control, but further restrains the upside in grind-or-melt up conditions. That’s the trade off. I’m looking to keep the vol spread now at 3 or less points. The put buy continues to be a balancing act though between volatility and price….since in normal market conditions it’s throw-away insurance. So I don’t want to overpay on price just to get a lower volatility.
If you use TOS, you’ll see the option chain has a different vol than the analyze tab. I keep wanting to ask the trade desk for an explanation on that, but I’ve chosen to use the analyze tab volatility for my record keeping.
TGT Entry: Starting P/L in this account for TGT is zero
BOT 300 shares @ 127.08
BOT 3 Dec 13 121 put @ .95, at the time of purchase vol was 22.37%, 90-day realized vol is 43.1%
SOLD 3 Dec 12 126 call @ 4.00, vol was 24.16%
This was a vol inversion that I grabbed, usually the put vol is higher than the call vol
You can see I’ve sold well in the money calls to get a higher volatility.
Max risk at the onset is $909.00
One of the collars I had set up was on TGT, which of course had earnings today. The original stock purchase was at $111.84, and after a roll last week, was protected down to around $96. It’s really run away to the upside. There is plenty of premium in the position still, especially since the Dec13 short 96 puts have become very illiquid. It looks to me that the 300 share position will net out around $503 in profit (including the dividend) by the Dec 13 expiration, a hold of about 2 months. This would equate to roughly an 8% annualized return….right in my target. The ROR is huge given the risk controls in this strategy.
A couple comments on this:
1. TGT is an interesting hold for this strategy due to their dividend timing. Since the ex div is the day before earnings, it is really hard to lose shares to someone wanting to take the dividend—since the short calls retain such high premium the day before earnings.
2. This is a perfect example of having to stay focused on a low-risk/low-return strategy. If the loss of the put premium is too much to bear, it’s the wrong strategy for you (you might be saying “coulda woulda shoulda made $4600 just holding shares vs $503 on the collar”). I get it, it’s valid. But I really appreciate the controlled risk on these things, the easy sleep at night.
On a side note, since I’ve been training intensely on vol for a couple years at Option Pit, I decided there needs to be more vol strategy folded into the collars. I’m now trying to keep the vol spread at less than 3 points between the calls being sold and the puts being bought. To accomplish this the calls need to be sold ITM, vs ATM. ITM calls have a higher vol to counter the higher vol of OTM puts.
Let me know if there’s any interest in this going forward–I get if it’s too boring 🙂
#SueCollar CMCSA Adjustment
Here is the opening trade I did on Oct 11:
1. Bought 600 shares @ 45.02
2. Sold Nov 22 45 call @1.46 x6
3. Bought Nov 1 43 put @ .46 x 6
Net delta is 145 on 600 shares
Here is the adjustment:
1. Underlying price is 44.25 right now
2. Nov 1 43 puts: bid is 0.00, expiration at full loss is expected (-276)
3. Bot 6 Nov 22 43 put @.42
4. Bot 6 Nov 22 45 call @ .52, to close ($564 profit)
5. Sold 6 Dec 13 44 call @1.35
Net options trades $846 credit / 600 = 1.41 cost basis adjustment to $43.61. As before, not fully realized.
1. On Oct 11th the position delta was 145 on 600 shares. This morning the position delta was 350 on 600 shares….quite a bit more risk in the position (due to short-delta decay). I like to keep deltas below 30% of the underlying share delta (600 in this case).
2. Rolling calls and puts, instead of just puts) can be an effective way to reset the delta, I had 65% decay in the calls, so decided to take the profit and roll them out. My delta is now 77 instead of 350.
3. I had been planning on doing this adjustment tomorrow after NFP, with the thought that volatility would decrease. However vol has been steadily rising in CMCSA, and with that high position delta I wanted to get some better risk control on.
4. There are no divs left in CMCSA this year, so not a consideration
5. Crash protection with 43 puts
#SueCollar TGT adjustment
Here’s the opening trade I did on Oct 15:
Bought 300 shares @ 111.84
Bought 3 Nov 8 110 put @ 1.65
Sold 3 Nov 29 112 Call @ 4.70
Whenever the puts are over a double, I look to adjust and take that profit, lowering cost basis.
Here’s my adjustment:
1. Sold 3 Nov 8 110 puts @ $3.84 ($657 profit)
2. Bot 3 Nov 29 112 Call @ 1.71 ($897 profit)
3. Bot 3 Nov 15 105 puts @ 1.31
4. Sold 3 Dec 13 106 calls @ 4.45
–Puts had more than doubled, calls had decayed over 60%. That’s what I like about this structure, the gamma in the short-dated puts can really cause a big move, yet the long dated calls still have really nice decay.
–Normally I would have bought Nov 22 puts, but that is earnings week and the puts are too expensive for me that week
–TGT dividend is the day before earnings, my short calls should have very adequate premium in them to be able to sustain a move up into earnings but still collect the dividend (.66).
–The math on this can be simple or complicated. Doing the simple math, my net debits and credits now across all options trades is $2496 credit, divided by 300 shares = $8.32 in cost basis reduction. That takes me to 103.52 for cost basis on shares purchased at 111.84. Obviously all of that cost basis reduction is not yet realized, and will change with the next adjustment—so $103.52 is “blue sky” at this point.
–I chose the Dec 13 calls to sell based on the dollar-strikes, I like to get right ATM
–I’m crash protected with the 105 puts.
In case you missed it (I did) there was a 3-in-5 Augen signal on Oct 9th. That’s the first signal since Aug 2018–roughly 14 months. It “should” mean that the rally has some legs. However I still watch the rolling 20 day score on 1-standard dev up moves. We were at 6, we’ve dropped to 5….over 6 can mean things are a little hot. The higher the rolling score gets, the more likely for a correction (manic buying).
I only count Augen signals the first time they hit after a 4% or more correction. So multiple Augen signals I don’t count after the first one. It stays in place until a 4% drop (however there was a 2nd Augen 3-5 signal on Oct 19).