Tuesday, March 26, 2013

Exited all April high probability positions to open May option inventory

I'd been looking for opportunities to exit April positions last week, as I preferred to use options with about 30 days to expiration for smooth portfolio P & L changes. But the portfolio of Delta -25 & Vega +300 showed some losses (reduced from initial $600+ to $300) last week, as the market was moving sideways.

However, the portfolio P&L changed quickly yesterday AM, as market was pulling down less than 10 points. It was a surprise to me that the P&L switched from -$350 to +$350 when I started reviewing my portfolio around 11:00AM EDT. I had seen SPX dropping 10 points last week, but the portfolio did not act this much.

I was wondering what happened at the time (Monday morning). I guessed the volatility was higher at the moment, which caused my Vega positive portfolio to increase value. Additionally, there were two weedend days of Theta decay which could be $200 as Theta was around 100. I thought market makers started weekend time decay on Thursday PM usually. But it seems that not always true, particularly if market is expecting some important events, such as European issues. Although Delta dropped to -12 from over -25, Gamma also increased to around 2.0+ which meant a 10 point movement of SPX would cause 20 point change in Delta.

Anyway, I'm glad I did close all of my trades which were for April yesterday. It took about one hour to exit all of them. As I was closing trades one by one, the market stopped bleeding and started bouncing up. So I believe I did not get the $350 profit, as I closed the calendars which made good profits for the day first. When I started to close the IC's, their daily profit started to dwindle. In the end, I might be just flat for April. I should know the exact numbers in my quarterly review.

Overall, I felt OK for this month to be flat. The last calendar adjustment worked great and market finally respected statistics in the last week by resting somewhat. Its IV went up since I bought the calendars.

I opened an SPX & RUT iron condor respectively, immediately after the exits yesterday. Today I opened another SPX IC with short Deltas around +25 & -21. The current P&L chart is shown below. I plan to enter the last RUT position tomorrow to complete my opening May portfolio with 50 days to expiration.

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