Tuesday, August 6, 2013

Retrospect of August Option Exits

As noted in my previous post, I'd like to record my exits of the August option portfolio a few days ago. On August 1, the market rose and my option income portfolio had a P&L chart below. Since the P&L (white curve) of the remaining positions was close to the max potential (red curve), I decided to close all remaining positions except the bull put vertical spreads for SPX & RUT. The bull verticals were far out of the money and looked safe to expire worthless.
Looking back for my option trades in July, it was a tough month that ended with a loss. I believe I underestimated the bull market starting at the 1st adjustment of this cycle. In retrospect, the 2nd adjustment on 7-11 did not offer enough Delta neutralization. It was a 2nd confirmation day to follow through the market up-turn. At that day, I should have reduced the portfolio Delta to less than 10 in absolute value (-30 in reality), by closing out some positions like calendars if necessary, in anticipation of a continued uptrend. It's usually not a good idea to expect market pull-backs for a sustained period of time at the starting phase of a market turning point.

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