The following is a post by Christopher Ebert, who uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. He studies options daily, trade options almost exclusively, and enjoys sharing his experiences with anyone who is interested.

Advanced Option StrategiesDon’t say you weren’t warned! Option strategies can be one of the most boring ways of trading the markets. Despite the recent national and world debt worries, not one of my trades required any action whatsoever over the past week. If you’re looking for excitement, you won’t find it here; just a slow methodical process of taking profits and cutting losses.

I haven’t found the need to tinker with my VXX trade so far. I had planned to open long positions on VXX if the underlying shares fell below $42 or surpassed $52. Seeing as how that has not happened, even with the S&P losing 2% in a single day this week, it is possible that this short straddle trade may make it to expiration without any additional work on my part.

The trade as opened on November 16:

  •           SHORT 1 VXX $47 Dec. 17 ’11 CALL @$5.00
  •           SHORT 1 VXX $47 Dec. 17 ’11 PUT @$6.25

The trade as of the close on November 21:

  •           SHORT 1 VXX $47 Dec. 17 ’11 CALL now trading at $4.65
  •           SHORT 1 VXX $47 Dec. 17 ’11 PUT now trading at $4.45

Unrealized gains to date: $215.00

I’m still planning to consider getting back into the market in January if my naked puts on SPY get assigned. With the sharp downturn in the S&P early this week, I still have a lot of wiggle room before I might consider hedging this trade.

The trade as opened on November 16:

  •           SHORT 1 SPY $110 Jan. 21 ’12 PUT @$2.44

The trade as of the close on November 21:

  •           SHORT 1 SPY $110 Jan. 21 ’12 PUT now trading at $3.01

Unrealized losses to date: $57.00

By far, the best performing trade in my hypothetical portfolio was one inspired by the Astrology Traders service offered by Karen Starich. The predicted weakness in the silver market has caused shares of SLW to plummet nearly 10% since this trade was opened. The bear put spread did a nice job capturing the move. Keep in mind that this is a low risk trade, with a maximum loss of $1,180.

The trade as opened on November 16:

  •           LONG 10 SLW $35 Dec. 17 ’11 PUT @$2.22
  •           SHORT 10 SLW $32 Dec. 17 ’11 PUT @$1.04

The trade as of the close on November 21:

  •           LONG 10 SLW $35 Dec. 17 ’11 PUT now trading at $4.15
  •           SHORT 10 SLW $32 Dec. 17 ’11 PUT now trading at $2.11

Unrealized gains to date: $860.00

 

My other astrology inspired trade is an attempt to capture a near term drop in oil prices, followed by a longer term bounce. The calendar spread has performed as expected so far.

The trade as opened on November 16:

  •           SHORT 10 USO $38 Dec. 17 ’11 CALL @$2.38
  •           LONG 10 USO $38 Jan. 21 ’12 CALL @ $3.20

The trade as of the close on November 21:

  •           SHORT 10 USO $38 Dec. 17 ’11 CALL now trading at $1.35
  •           LONG 10 USO $38 Jan. 21 ’12 CALL now trading at $2.26

Unrealized gains to date: $90.00

 

I’ll continue posting updates on these boring trades. Seeing as how I have so much extra time on my hands since I switched from stock trading to options, these updates give me something to do to take away a little of the boredom.

Related Posts:

Boring Trades for a Crazy Market

Volatility In 3 Views

Case Study: Option Structure and Management

9 Responses to “Boring Trades – Weekly Update (Nov 21)”

  1. Lioncub Says:

    Hi Jeff, I think I can buy gold now to hold for few days, can you please let us know your opinion?
    (A quick right shoulder may form is what i am guessing)

  2. jeff pierce Says:

    I’m looking to short gold/silver…I think it’s going lower.

  3. Lioncub Says:

    Thank you Jeff.
    I am pissed off (sorry) with rupee depreciating which is not letting gold correct in Indian rupees. On the positive side, infy, wipro, tcs earning reports should be higher for this quarter.

  4. jeff pierce Says:

    maybe I should clarify a little. gold/silver could bounce over the next day or two, but ultimately I think it’s going lower. so if you are going to get long very short term, you may be OK

  5. abdul Says:

    Same here, very boring and the spreads are killers. I first tried paper trading options and soon find it very complex creature. I know someone here who only trade stock options. His win/loss ratio not that great, to me it’s too much worrying since you have to carry your trade for a longer period of time riding through the time decay process. But there other wizards out there who have been so successful in options trading. Good for them.

  6. Lioncub Says:

    Bought some gold at 1680s and very little silver this morning. Astrological date to exit these positions is probably 29th Nov 2011 i guess. Will also see technical charts to decide when to exit.

    Thank you for your thoughts.

  7. jeff pierce Says:

    Shorted SLV today at $32.10

  8. Chris Ebert Says:

    In response to abdul: It can be worrying to carry the trade for a longer period of time. However, I rarely carry a trade all the way to expiration. The trick is to manage the losing trades by cutting them short, rolling them, or hedging them with another position. Paper trading is a great way to learn how to do that without emotions getting in the way.

  9. abdul Says:

    Thanks Chris. After carrying so much risk in this kind of trade, I must look for something not so complex. Nowadays I only trade the NQ and ES, It suit my style because I now have less decisions to make when I enter a trade. The best time for me is when market already calm down an hour later when technicals are then respect.

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