Back to the Beginning in AAPL Trade

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In my most recent post titled “Following the Trade – AAPL Trade Adjustment on Friday 2/15” I detailed the ongoing trade that I have on in AAPL.  In this post I won’t go into full detail on the trade, reasons for, and adjustments but here are the links in chronological order of those details stated:

Today I closed that  Feb4/Mar1 440 Put Calendar in the morning for a 4.40 credit (+$271.00, 160.4%), trade order below:

aapl_0221

I wanted to take advantage of the morning weakness and just close out this hedge to the main Broken Wing Butterfly that I had on.  With the gains in the 2 calendar trades I put on, the remaining trade of the original BWB is a risk-free trade at a $95 credit.  I do not plan to add anymore hedging strategies to this trade and instead will ride out the BWB more and likely to near expiration.  In a perfect world AAPL would shoot past then retrace to the 480 level around March expiration, 22 days.

Below is the new risk profile, same look as the original trade with different risk/reward:

aapl_0221a

Now I sit and wait until March expiration.  I could keep adding a hedging strategy but with those 2 calendar trades I am happy with the risk and will let AAPL do its thing leaving the long bias trade on.  Below is a trade history:

aapl_0221b

Following the Trade – AAPL Trade Adjustment on Friday 2/15

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I made another adjustement to the AAPL trade I currently have on.  I will provide a quick recap of risk profiles and charts and I will leave it to the reader to click on the link to read more in detail on why I went long AAPL starting 2/5.  I have made 2 adjustments to this trade as of 2/15.

As stated in my first post, “Utilizing Market Comments from Other Traders“, I went long AAPL with options in the form of a Broken Wing Butterfly, below are pictures of my order entry and risk profile:

Order entry:

aapl_20130206

Risk profile:

aapl_20130206b

On 2/11 I made an adjustment (via 460 Put Calendar) to protect from downside action.  More into the analysis of the why and what I was looking at can be found in this post, “Trade Adjustment – AAPL“.  Below is the order entry with the addition of the risk profile with the adjustment:

Order entry:

aapl_0212b

Risk profile:

aapl_0212c

**Now for the new trade and adjustment made. **

I rolled that 460 Put Calendar in the afternoon on Friday.  The hindsight trade would have been to leave it on for what turned out to be a perfect pin at 460 and max profits achieved.  The way I saw it though and playing this Calendar Spread was that I had risk to the upside on the Put Calendar trade if AAPL were to move higher.  Below is the 15min chart of AAPL and where I rolled the position:

aapl_0215

My order was to close out the 460 Put Calendar and roll to next weeks 440 Put Calendar.  On the daily AAPL is still in a long-term downtrend, but also in a low volume pullback on that recent break above 460:

aapl_0215a

Needless to say I see AAPL as a tough trade.  I wasn’t happy with the 450 Put Calendar as a hedge against the current long Broken Wing Butterfly so I went with next week’s 440 Put Calendar, in case we see that whoosh below 450.  I then believe 440 will hold on a price and time to expiration basis. Below is my order entry:

aapl_0215c

I executed this in one order and rolled this position for a 2.40 credit. Broken down:

  • closed the 460 Put Calendar (original debit 1.60) at 4.09 (+$249.00, +155.6%)
  • opened the 440 Put Calendar at 1.69
  • overall a positive gain of $80 with no more risk in the Put Calendar hedge and reducing my cost basis of the original trade of the Call Broken Wing Butterfly from 4.25 to 3.45.

Below is my new risk profile going into Friday expiration 2/22:

aapl_0215d

Overall I am comfortable with my adjustment allowing for downside protection in case we see that drop in AAPL.  The downside is where my risk in the combined trade is and this is what I am looking to protect.

Learn To Take The Loss

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One of the hardest things to do in trading is take a loss.  This is what makes the game so hard as you will be reminded often that you are wrong.  Then when the hope strategy doesn’t work it creates a mental blow that leaves you offering excuses as to why it didn’t.  But after learning to take several losses you will find that losses are some of the best teaching aides out there and in fact can be rewarding.  Aside from studying and learning why it was a losing trade, it will create a mental relief as you are out of the trade and can reinforce your discipline or strategy as that loss becomes a bigger loss.  As many traders say, all big losses start as small losses.

Today I took my loss in an Amazon (AMZN) trade.  AMZN is a stock I like to trade with options as they are liquid, offer weekly options, and the stock moves.  I don’t want to go into much detail on the strategy here but want to keep this post more about taking losses.  On 2/12 I took on a bearish position in AMZN via March 260/255 Call Diagonal for a 2.45 debit (max risk to upside of $740.00).  Trade order entry shown below:

amzn_0213

I took this trade while watching the 30min chart and I was looking to take advantage of anticipated downside but still bullish AMZN hence being on the call side of AMZN and long the March Call with weekly rolling capabilities.  Anyway here is the 30min chart I was looking at with notes:

amzn_0213a

So with this action I liked the idea that we would retest those 2/7 lows around 255 and this looked like a good place to get long AMZN according to the daily, overall the Call Diagonal was a strategy looking to take advantage of a pullback in order to get long.

So what happened?  AMZN came out with several news bits this morning of minting currency, playing its cloud in cars, and expanding a content licensing agreement with CBS; regardless it was all bullish news that had AMZN gapping up Wed morning almost 3 dollars.  My thoughts were of course “why not as I just put on a bearish strategy” looking for a gap down or selling to 255.  Right away I thought “all this news appears bullish for AMZN so lets see how it handles the opening gap?”

As stated in a previous post I was big on the 260 level for AMZN.  Another reason for this bearish position was its inability to hold that 260 level on Tuesday 2/12, so this was in focus for me.  Seeing that we would gap above this level left me feeling uncomfortable with my position and looking at how it handled that news.  Concentrating on a scaled down time frame, opening volume was bullish and the 260 level wasn’t even breached.  This told me I just need to accept the loss and I was wrong.  Below is a 30min and 5min chart:

amzn_0213b

It appears that this news from AMZN coupled with its continued selling since earnings was the catalyst it needed for further upside and it ripped through the day creating a nice daily chart.  Below you can see my order entry/exit orders:

amzn_0213d

I ended up taking a -$85.00 loss on this trade (per 1-lot, -34.6%).  But watching AMZN price through the day made a losing trade into an actual win from a mental capital standpoint.  Here is an EOD Risk Profile of the current trade, currently showing a loss of -$304.98 (-124% debit, -41% risk).  As you can see by the low/high red dashed lines not even a 2 sigma move to the downside (low probability of happening) would put me at  my target of 255:

amzn_0213e

I cut the loss realizing I was wrong in my thesis and ending up cutting it before it turned into 3.5x the current loss.  To me this is near a win as when I first started trading I would have turned this into a hope strategy (which it could still come back down).  I have learned through several blown accounts this doesn’t work and learning to cut the loss when you realize you are wrong from your initial analysis is the right strategy.

Now when I look back at this I ask myself “would I take this trade again?” and the answer is yes I would.  This just turned out to go against me with maybe some news catalysts & no anticipation of AMZN or some overall market weakness.  I preserved capital to move on to another trade or get back in AMZN.  If there is one thing I have learned through time it is the ability to realize I am wrong and learn why.  There are just some things you can’t control, accept your risk going into a trade.

Trade Adjustment – AAPL

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AAPL saw another decent gain yesterday making it 5 days in a row of higher highs, higher lows and positive closes.  The best action on a trending basis that we have seen since its selling off the high of 705.07 set back in September.  From a trading standpoint I believe the push above 460 on Feb 7th was big.  We came below that level during the day and closed above it and the 10EMA on volume 17% above its 50SMA of volume.  Today saw us run into the long-term trendline from the September highs.  Some of Mondays gains may be attributed to the news of the iWatch or the anticipation of Tim Cook’s presentation at the Goldman Sachs technology conference at 10:15 EST.  Below is a current chart of AAPL with notes:

aapl_0212

I have stated with reason in a previous post that I am currently long AAPL via options, specifically a March Broken Wing Call Butterfly of the 460-480-490 strikes for a 4.25 debit.  With today’s unknown words of Tim Cook and the recent move we have seen (8.5% in last 5 days), I am expecting some stalling or slight retracement.  But like we have seen in the past, selling can ensue.  I do believe we have seen a low at least until next earnings but I also respect the fact that we are below that trendline and declining long-term moving averages.  While I anticipate we will break above these negative technicals, today I adjusted my trade to allow for some selling while still being happy with current gains (+72.4% before adjustment).

The trade adjustment was adding the Feb/Feb4 460 Put Calendar for a 1.60 debit.  I liked this trade in that it was cheap and it took full advantage of that 460 level mentioned above.  Below is a 30min chart which does not look bearish at all to me.  I still have those yellow trendlines on there from the daily but look at the highlighted blue boxes.  These intraday breakouts are supported with volume.

aapl_0212a

Below is my order entry and the new risk profile set for AAPL:

aapl_0212b

aapl_0212c

 

While this adjustment changes the characteristics of some of my Vega (going from negative to positive) I am happy with the more neutral delta (8.65 to 0.71) and increased theta (3.27 to 17.14).  Also this is more of a play on direction than greeks, which are important when playing delta neutral or income strategies.

Position Updates – AAPL, AMZN, V

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Yesterday  the bears definitely had the upper hand in the morning only to see the selling subside and the often seen grind up continued through the afternoon.  Much of the excitement was in the afternoon surrounded by none other than news concerning Apple (AAPL).  Overall a fun day that is still seeing individual stocks set-up and break out.

I personally am still light in the portfolio.  I posted previously about my Amazon (AMZN) and did get filled and exited that position Wednesday as I put a note out on the stream.  I exited as I did not like how AMZN cut through 265 on volume so I was looking to take advantage of any up swing by placing an order at the mid-price to which I got filled.  Below is my post to the stream and orders:

Capture

 

amzn_20130208

 

As I was already out of the position, yesterday saw a move down to 255 and did put this position underwater about -$250.oo give or take but price action brought it back up to slightly positive .  Either way I was out so moving on.  I did try to put on another similar position for a 15c credit capturing the 245-255 range but never got filled as my entry marked near a bottom in the price action.

I remain in the AAPL position as shown in this post.  I haven’t played AAPL in a while and if interested into why I got in it is stated in the linked post.  It is a March 460-480-490 Call Broken Wing Butterfly for a debit of 4.25.  Yesterdays news definitely helped this position.

Then I put on a short position.  Yes I feel like one of these move to the downside is going to stick shaking some further weak bulls.  Yesterday I put on a short position via options in Visa (V).  It came out with earnings Feb 6th AMC and beat on EPS and revenues.  The action in Visa yesterday had me believing a pause or slight pullback is due after a very consistent run as of June 2012.  I am looking for a pullback to the 50sma (blue line) which coincides with a gap support area around 154-155.  Visa has pretty much been in a basing pattern since the new year gap and I am looking for a pullback to at least the bottom of this base.  Also the Relative Strength Average (purple line in blue highlighted box) is beginning to roll over, something we have not since but only once during this recent run.

v_20130208

With this information I entered into a Mar/Feb 155/150 Put Diagonal spread for a 2.50 debit.  This position will provide a return of approximately 30% if 155 is hit and will provide near a max return if the gap is filled, all being around next week Friday expiration.  I wasn’t too concerned about the greeks when putting this on as I am looking more for direction.  But  I also wanted to take the greeks in consideration and wanted to take advantage of any increase in IV so the Diagonal gave me what I wanted:

  • Delta – than a Calendar spread while creaqting profit from downside move
  • Theta – no big time decay (becomes theta positive w/downside move) as seen with a single call position
  • Vega – wanted positive vega so that an increase in volatility will benefit the position

Below is a risk profile of the current trade:

v_20130208a

Utilizing Market Comments from Other Traders

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Yesterday was a good day for those that did not get shaken out of the market from Monday’s action.  It was probably a bad day for those that got eagerly short in portfolio.  Yesterday can be a good example of letting the overall momentum shift before jumping the gun.  There were some good comments on the stream yesterday from @HCPG:

If you’re looking for a top, wait until you have no more stocks setting up. That’ll likely coincide with any top.

and from @stevenplace:

$SPY potential broadening top. If anything, is indicative of increase in actual market vol stks.co/q1nI

Below is the SPY chart that is referenced in the link:

spy_20130206

I must say that I agree with both of these outlooks.  It is too soon to go overly short as there are still stocks setting up and breaking out as mentioned by @HCPG.  But as @stevenplace mentioned, there will probably be an increase in market volatility.  Personally when I see indices making moves like this at a top I try to think from a behavioral standpoint and right now it is telling me to trade light.  Also, I am not one to eagerly short either but would rather have more cash if the market sold off instead of always being involved.

With that, I am still in the Amazon (AMZN) position that I have posted about here.  I didn’t need to adjust this as yesterday’s action was favorable.  Also yesterday I got back into an Apple (AAPL) long position.  This was mostly due to current price action and a posts to the stream from @OptionsHawk :

AAPL – Liked what I saw this morning, involved at $444 via calls, held 10 year trend support for 2 weeks, looking for 510

AAPL’s IV30 down 40% since earnings and near 6 month low, see that as bullish, less uncertainty

The last comment really got me interested.  With the drop in IV since earnings and 6 months low, the uncertainty was alleviated.  I remember in the past there were several traders calling for 425 and that could be justified by the chart.  But sometimes we don’t always get what we want and I am liking the current action in AAPL.  Yesterday was a good day for AAPL in that it rallied with the markets, something it has really failed to do in this whole market rally.  I decided to put on an Call Broken Wing Butterfly.  I went out to March expiration with 460-480-490 strikes for a debit of 4.25.

aapl_20130206

I choose this strategy because I liked the risk involved and it is a bet that AAPL will at least hit 480  by March expiration.  This also takes advantage of one of those 40-50 point rips that we could see in AAPL and then at that point I believe the low in AAPL will be established.

aapl_20130206aBelow is the risk profile for the AAPL trade based on a 1-lot.  This is a play more on the direction and not so much the greeks as in an income position.  The red dashed lines represent a %5 move with the dashed line in the middle being the current price at 0915 hours 02/06/2013:

aapl_20130206b

Amazon Trade Update

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Back on January 31 I described here a trade in Amazon I took on.  I was looking at the weekly chart and saw 260 as a support area as it was a breakout point and I thought institutions would see this as a place to add shares as it wouldn’t be extended here and it aligned with the 10-week SMA.  Below is a chart of what I was looking at:

amzn_20130131

Below is the trade that I put on as I really liked the idea that we would stay between the 260-270 level on any selling with subsequent bounce.  It is the AMZN Feb2 255/265/270 Call Butterfly and I was filled at 4.88 ($488.oo being max loss).

amzn_20130205Below is the risk profile.  It takes full advantage of the 260-270 range and if we saw a run up, would result in a slight profit.  But the overall goal of the trade was to take advantage of that range.

amzn_20130131aSo where are we now?  The continued selling in AMZN was surprising and I did not expect there to be as much as selling in it as we have seen, especially with the market moving up the prior week.  With the overall market seeing selling yesterday AMZN followed suit but held at support at noon and based for the rest of the day.  With this action I am right at that 260 level sooner than I had hoped and have an adjustment plan in mind.  If we see further selling below the 260 mark I plan on closing the Bear Call Spread of the Butterfly (265/270 strikes) and will be left with a bull call spread.  With current prices, this will leave my my breakeven at 260.80 and increase my max loss to $579.00 with max gain of $421.00 if we close above 265.00.  The risk profile looks like this (based on 1-lot position):

amzn_20130205a

Below is a daily chart of AMZN with a dotted line at the 260 level and shown to be holding the gap and the 50-day SMA:

amzn_20130205

Trying to Catch Up

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It has been longer than I had hoped since I have written a post.  Since I wrote this blog post I have been more inactive than I had hoped.  The inability to monitor the market on a consistent basis is more than I have anticipated.  I have definitely missed much on the social media front as well as I have more miles on the road than I have in minutes watching/studying the market.  If you have referenced anything I have written or sent me a message and I have not responded, my apologies and and if it were a question please ask again as I know I have missed some stuff.  I must give thanks to @CashRocket @TwoSmuth @Rhino_Cap for references in blog posts and on the social stream.

Since that blog post I have closed the VSI-GNC pairs trade and got into a POT-MON pairs trade.  I exited the POT long side on the 29th as I did not want to hold into earnings even though other Ag names have acted well on earnings.  Then today I exited the MON short trade on early weakness.  Then today I put in orders for two trades.  The first was a WLT-KOL pairs trade as I like the WLT chart but due to possible market volatility and inability to constantly monitor the market/social stream, I wanted to short something as well.  With that I chose the Coal ETF.  Anyway I put in the order for a fill at 11.35 (for the pair) hoping to get hit on some later weakness but never got the fill.

I also put in a limit order for AMZN.  Looking at the chart I chose the next weeks expiration cycle (Feb’2) and put on a 255/265/270 Call Butterfly that was filled in the afternoon on weakness.  Looking at the weekly chart I believe the 260 level will act favorably  as 260-263 was a key break out area and I expect this to hold.  Also this is an area where the 10 week SMA comes into play.  Even though I have a short term trade on I expect this to be a big level, so my trade looks to capture the 260-270 range while leaving some profit on anything above 270.  Below is the weekly chart:

amzn_20130131

And below is the risk profile based on a 1-lot position:

amzn_20130131a

Johnny couldn’t put it any better:

Adjusting My Forward Trading Strategy

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One of the most difficult things as a trader, parent, and having a full-time job is creating that balance between them all.  As of late I have had the most difficult time balancing all three.  More recently trading has come to the least priority of those three.  I am grateful in that I have a full-time job that lets me have a comfortable life that allows me to trade.  But recently assignments have come to where I must let that full-time job override trade priorities.

If you have been a reader of my blog you know that I love options.  Unfortunately many of the strategies I use require intra-day monitoring or intra-day adjustments.  With recent life demands, I haven’t been able to monitor these intra-day moves as much, thus creating slippage beyond what I deem comfortable.

Sure you may say that alerts can negate these demands, but also at times I may not be able to see these alerts from 2 hours minimum to maybe EOD.  Not exactly what I like.  So with this I have created a trade strategy adjustment instead of taking myself out of the game.

Right now I am concentrating more on pairs trading more than anything else.  What I love about pairs trading is that it can be very beneficial during times of volatility and be beneficial when you can’t monitor the market that much.  I believe in a a rising tide lifts all boats, and if you pick a leader over a laggard you can benefit (even thought the rate of pace not be as high); or if the market falls then your position should be neutral or leading.

Recently I posted on the stream a trade I took in a pairs trade.  In this trade I went long Vitamin Shoppe (VSI) and shorted GNC Holdings (GNC).  These two stocks are within the same industry and below is the chart I was looking at focusing on oversold signals in RSI and %R aligning with a support point:

vsi-gnc

This trade was posted Jan 12th on Twitter, taken by me on Jan 11th at a cost basis of 19.79, so a trader could have entered at a lower price. I posted this trade on the 12th as shown below in my tweet that was retweeted by @Rhino_Cap (thanks!):

vsi-gnc_20130112

These were some patterns I noticed that also aligned with my current trading monitoring and strategy.  With these I will look at them more on of EOD basis while setting profitable stops instead of stop losses.  Call me a skeptic but HFT and other market hunting phenomena has me leery of sell stops and that is what I love about the options market as your stops will not be sought/hit.

As a trader you have to know when to adjust your overall strategies as I am quite picky with my entries when looking at those intra-day option strategies as cents can make a difference.  So when other factors come into play that make me sacrifice those cents then I must adjust my plan.  As of right now I must say that pairs trading (no options) is my strategy.  This requires less monitoring and less position volatility.  Hopefully I can return to a more active stance on market monitoring, blogging, and stream posting; unfortunately for now it will be more haphazard.

A Day of Getting Smoked

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As the title suggests two things got smoked today, the volatility in $IBM and $AAPL and the venison and beef I put on my Weber Grill.  I have previously posted my positions and adjustments in $IBM and $AAPL.  Last night’s post stated probable adjustments that I was going to do today.  My whole plan through recent weeks has been to trade small and seldom and I have been sticking to that as at times I become impatient.  Luckily this plan has paid off.

As for $IBM my plan was to adjust the position in the direction of the move of 1.50pts from 195.  Today it was to the positive side, so following my plan I added an equal amount of contracts in the trade I had on already and added the Nov/Nov1 200 Call Calendar  for a 1.01 debit (per 1-lot).  So my new risk profile is shown below:

The main take away from this is the increase in Vega as it essentially doubled by adding the 200 Call Calendar.  This is the thing that got smoked today and caused my original position to take a hit.  Even on the opening run up, the price did not justify the loss on the Calendar spread, but it was the decrease in implied volatility.  Being that a Calendar is long volatility, this causes more damage to my position.  Looking at $VXIBM (the $VIX for $IBM), you can see that it saw a -7.36% decline.  On the plus side it looks to be at the bottom of a short-term range.  Ideally tomorrow this position drifts towards the 195 price level while seeing an increase in volatility.  As of the close today, and all else being equal, for each 1pt rise in volatility this position will theoretically gain  $97 (see Vega on Risk Profile above).  Below is a chart of the $VXIBM showing the range I am looking at:

As for my $AAPL position I closed the Weekly put that I put on yesterday near the open for a -$84 loss.  I then closed out this week’s 580 Call by buying it back and then sold next week’s 575 Call.  Like $IBM, the implied volatility in $AAPL got crushed by -7.65% as measured by $VXAPL.  I decided to roll down the sold strike from 580 to 575 as I am still content with the upside profit potential and this also gives me more room to the downside.  This also captures a 1 standard deviation move  (blue highlighted area) to next week’s expiration, giving me a favorable probability along with chart structure.  You can see the order and new risk profile shown below with the orange line being the profile at next week’s expiration:

On the chart below is my downside breakeven and how it is also at a favorable support level that also would be within a 1 standard deviation move:

Increased volatility would also benefit this position as it would increase my Vega and also push my breakeven to a lower level (not substantial).  I must say that the price action in $AAPL is not encouraging, but I do believe we have some market upside and this would limit the downside to $AAPL.  Also I think buyers would step in near the 570 level as this also correlates with the low of the prior earnings report in where $AAPL saw a -4.31% decline (close to close).

Those are the market comments and below I included a picture of the meat that I smoked today on my Weber.  The london broil is on the bottom left and the rest is venison.  I never smoked a london broil before but thought what the hell since I was smoking some venison, 1 piece being a tenderloin.  Also that was another reason for adjustments today as I will be doing some rabbit hunting with friends Friday and Saturday so checking my positions will be limited.  One thing I might do is roll the $IBM sold strikes to next week or I just may close it out.  Either way I am looking more forward to playing Elmer Fudd than I am to Trader Guy.  It’s always important to remember when to take those breaks and right now is good timing.  I would like to be around for NFP, but that’s what happens when you hunt with people that aren’t active traders…but wouldn’t trade it for anything.

Some meat to share for the weekend.  Forgot to take after picture but damn that smoked food smells great and it also gets into your clothes.

Back to the Beginning in AAPL Trade

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In my most recent post titled “Following the Trade – AAPL Trade Adjustment on Friday 2/15” I detailed the ongoing trade that I have on in AAPL.  In this post I won’t go into full detail on the trade, reasons for, and adjustments but here are the links in chronological order of those details stated:

Today I closed that  Feb4/Mar1 440 Put Calendar in the morning for a 4.40 credit (+$271.00, 160.4%), trade order below:

aapl_0221

I wanted to take advantage of the morning weakness and just close out this hedge to the main Broken Wing Butterfly that I had on.  With the gains in the 2 calendar trades I put on, the remaining trade of the original BWB is a risk-free trade at a $95 credit.  I do not plan to add anymore hedging strategies to this trade and instead will ride out the BWB more and likely to near expiration.  In a perfect world AAPL would shoot past then retrace to the 480 level around March expiration, 22 days.

Below is the new risk profile, same look as the original trade with different risk/reward:

aapl_0221a

Now I sit and wait until March expiration.  I could keep adding a hedging strategy but with those 2 calendar trades I am happy with the risk and will let AAPL do its thing leaving the long bias trade on.  Below is a trade history:

aapl_0221b

Following the Trade – AAPL Trade Adjustment on Friday 2/15

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I made another adjustement to the AAPL trade I currently have on.  I will provide a quick recap of risk profiles and charts and I will leave it to the reader to click on the link to read more in detail on why I went long AAPL starting 2/5.  I have made 2 adjustments to this trade as of 2/15.

As stated in my first post, “Utilizing Market Comments from Other Traders“, I went long AAPL with options in the form of a Broken Wing Butterfly, below are pictures of my order entry and risk profile:

Order entry:

aapl_20130206

Risk profile:

aapl_20130206b

On 2/11 I made an adjustment (via 460 Put Calendar) to protect from downside action.  More into the analysis of the why and what I was looking at can be found in this post, “Trade Adjustment – AAPL“.  Below is the order entry with the addition of the risk profile with the adjustment:

Order entry:

aapl_0212b

Risk profile:

aapl_0212c

**Now for the new trade and adjustment made. **

I rolled that 460 Put Calendar in the afternoon on Friday.  The hindsight trade would have been to leave it on for what turned out to be a perfect pin at 460 and max profits achieved.  The way I saw it though and playing this Calendar Spread was that I had risk to the upside on the Put Calendar trade if AAPL were to move higher.  Below is the 15min chart of AAPL and where I rolled the position:

aapl_0215

My order was to close out the 460 Put Calendar and roll to next weeks 440 Put Calendar.  On the daily AAPL is still in a long-term downtrend, but also in a low volume pullback on that recent break above 460:

aapl_0215a

Needless to say I see AAPL as a tough trade.  I wasn’t happy with the 450 Put Calendar as a hedge against the current long Broken Wing Butterfly so I went with next week’s 440 Put Calendar, in case we see that whoosh below 450.  I then believe 440 will hold on a price and time to expiration basis. Below is my order entry:

aapl_0215c

I executed this in one order and rolled this position for a 2.40 credit. Broken down:

  • closed the 460 Put Calendar (original debit 1.60) at 4.09 (+$249.00, +155.6%)
  • opened the 440 Put Calendar at 1.69
  • overall a positive gain of $80 with no more risk in the Put Calendar hedge and reducing my cost basis of the original trade of the Call Broken Wing Butterfly from 4.25 to 3.45.

Below is my new risk profile going into Friday expiration 2/22:

aapl_0215d

Overall I am comfortable with my adjustment allowing for downside protection in case we see that drop in AAPL.  The downside is where my risk in the combined trade is and this is what I am looking to protect.

Learn To Take The Loss

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One of the hardest things to do in trading is take a loss.  This is what makes the game so hard as you will be reminded often that you are wrong.  Then when the hope strategy doesn’t work it creates a mental blow that leaves you offering excuses as to why it didn’t.  But after learning to take several losses you will find that losses are some of the best teaching aides out there and in fact can be rewarding.  Aside from studying and learning why it was a losing trade, it will create a mental relief as you are out of the trade and can reinforce your discipline or strategy as that loss becomes a bigger loss.  As many traders say, all big losses start as small losses.

Today I took my loss in an Amazon (AMZN) trade.  AMZN is a stock I like to trade with options as they are liquid, offer weekly options, and the stock moves.  I don’t want to go into much detail on the strategy here but want to keep this post more about taking losses.  On 2/12 I took on a bearish position in AMZN via March 260/255 Call Diagonal for a 2.45 debit (max risk to upside of $740.00).  Trade order entry shown below:

amzn_0213

I took this trade while watching the 30min chart and I was looking to take advantage of anticipated downside but still bullish AMZN hence being on the call side of AMZN and long the March Call with weekly rolling capabilities.  Anyway here is the 30min chart I was looking at with notes:

amzn_0213a

So with this action I liked the idea that we would retest those 2/7 lows around 255 and this looked like a good place to get long AMZN according to the daily, overall the Call Diagonal was a strategy looking to take advantage of a pullback in order to get long.

So what happened?  AMZN came out with several news bits this morning of minting currency, playing its cloud in cars, and expanding a content licensing agreement with CBS; regardless it was all bullish news that had AMZN gapping up Wed morning almost 3 dollars.  My thoughts were of course “why not as I just put on a bearish strategy” looking for a gap down or selling to 255.  Right away I thought “all this news appears bullish for AMZN so lets see how it handles the opening gap?”

As stated in a previous post I was big on the 260 level for AMZN.  Another reason for this bearish position was its inability to hold that 260 level on Tuesday 2/12, so this was in focus for me.  Seeing that we would gap above this level left me feeling uncomfortable with my position and looking at how it handled that news.  Concentrating on a scaled down time frame, opening volume was bullish and the 260 level wasn’t even breached.  This told me I just need to accept the loss and I was wrong.  Below is a 30min and 5min chart:

amzn_0213b

It appears that this news from AMZN coupled with its continued selling since earnings was the catalyst it needed for further upside and it ripped through the day creating a nice daily chart.  Below you can see my order entry/exit orders:

amzn_0213d

I ended up taking a -$85.00 loss on this trade (per 1-lot, -34.6%).  But watching AMZN price through the day made a losing trade into an actual win from a mental capital standpoint.  Here is an EOD Risk Profile of the current trade, currently showing a loss of -$304.98 (-124% debit, -41% risk).  As you can see by the low/high red dashed lines not even a 2 sigma move to the downside (low probability of happening) would put me at  my target of 255:

amzn_0213e

I cut the loss realizing I was wrong in my thesis and ending up cutting it before it turned into 3.5x the current loss.  To me this is near a win as when I first started trading I would have turned this into a hope strategy (which it could still come back down).  I have learned through several blown accounts this doesn’t work and learning to cut the loss when you realize you are wrong from your initial analysis is the right strategy.

Now when I look back at this I ask myself “would I take this trade again?” and the answer is yes I would.  This just turned out to go against me with maybe some news catalysts & no anticipation of AMZN or some overall market weakness.  I preserved capital to move on to another trade or get back in AMZN.  If there is one thing I have learned through time it is the ability to realize I am wrong and learn why.  There are just some things you can’t control, accept your risk going into a trade.

Trade Adjustment – AAPL

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AAPL saw another decent gain yesterday making it 5 days in a row of higher highs, higher lows and positive closes.  The best action on a trending basis that we have seen since its selling off the high of 705.07 set back in September.  From a trading standpoint I believe the push above 460 on Feb 7th was big.  We came below that level during the day and closed above it and the 10EMA on volume 17% above its 50SMA of volume.  Today saw us run into the long-term trendline from the September highs.  Some of Mondays gains may be attributed to the news of the iWatch or the anticipation of Tim Cook’s presentation at the Goldman Sachs technology conference at 10:15 EST.  Below is a current chart of AAPL with notes:

aapl_0212

I have stated with reason in a previous post that I am currently long AAPL via options, specifically a March Broken Wing Call Butterfly of the 460-480-490 strikes for a 4.25 debit.  With today’s unknown words of Tim Cook and the recent move we have seen (8.5% in last 5 days), I am expecting some stalling or slight retracement.  But like we have seen in the past, selling can ensue.  I do believe we have seen a low at least until next earnings but I also respect the fact that we are below that trendline and declining long-term moving averages.  While I anticipate we will break above these negative technicals, today I adjusted my trade to allow for some selling while still being happy with current gains (+72.4% before adjustment).

The trade adjustment was adding the Feb/Feb4 460 Put Calendar for a 1.60 debit.  I liked this trade in that it was cheap and it took full advantage of that 460 level mentioned above.  Below is a 30min chart which does not look bearish at all to me.  I still have those yellow trendlines on there from the daily but look at the highlighted blue boxes.  These intraday breakouts are supported with volume.

aapl_0212a

Below is my order entry and the new risk profile set for AAPL:

aapl_0212b

aapl_0212c

 

While this adjustment changes the characteristics of some of my Vega (going from negative to positive) I am happy with the more neutral delta (8.65 to 0.71) and increased theta (3.27 to 17.14).  Also this is more of a play on direction than greeks, which are important when playing delta neutral or income strategies.

Position Updates – AAPL, AMZN, V

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Yesterday  the bears definitely had the upper hand in the morning only to see the selling subside and the often seen grind up continued through the afternoon.  Much of the excitement was in the afternoon surrounded by none other than news concerning Apple (AAPL).  Overall a fun day that is still seeing individual stocks set-up and break out.

I personally am still light in the portfolio.  I posted previously about my Amazon (AMZN) and did get filled and exited that position Wednesday as I put a note out on the stream.  I exited as I did not like how AMZN cut through 265 on volume so I was looking to take advantage of any up swing by placing an order at the mid-price to which I got filled.  Below is my post to the stream and orders:

Capture

 

amzn_20130208

 

As I was already out of the position, yesterday saw a move down to 255 and did put this position underwater about -$250.oo give or take but price action brought it back up to slightly positive .  Either way I was out so moving on.  I did try to put on another similar position for a 15c credit capturing the 245-255 range but never got filled as my entry marked near a bottom in the price action.

I remain in the AAPL position as shown in this post.  I haven’t played AAPL in a while and if interested into why I got in it is stated in the linked post.  It is a March 460-480-490 Call Broken Wing Butterfly for a debit of 4.25.  Yesterdays news definitely helped this position.

Then I put on a short position.  Yes I feel like one of these move to the downside is going to stick shaking some further weak bulls.  Yesterday I put on a short position via options in Visa (V).  It came out with earnings Feb 6th AMC and beat on EPS and revenues.  The action in Visa yesterday had me believing a pause or slight pullback is due after a very consistent run as of June 2012.  I am looking for a pullback to the 50sma (blue line) which coincides with a gap support area around 154-155.  Visa has pretty much been in a basing pattern since the new year gap and I am looking for a pullback to at least the bottom of this base.  Also the Relative Strength Average (purple line in blue highlighted box) is beginning to roll over, something we have not since but only once during this recent run.

v_20130208

With this information I entered into a Mar/Feb 155/150 Put Diagonal spread for a 2.50 debit.  This position will provide a return of approximately 30% if 155 is hit and will provide near a max return if the gap is filled, all being around next week Friday expiration.  I wasn’t too concerned about the greeks when putting this on as I am looking more for direction.  But  I also wanted to take the greeks in consideration and wanted to take advantage of any increase in IV so the Diagonal gave me what I wanted:

  • Delta – than a Calendar spread while creaqting profit from downside move
  • Theta – no big time decay (becomes theta positive w/downside move) as seen with a single call position
  • Vega – wanted positive vega so that an increase in volatility will benefit the position

Below is a risk profile of the current trade:

v_20130208a

Utilizing Market Comments from Other Traders

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Yesterday was a good day for those that did not get shaken out of the market from Monday’s action.  It was probably a bad day for those that got eagerly short in portfolio.  Yesterday can be a good example of letting the overall momentum shift before jumping the gun.  There were some good comments on the stream yesterday from @HCPG:

If you’re looking for a top, wait until you have no more stocks setting up. That’ll likely coincide with any top.

and from @stevenplace:

$SPY potential broadening top. If anything, is indicative of increase in actual market vol stks.co/q1nI

Below is the SPY chart that is referenced in the link:

spy_20130206

I must say that I agree with both of these outlooks.  It is too soon to go overly short as there are still stocks setting up and breaking out as mentioned by @HCPG.  But as @stevenplace mentioned, there will probably be an increase in market volatility.  Personally when I see indices making moves like this at a top I try to think from a behavioral standpoint and right now it is telling me to trade light.  Also, I am not one to eagerly short either but would rather have more cash if the market sold off instead of always being involved.

With that, I am still in the Amazon (AMZN) position that I have posted about here.  I didn’t need to adjust this as yesterday’s action was favorable.  Also yesterday I got back into an Apple (AAPL) long position.  This was mostly due to current price action and a posts to the stream from @OptionsHawk :

AAPL – Liked what I saw this morning, involved at $444 via calls, held 10 year trend support for 2 weeks, looking for 510

AAPL’s IV30 down 40% since earnings and near 6 month low, see that as bullish, less uncertainty

The last comment really got me interested.  With the drop in IV since earnings and 6 months low, the uncertainty was alleviated.  I remember in the past there were several traders calling for 425 and that could be justified by the chart.  But sometimes we don’t always get what we want and I am liking the current action in AAPL.  Yesterday was a good day for AAPL in that it rallied with the markets, something it has really failed to do in this whole market rally.  I decided to put on an Call Broken Wing Butterfly.  I went out to March expiration with 460-480-490 strikes for a debit of 4.25.

aapl_20130206

I choose this strategy because I liked the risk involved and it is a bet that AAPL will at least hit 480  by March expiration.  This also takes advantage of one of those 40-50 point rips that we could see in AAPL and then at that point I believe the low in AAPL will be established.

aapl_20130206aBelow is the risk profile for the AAPL trade based on a 1-lot.  This is a play more on the direction and not so much the greeks as in an income position.  The red dashed lines represent a %5 move with the dashed line in the middle being the current price at 0915 hours 02/06/2013:

aapl_20130206b

Amazon Trade Update

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Back on January 31 I described here a trade in Amazon I took on.  I was looking at the weekly chart and saw 260 as a support area as it was a breakout point and I thought institutions would see this as a place to add shares as it wouldn’t be extended here and it aligned with the 10-week SMA.  Below is a chart of what I was looking at:

amzn_20130131

Below is the trade that I put on as I really liked the idea that we would stay between the 260-270 level on any selling with subsequent bounce.  It is the AMZN Feb2 255/265/270 Call Butterfly and I was filled at 4.88 ($488.oo being max loss).

amzn_20130205Below is the risk profile.  It takes full advantage of the 260-270 range and if we saw a run up, would result in a slight profit.  But the overall goal of the trade was to take advantage of that range.

amzn_20130131aSo where are we now?  The continued selling in AMZN was surprising and I did not expect there to be as much as selling in it as we have seen, especially with the market moving up the prior week.  With the overall market seeing selling yesterday AMZN followed suit but held at support at noon and based for the rest of the day.  With this action I am right at that 260 level sooner than I had hoped and have an adjustment plan in mind.  If we see further selling below the 260 mark I plan on closing the Bear Call Spread of the Butterfly (265/270 strikes) and will be left with a bull call spread.  With current prices, this will leave my my breakeven at 260.80 and increase my max loss to $579.00 with max gain of $421.00 if we close above 265.00.  The risk profile looks like this (based on 1-lot position):

amzn_20130205a

Below is a daily chart of AMZN with a dotted line at the 260 level and shown to be holding the gap and the 50-day SMA:

amzn_20130205

Trying to Catch Up

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It has been longer than I had hoped since I have written a post.  Since I wrote this blog post I have been more inactive than I had hoped.  The inability to monitor the market on a consistent basis is more than I have anticipated.  I have definitely missed much on the social media front as well as I have more miles on the road than I have in minutes watching/studying the market.  If you have referenced anything I have written or sent me a message and I have not responded, my apologies and and if it were a question please ask again as I know I have missed some stuff.  I must give thanks to @CashRocket @TwoSmuth @Rhino_Cap for references in blog posts and on the social stream.

Since that blog post I have closed the VSI-GNC pairs trade and got into a POT-MON pairs trade.  I exited the POT long side on the 29th as I did not want to hold into earnings even though other Ag names have acted well on earnings.  Then today I exited the MON short trade on early weakness.  Then today I put in orders for two trades.  The first was a WLT-KOL pairs trade as I like the WLT chart but due to possible market volatility and inability to constantly monitor the market/social stream, I wanted to short something as well.  With that I chose the Coal ETF.  Anyway I put in the order for a fill at 11.35 (for the pair) hoping to get hit on some later weakness but never got the fill.

I also put in a limit order for AMZN.  Looking at the chart I chose the next weeks expiration cycle (Feb’2) and put on a 255/265/270 Call Butterfly that was filled in the afternoon on weakness.  Looking at the weekly chart I believe the 260 level will act favorably  as 260-263 was a key break out area and I expect this to hold.  Also this is an area where the 10 week SMA comes into play.  Even though I have a short term trade on I expect this to be a big level, so my trade looks to capture the 260-270 range while leaving some profit on anything above 270.  Below is the weekly chart:

amzn_20130131

And below is the risk profile based on a 1-lot position:

amzn_20130131a

Johnny couldn’t put it any better:

Adjusting My Forward Trading Strategy

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One of the most difficult things as a trader, parent, and having a full-time job is creating that balance between them all.  As of late I have had the most difficult time balancing all three.  More recently trading has come to the least priority of those three.  I am grateful in that I have a full-time job that lets me have a comfortable life that allows me to trade.  But recently assignments have come to where I must let that full-time job override trade priorities.

If you have been a reader of my blog you know that I love options.  Unfortunately many of the strategies I use require intra-day monitoring or intra-day adjustments.  With recent life demands, I haven’t been able to monitor these intra-day moves as much, thus creating slippage beyond what I deem comfortable.

Sure you may say that alerts can negate these demands, but also at times I may not be able to see these alerts from 2 hours minimum to maybe EOD.  Not exactly what I like.  So with this I have created a trade strategy adjustment instead of taking myself out of the game.

Right now I am concentrating more on pairs trading more than anything else.  What I love about pairs trading is that it can be very beneficial during times of volatility and be beneficial when you can’t monitor the market that much.  I believe in a a rising tide lifts all boats, and if you pick a leader over a laggard you can benefit (even thought the rate of pace not be as high); or if the market falls then your position should be neutral or leading.

Recently I posted on the stream a trade I took in a pairs trade.  In this trade I went long Vitamin Shoppe (VSI) and shorted GNC Holdings (GNC).  These two stocks are within the same industry and below is the chart I was looking at focusing on oversold signals in RSI and %R aligning with a support point:

vsi-gnc

This trade was posted Jan 12th on Twitter, taken by me on Jan 11th at a cost basis of 19.79, so a trader could have entered at a lower price. I posted this trade on the 12th as shown below in my tweet that was retweeted by @Rhino_Cap (thanks!):

vsi-gnc_20130112

These were some patterns I noticed that also aligned with my current trading monitoring and strategy.  With these I will look at them more on of EOD basis while setting profitable stops instead of stop losses.  Call me a skeptic but HFT and other market hunting phenomena has me leery of sell stops and that is what I love about the options market as your stops will not be sought/hit.

As a trader you have to know when to adjust your overall strategies as I am quite picky with my entries when looking at those intra-day option strategies as cents can make a difference.  So when other factors come into play that make me sacrifice those cents then I must adjust my plan.  As of right now I must say that pairs trading (no options) is my strategy.  This requires less monitoring and less position volatility.  Hopefully I can return to a more active stance on market monitoring, blogging, and stream posting; unfortunately for now it will be more haphazard.

A Day of Getting Smoked

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As the title suggests two things got smoked today, the volatility in $IBM and $AAPL and the venison and beef I put on my Weber Grill.  I have previously posted my positions and adjustments in $IBM and $AAPL.  Last night’s post stated probable adjustments that I was going to do today.  My whole plan through recent weeks has been to trade small and seldom and I have been sticking to that as at times I become impatient.  Luckily this plan has paid off.

As for $IBM my plan was to adjust the position in the direction of the move of 1.50pts from 195.  Today it was to the positive side, so following my plan I added an equal amount of contracts in the trade I had on already and added the Nov/Nov1 200 Call Calendar  for a 1.01 debit (per 1-lot).  So my new risk profile is shown below:

The main take away from this is the increase in Vega as it essentially doubled by adding the 200 Call Calendar.  This is the thing that got smoked today and caused my original position to take a hit.  Even on the opening run up, the price did not justify the loss on the Calendar spread, but it was the decrease in implied volatility.  Being that a Calendar is long volatility, this causes more damage to my position.  Looking at $VXIBM (the $VIX for $IBM), you can see that it saw a -7.36% decline.  On the plus side it looks to be at the bottom of a short-term range.  Ideally tomorrow this position drifts towards the 195 price level while seeing an increase in volatility.  As of the close today, and all else being equal, for each 1pt rise in volatility this position will theoretically gain  $97 (see Vega on Risk Profile above).  Below is a chart of the $VXIBM showing the range I am looking at:

As for my $AAPL position I closed the Weekly put that I put on yesterday near the open for a -$84 loss.  I then closed out this week’s 580 Call by buying it back and then sold next week’s 575 Call.  Like $IBM, the implied volatility in $AAPL got crushed by -7.65% as measured by $VXAPL.  I decided to roll down the sold strike from 580 to 575 as I am still content with the upside profit potential and this also gives me more room to the downside.  This also captures a 1 standard deviation move  (blue highlighted area) to next week’s expiration, giving me a favorable probability along with chart structure.  You can see the order and new risk profile shown below with the orange line being the profile at next week’s expiration:

On the chart below is my downside breakeven and how it is also at a favorable support level that also would be within a 1 standard deviation move:

Increased volatility would also benefit this position as it would increase my Vega and also push my breakeven to a lower level (not substantial).  I must say that the price action in $AAPL is not encouraging, but I do believe we have some market upside and this would limit the downside to $AAPL.  Also I think buyers would step in near the 570 level as this also correlates with the low of the prior earnings report in where $AAPL saw a -4.31% decline (close to close).

Those are the market comments and below I included a picture of the meat that I smoked today on my Weber.  The london broil is on the bottom left and the rest is venison.  I never smoked a london broil before but thought what the hell since I was smoking some venison, 1 piece being a tenderloin.  Also that was another reason for adjustments today as I will be doing some rabbit hunting with friends Friday and Saturday so checking my positions will be limited.  One thing I might do is roll the $IBM sold strikes to next week or I just may close it out.  Either way I am looking more forward to playing Elmer Fudd than I am to Trader Guy.  It’s always important to remember when to take those breaks and right now is good timing.  I would like to be around for NFP, but that’s what happens when you hunt with people that aren’t active traders…but wouldn’t trade it for anything.

Some meat to share for the weekend.  Forgot to take after picture but damn that smoked food smells great and it also gets into your clothes.

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