Thursday, July 24, 2014

Earnings

AAPL (Double Click on image to expand)

Order Entered 1/2 Hour Before Close.



Close On Opening Print The Following Day.



Does Lightening Strike Twice?

FB Earnings.



FB Expected, Market Maker Move $4.39

We Will Go a full Five Dollars Out at Higher Imp Vol (Range 95-99.50)




 2 day (95.59)  9 day (58.74) 16 day (48.72) 23 day (46.00) 30 day (40.00)



After Event

1 day (32.83)  8 day (32.26 )  15 day (29.68 ) 22 day (32.15 ) 29 day (28.77 )



ORDERS




Risk Graph






Move





EXIT





GOING FOR THE HAT TRICK

AMZN



Implied Vol. at a massive 104

Entry Order










Risk Graph






Exit Order Vol From 104 to 41 (63 point Vol Crush overnight )



Additional One Day Scalps to finish off the week.



Exits



Three for Three Earnings plays for the Week.


Thank You

RD-
Think Tank LLC


"The true measure of a man is how he treats someone who can do him absolutely no good." A. L.






Friday, July 18, 2014

Vix Futures Term Structure Video
 




"SKEW AND TERM STRUCTURE TRADING

We examine how skew and term structure are linked and the effect on volatility surfaces
of the square root of time rule. The correct way to measure skew and smile is examined,
and we show how skew trades only breakeven when there is a static local volatility
surface.

 Skew and term structure are linked. When there is an equity market decline, there is
normally a larger increase in ATM implied volatility at the near end of volatility surfaces
than the far end. Assuming sticky strike, this causes near-dated skew to be larger than far dated
skew. The greater the term structure change for a given change in spot, the higher
skew is. Skew is also positively correlated to term structure (this relationship can break
down in panicked markets). For an index, skew (and potentially term structure) is also
lifted by the implied correlation surface. Diverse indices tend to have higher skew for this
reason, as the ATM correlation is lower (and low strike correlation tends to 100% for all
indices).

 Square root of time rule can compare different term structures and skews. When
implied volatility changes, typically the change in ATM volatility multiplied by the square
root of time is constant. This means that different (T2-T1) term structures can be compared
when multiplied by √(T 2T1)/(√T2-√T1), as this normalizes against 1Y-3M term structure.
Skew weighted by the square root of time should also be constant. Looking at the different
term structures and skews, when normalized by the appropriate weighting, can allow us to
identify calendar and skew trades in addition to highlighting which strike and expiry is the
most attractive to buy (or sell).

 How to measure skew and smile. The implied volatilities for options of the same
maturity, but of different strike, are different from each other for two reasons. Firstly, there
is skew, which causes low-strike implieds to be greater than high-strike implieds due to the
increased leverage and risk of bankruptcy. Secondly, there is smile (or convexity/kurtosis),
when OTM options have a higher implied than ATM options. Together, skew and smile
create the ‘smirk’ of volatility surfaces. We look at how skew and smile change by
maturity in order to explain the shape of volatility surfaces both intuitively and
mathematically. We also examine which measures of skew are best and why.

 Skew trading. The profitability of skew trades is determined by the dynamics of a
volatility surface. We examine sticky delta (or ‘moneyness’), sticky strike, sticky local
volatility and jumpy volatility regimes. Long skew suffers a loss in both a sticky delta and
sticky strike regimes due to the carry cost of skew. Long skew is only profitable with
jumpy volatility. We also show how the best strikes for skew trading can be chosen." -

Santander
Global Banking & Markets
C.B. & M.A.G
Food For Thinking Traders

 ( Email Submissions )


Email 1,

********************************


Please tell me if I am viewing this trade correctly


 


26 day vx future is trading at 12.70

61 day vx future is trading at 13.70


 


***************************************************


 


so the "cost to carry" roll is one dollar... to take the trade out 35 days or a dollar of decay if we go nowhere..
 
  ***Correct but not exact***


 


my question for you is .. if the vix in the front month goes from 12.70 to its historical low of 9


 


what does that mean for the SPX.. if 19 percent vol is a one percent move,.. what is a .09 percent vol mean .. "that is hardly moving per day?"
 
***It still means that the future will be around 10 or 11….Maybe it means a 40 to 50 point move in the S&P’s***


 


how much of a move up in spx = a move down in vx, and is it linear.. is every point down = the same level of move up in spx or is this skewed .. meaning one percent move up equals one percent move down in vx .. then a second percent move up = .50 move down in vx and so on ..
 
  *** It’s not linear and it’s approximately 20 points in the/ES to every 1 point in /VX futures…***


 


please help me estimate the level of pain I would be feeling holding the 61 day vx future (which i just bot) if we are at historic lows in the VIX
 
  *** My best guess at those levels is 40 to 60 S&P points but nobody really knows.***


 




 
********************************


Email 2


Hello,

 

I have a few quick questions from your short term vs long term selling Vol

 
My take away was that you have a slightly larger cushion being caught short Prem if it explodes to the up side, by being father out in time (duration) OPTIONS ONLY

 
but my question for you has to do with the trade I have been doing by selling uvxy or vxx against a future.  

 
when you are in this trade and the underlying future + options, it would appear to me that the above mentioned gamma risk against short time would be muted by the presence of and underlying, not just short options- is that correct? because the gamma risk associated with short term duration seems like it would be off set against the future underlying gain or loss.

 

here is what I have been doing..

  I bot one VX future vxq4 at 13.60

and sold the 29 call in uvxy 5x times against it for $2.86 Credit..July 14

and after some time and downward movement in the VX I then bot the 27 strike Call for $2.60 Debit, July 14

***Free Vertical***

then I am in this call spread for free .. but I gave up my Theta Decay so then I went into Aug 14 (more time) and sold the 30 strike call for $3.30 Credit

and again the same thing happened time has melted away and we have moved lower in the vx so I bot the 25 strike Call for $3.35 Debit

.05 cents debit for this vertical

and not wanting to go out any father then I went into to VXX another like product and am working 10x there against my original future at the Aug 29 calls at $1.50 credit

am I managing these trades correctly getting into a vertical and rolling out the sold prem.. or would it be wiser to A) either do them longer term and not touch them? B) do them short term and let them go and re establish every few weeks milking every possible theta from the position? or C) the vertical hybrid thing I a have seemed to find myself in ..

I am sure there is no direct right answer but speaking in generalities what do you think ..

thank you in advance


I cannot discuss the specifics of any individual trade), conceptually, you are pretty much spot on. You have to under-hedge. Part of it is the gamma risk and part is being right directionally. Regardless, looking at your adjustments, I’m not sure that you could have done anything differently. You never could have assumed the depth of the volatility contraction and I really believe that you made the logical ‘tweak’.


 
********************************

Email 3

Hello

 

I hope you can help I just have a few volatility related questions I hope you can help me on.

what I am trying to do is work on the correct ratios here

what I am attempting to do is buy a /VX future

 

either the VXQ4 (35 days)

or the VXU4 (63) days

 

and sell one of the ETF (n) vol products with drag against it.

 

My first question has to do with the future.. both the futures products say 1000 delta once purchased .. but I know the speed of a move is not linear and will move differently depending on term structure..

 
but how can I know relative to a ETF product how much delta is actually is .. meaning

 
IF I was to sell 5 UVXY or 10 VXX against the future .. how can I determine the time frames in which they are closer to delta neutrality? if this was a stock I feel I understand how the greeks would work to determine ratio.. but the idea of $1000.00 a point in the future vs the equivalent dollar value in the ETF... seems ok in theory but I think it would have to be tweaked depending on what time frame and I don't exactly know how to do this because I cant calculate the time effect on the different contact months for the futures contract its offsetting.


I am trying to figure out if its better to do them both in the same month and forget about it, or to do more or less contracts for a shorter time, for example every week, and reload and repeat, but I feel like I could run into trouble selling 5 uvxy contracts for week with a longer dated future that might not move as much to cover it if we move up. I hope you can see what I am asking here and help me determine something like selling 4 uvxy with one week might be like 7 with weeks and 10 with 35 days. I can get that portion from the options greeks If I could just better understand the different effects through the different month futures.

 

and now my second question..

 

I am working under the idea that the Vol ETFs would actually out perform if we were to get a longer term sustained up move in VOL with its built in rolling feature (which we haven't ever really seen) but besides looking at the differences in credit I could bring in selling VXX or UVXY is there any other determining factor as to why sell one product over the other? 

 

thank you in advance for your time and patience I hope you can translate my question into something meaning full and help

 

I look forward to hearing from you


Hello,
 
Generally, if vol spikes up the product with less time to expiration is going to respond more than the product with more time.  So, you’ll see the VIX jump the most, the Aug /VX go up less, and the Sep /VX go up the least.  So if you’re looking at selling UVXY or VXX against /VX, I’d look for an expiration that has the same or a bit longer time than the future.   You could sell fewer contracts in a closer expiration and maybe capture more time decay than doing more contracts in a further expiration, but figuring out the right ratio of how much that near month will rally vs your long future is tough to quantify.  You could assume that the /VX basis moves to, say, 2 points under (vs .67 over where the Aug/Sep basis is right now), and try to estimate how much the VXX or UVXY options change.  It’s an educated guess.  

Whether the VXX (and by association the UVXY) outperforms if vol makes a sustained move higher is tough to say because of the fluctuations in the /VX basis over the rolling cycle of the VXX, and how vol makes that sustained move.  Whether it moves steadily up every day, or moves up in occasional jumps.

 
********************************

Email 4



thank you

 

one more additional question..

the VXX right now is at 27.95 ( basically 28)

If I was to buy the Aug (31) day call vertical

28 strike and sell the 30 strike two dollar wide vertical

theo price is 1.66 - 1.10 aka .56 cents debit (i know the markets are closed so this might be a hair off.

and then SELL IN UVXY the 2 dollar wide out of the money spread.

uvxy is at $25.38  (.64 cents out of the money)

and I was to sell the 26- 28 call spread for .57 cents credit..

both trades for net net zero. debit plus credit.

is this going to track penny for penny .. is would this position lock in the slight difference the two verticals difference between where the spread is vs at the money (one spread five cents away.. one spread 64 cents away?)

it would appear there is a slight difference between the two products when I type in uvxy-vxx in a chart is this too close to arb together?

again thank you and I am looking forward to tomorrows confirm and send.
 

 Enjoy your night.
 
***UVXY is going to move twice as fast. Maybe it's a 2:1 play but these are difficult arbitrage plays for retail traders.....***
 
sorry for the multiple emails...I don't want to clog your email box..
 
I would imagine the trade could be set up thinking if you are doing both verticals for the same price... then the faster one would go in the money faster then the other one would lose.. if you were to buy uvxy and sell vxx..
 
or if done the other way around.. you are wanting the spread to go to zero on one side (credit faster then the debit side if uvxy is sold)
 
but it might be more trouble then its worth.
 
 

***Way more trouble 1:1. It only will work if you skew it to make things interesting***

 













 

 

Wednesday, July 9, 2014

/CLU4

CRUDE OIL FUTURES OPTIONS UNBALANCED CONDOR

Original Order



+5 x 103 Strike Puts @ 1.50

-5 x 101 Strike Puts @ .91

-10 x 99.50 Strike Puts @ .62

+10 x 97.50 Strike Puts @ .37

NET NET .10 Cents Debit X $1000 multiplier X 5 Cars = $500.00 Debit.



The active decay line on this profit and loss graph is intentionally removed.

The point being is there are ways to accelerate or decrease  the level of profitability around a structure being strategically aggressive or defensive and adjusting the net delta to reflect the overall aggressiveness needed with each complimentary holding.


ADJUST ONE



By buying back the Outside Wing, the overall sensitivity to movement increases.

Debit Paid 10x @ .25

The individual vertical is more delta movement responsive then the package.

Here is how the position would have looked if held in total at this exact moment.

 (FLAT NO PROFIT POTENTIAL )

 
 
As we sit flat to higher the decaying wings help you, as we move down the wings hurt you. 
 
 
 
Closed Remaining Vertical
 
 
 

 
Sold to CLOSE 5 x at 1.05 - 1.06  (4x 1x AKA $1.052)

FLAT .





Tuesday, May 13, 2014

GOOG

Unbalanced Condor.


Adjust One



Close

Wednesday, May 7, 2014

Crude Futures Options /CL

Open



SELL -3 Calls 110 @ .33 CREDIT
SELL -3 PUTS 92 @ .34 CREDIT

NET NET .67 Cent Credit X 1000 Multiplier X 3 or = $2100.00 Credit.



ADJUST ONE

If you take a moment to look at the 110 call price .12-13 cents, a full point down would only advance this trade .02 more cents, and this point CHARM Theta/Time is suggesting and adjustment, as the risk vs. reward is no longer present. We will elect to turn this trade from a Theta Prem Sell to a Delta directional trade.



The Yellow bars mark the location of the original strangle, the new vertical reaches maximum potential sooner, but other positions contributed to this adjustment. In the face of Russian Ukraine turmoil this was sold, and oil went the exact opposite of the headlines, (lower) on todays Cover the headlines read, "Putin Says Russia Withdrew Troops" and Oil is going higher.   

ADJUST ORDER




Leaving Delta Directional long Call vertical, and Short Put.

CLOSE



CLOSE





Thank you in advance

Roger Kent


Wednesday, April 9, 2014

 
Bitcoin Recommended Reading 
 

Bitcoin and Beyond: The Possibilities and Pitfalls of Virtual Currencies
David Andolfatto*
Vice President Federal Reserve Bank of St. Louis
March 31, 2014
 
 
 

Wednesday, March 19, 2014

SPX CONDOR


On what felt like a higher spike in Volatility we entered this order




$5 wide SPX condor with about 32 days left, We are expecting a decrease in Vol, as well as time Theta Decay. We received $2.00 Credit against $5.00 max risk, stand alone approx. 60 percent chance of making money here according to the odds.

The Risk Graph looks like this. (was more centered at time of entry)


 
 
 
The Market has moved higher, but as that is happening our view to bias SHORT is increasing.
 
We looked to adjust.
 
 
 
 
We were paid $2.00 to enter or $200.00 X 15 times $3000.00
 
We are spending $1.80 x 15 times or $2700.00
 
 
 
NET NET COST is .20 Cents Credit for this
 
 
 
 
 
Down Side Risk is Removed, If we continue lower we will fly off, or remove upside call Credit Spread.
 
 
We elected to help hedge off this upside risk by a VXX PUT FLY
 
 
 
 
 
UPDATE 1 
 
Original VXX FLY HEDGE
 
We haven't taken one single day of heat on this one, so we are going to lighten up.
 
Paid .66 cents 50x = $3300.00
 
Legged out of 1/5th or 20 percent
 
 
 
 
 Credit $1.03 x 10x = $1030.00 - Net Cost -$2270.00
 
UPDATE 2
 
 
 
Closed 7x of the 15 Put Condor at $2.00 Credit or = $1400.00 Credit
 
 
 
 Bot 5x of 15 Credit Spread, Spent .95 cents x 5 or = $475.00
 
This Helps clean up risk and margin.
 
Net Net Result, a smaller more manageable trade.
 
 
 
 
VXX FLY
 
Net Cost -$2270.00 SOLD 10x at $1.24 or additional $1240.00 Credit
 
Current Cost basis on FLY = -$1030.00 Holding +30x-60x+30
 
 
 
UPDATE 3
 
The Clean Up Prints
 
Boxing off Downside PUT TAIL RISK
 
 
 
 BOX MATH
 
Credit $4.90
 
Original Credit spread  portion of Iron Condor.
 
SOLD @ $15.45 - $14.65 (+.80 Credit)
 
Covered @ $0.10 Thru Box.
 
UPSIDE RISK BUY IN.
 
 
 
Sold @  $6.10 - $4.20 (+$1.90)
 
Covered @ -0.55 Cents (+$1.35)
 
 
Final Leg of Directional Condor.
 
 
 
 
Bot @ $-3.55 +$2.55 ($2.00 Debit)
 
Sold @ +2.50 (+0.55 Credit)
 
 
UPDATE 4 
 
 
Closed 20x of 30x
 
 
 
 
20x @ $1.33 or $2660.00 Credit.
 
$1330.00 Cost basis =  Credit $ 1330.00
 
Holding 10x (9 day)
 
 
 
Final CLOSE ON VXX FLY HEDGE.
 
 
 
 
10x @ $ 1.41 or $1410.00
 
VXX FLAT.