Wednesday, July 28, 2010

07/28 Daily Summary

I’m back in the game and trading to win! Let’s bring this butterfly home and land some profits, shall we? By end of day Today I used the pull back and executed a few vertical rolls to move both my short Puts and Calls further away from the money. Typically I would start condorizing by end of next week, but given that this is the first day with profits, I figured I’d do this adjustment to reduced risk by reducing the amount of capital required on the trade, and cut my Gamma exposure. I want to keep this recovery going and not give it all up if we have another 2+ st. Deviation day all of a sudden... By moving a few of the calls and most of the Puts out a strike I cut my gamma, gave up a bit of theta, but to me the trade off was worth it.


Anonymous said...

Hi Gustavo,

Please could you say what the formula is you use to calculate the % of days where price moves over 1 S.D. using high to low.
Is this the expected SD move for the day using price * IV *SQRT (1/365) then see what the range is for the day?? Hope you understand the question :-)
Cheers Doodelzack

Gustavo's Trades said...

Hey Doodelzack,

First of all, I use the principle and formulas on Jeff Augen's book "The Volatility Edge in Options Trading". Thus I'm using a 20-day calculated volatility. Also, because the data I'm using is historical data, I've opted for using 254 number of days (trading days) instead of 365 (calendar days).

So, with the st.deviation on hand, I forecast what 1 st. dev should be to the upside and down-side, if the day's high or low exceed either side (or both) I count that day as a day that moved beyond 1 st. dev from high to low..

Now, it is only a matter of counting how many of those +1 st. dev days we had in the past 30 days.. The chart is then the running % day by day.

Hope this helps and answers your question,