Tuesday, February 22, 2011

2/22 Daily Summary

Lesson learned: While using a debit spread helps you if the market keeps going in the direction of the debit spread (in this case, going higher), it hurts really bad if we reverse quickly. In this trade, the debit spread took a double hit, one by vega and the second one by volatility. A single call would keep more value (about 3%), no major deal, just a lesson learned this month.

The trade took a hit as the market sunk during the day. I am very glad to report I didn't have to touch the position as the contingent orders took care of adjusting and protecting my capital. The Debit spread was sold on my first order and the position is still in play with a small P/L slippage given the huge jump in volatility. Should we continue my game plan is to hedge, cut and roll the vertical put spreads and add another smaller butterfly. Mainly stay in the game, on the positive side, there is time to recover the trade.


Anonymous said...

Hi Gustavo
Congratulations on the birth of your son, the most important thing.

I think you are being too hard on your vertical spread. I looked into thinkback and you could have cut your delta last week with the 2440 call by the same amount. The call was down about 12 points yesterday and your spread was down about 19 at end of day.

But the call does little to extend your break evens to the upside, and the vertical was extending your BE by over 10 points, which is what you needed at the time, in a slower up trending market.
Just some thoughts.

Gustavo's Trades said...

Thank you for the feedback Dave, you do have a point, it all depends on the market environment you're dealing with. Till Yesterday it was a slow up-trending market, will it change quickly now?

Today was a big sell off, followed by continued down-side pressure, so it is a matter of adjusting the position to deal with the scenario.

Thanks for the comment and the note on Tiago's birth!