Saturday, October 15, 2011

10-15 Weekly Summary

I have been back in the market with cash-secured puts on KO, WMT an PG. So far they are working well. A few observations in this week's summary as it relates to the chart above:
1) Notice the % of prices moving over 1 st. deviation intra-day has been moving higher, we're moving from 20 to 40% it means volatility is back (or never left).
2) Notice on the 5-day price spikes we have formed an up-side swing, I don't use this as a trading signal but have started to study trading with this information handy to warn of a change in trend direction. I have also been following the IBD publication daily and they have good tips on the market structure and confirmed up-trend vs. down-trend.
3) Last, but not least, on the 1 day chart you will notice quite a few spikes with over 1 standard deviation, they all cluster in the last few weeks, seems to me the market is back to delivering wider swings.

I have been studying what sort of strategy should I use in 2012. Thus far the long-term options are the cash-secured puts and synthetic covered calls. I will also look at traditional non-directional strategies (i.e. condors, calendars and butterflies). The key think pulling me away from the NDX Iron butterfly is the daily maintenance it requires as well as the increased margin requirements from my broker. The new margin requiremensts force me to have 3x the amount of the trade in margin, so it becomes a not optimum use of my capital.


Anonymous said...

Hi Gustavo,

You say your broker requires you to have 3x trade in margin - is that risk? which broker are you using? are these new industry requirements or just new to your broker?


Gustavo's Trades said...

DZ, I couldn't quite grasp what or why they made the change, my vague understanding was that this was due to their implementation of a new industry requirement for options trading.

I trade with Think or Swim, and this happened after they got acquired by TD Ameritrade.

What it does is some very weird calculation for margin. Say, before I could do a 3 strike put spread and combine it with a 2 strike call spread, this would not require me more margin than what was allocated by the 3 strike put side. With these new rules they set aside margin for both the call and put because they are not the same size. This messed me up with adjustments as a simple vertical roll would then add a lot more margin requirements than before.

Thus my quest for a simple trade strategy with less adjustments. Also the fact I want to land on a strategy I could monitor weekly instead of every single day.