11/25 Weekly update

This is still a busy week for me, moving was good but now without Internet Connection it feels like I'm in an island.. One way or the other, the market was good to me this month and my RUT condor got to its profit target without any major worries. I closed the position Yesterday for about 17% ROI, not bad for a set and forget trade..

Should have Internet connection next Monday, so far I don't have any open trades, will wait for the next cycle.

Cheers!
Gustavo

11/16 Daily Summary (short posting)

Will be very brief Today, and likely to not have any postings for the next couple of days, as I'm preparing to leave my home away from home (Brazil) and return to my home (Pacifica/California). So, in preparations for the trip, I still have to run around Today and will very very limited time. I'm keeping contingent orders for my current positions, and if time allows I plan on entering my MNX DEC iron butterfly this week.

The bullish indications of the VerticalSolution profile were a signal that I had to work my MNX iron butterfly and "get out of the way" sort of speak. I remove most of my short call contracts and left only one. Right now the position is down about 16%. The RUT Iron Condor was affected but no action needed thus far, the 5-day price spikes for RUT are not telling me to exit yet.

Here are the graphs and profiles for the couple positions I have on.

11/16 Simple study on Iron Condors

A few weeks ago I started to dissect the market price action and looking for early signs of trouble, what could indicate the beginning of a thunderstorm, even if it was a quick one.. I looked at price action, and more specifically at the 5-day price spike charts, It was my feeling that this one chart could give me some early warning.

So, after looking at those charts for quite some time, I realized that in several occasions, the 5-day price spikes would give me a heads up of a potential trend developing. Like any trend following signal, there are false alarms, but I felt there were enough good signals to warrant further investigating.

So, I started backtesting a simple Iron Condor strategy coupled with the 5-day charts: The following were my testing rules:

1) Entry
1.1) Enter 1/2 of the position with 35 days to expiration
1.2) Enter the second 1/2 on the same day if, and only if, you don't have 2 or more days in a row of strong action on the 5-day profile

2) Exit:
2.1) Exit as soon as 15% or more is reached
2.2) Exit if down by 15%
2.3) Exit after 2 days in a row of strong action in the 5-day profile

I defined "strong action" as any price spike of +/- 0.5 on the 5-day chart. I've updated the profile I post every day to show those days in orange.

Here is the summary of my testing results from 2007 to 2009:
Total trades: 35
Total wins: 26 (74%)
Average win: 13%
Average loss: -8%
Win : Loss ratio = 1.5 to 1

These were very exciting results, if you win 74% of the time, and if your average win is 1.5 times your average loss, you certainly have a positive edge strategy. Now, because you place only one trade per month, this is a long-term strategy, and one must be able to stick to it and weather the ups and downs. Granted, the universe of the test is also limited due to limited time availability and the fact that this is one trade per month.

One could always improve these results by implementing some adjusting strategies. Because TOS's backtesting feature is limited, I was limited to exit at max loss for risk management. A more detailed backtesting system would allow to implement some intra-day testing rules to avoid taking losses when the position got in trouble.

That being said, I decided to implement this strategy on my portfolio. Hence the live Iron Condor for DEC.

Here is a log of my backtesting results:

11/13 Daily Summary

Markets pushed slightly higher on Friday, MNX is still showing some bullish signs on the 5-day price spike chart. I entered a paper NDX Iron Butterfly and decided to wait till early next week to enter my DEC MNX Iron butterfly.

Position's Summary:
11/13 RUT Iron Condor
11/13 MNX Iron Butterfly
11/13 NDX Iron Butterfly

Price Action and Vert.Solutions Profile:

11/13 RUT Iron Condor

Not much to report, my goal with the RUT condor is to allocate a portion of my trading capital with a long-term perspective, will keep it simple.

11/13 MNX Iron Butterfly

I decided to ride the trade till Monday of expiration week. I rolled the 175 calls out and kept the 177.5, if we keep on rising on Monday I have orders to flatten the position out and will finish condorizing.

11/13 NDX Iron Butterfly

I have condorized the trade by rolling the Calls further out of the money. I was very careless with execution and that costed me a few percentage points of profit.

One could have executed the same thing with a lot less slippage. It is crucial to control the Deltas while condorizing, otherwise a small market movement can simply wipe away a lot of profits.

11/12 Daily Summary

Today's break was welcome, MNX got a bit better. We are on the 35-day mark, and I entered an Iron Condor strategy that I've decided to use for my portfolio after testing it for the past 3 years. It is a simple and easy to manage trade, so it is added to the system.

I did not enter the MNX Iron Butterfly for DEC contracts. Plan on doing so by the morning, if I can catch good prices, otherwise will do it by Monday.

Position's Summary
11/12 RUT Iron Condor
11/12 MNX Iron Butterfly
11/12 NDX Iron Butterfly

Price Action and Vertical Solution's charts:

11/12 RUT Iron Condor

This is a new trade/investment idea. My plan is to combine my 5-day volatility study with non-directional trades. I've tested this for the past 3 years and created a few filters do adjust allocation size as well as an exit strategy based on the 5-Day volatility profile.

1) Enter half of the position size with 35-Days till expiration
2) Enter 2nd half only if the 5-day volatility profile looks good: No extreme action to one side in the past 10 days.

Extreme action is defined as 2 or more days in a row with over 0.5 standard deviations (on the 5-day volatility chart) This month, I entered both halfs, so it is a full allocation.

11/12 MNX Iron Butterfly

Got a small break as MNX pulled back a bit. Will decide if leave it through Monday or if condorize by end of day Friday. It all depends on how the profile looks by end of day Friday.

11/12 NDX Iron Butterfly

Not much changed, plan to condorize the position by end of day Today.

11/11 Daily Summary

Had a couple of quiet days, but both positions are still in danger.. Not much of a recovery even though this is the final week prior to expiration. This is because they have too many longs DEC Calls to control their deltas, and that kills the theta.

Position's Summary:
11/11 MNX Iron Butterfly
11/11 NDX Iron Butterfly - Paper

Price Action and Vertical Solution chart:

11/11 MNX Iron Butterfly

Two quiet days, waitting for some sort of a pull back so I can condorize the position. So far the P&L has gotten stuck at the same level.

11/11 NDX Iron Butterfly - Paper

TOS Profile chart isn't working for the NDX position, one way or another, I'll have to exit the trade either Thursday or Friday at the latest.

11/10 Daily Summary

It was nice to have a quiet day for a change. I still have the trades on, but right about now is time to think about what my exit strategy will be. I'm giving it an extra day Today and plan on start condorizing the best way possible.

Position's Summary:
11/10 MNX Iron Butterfly
11/10 NDX Iron Butterfly

Price Action and Vertical Solution's graph:

11/10 MNX Iron Butterfly

Rolled the 172.5 call contracts to 177.5, this is buying me some time and keeping the trade under the tent. No major dreams of max profits here, it is basically a matter of buying time to get out with less damage if possible.

11/10 NDX Iron Butterfly

Giving the trade one more day, if we don't pull back some, will have to pull the plug and get out.

11/09 Daily Summary

What doesn't kill you, makes you stronger.

Difficult months like these are a great brain stimulant, I've been trading in relative quiet waters for a few months, and then we hit this type of storm, both my positions bite the dust and this triggers me a strong stimulus for doing more study and research. One of the positive outcomes is that I've started to pay a lot more attention to the 5-Day volatility chart that I developed about 10 months ago and never paid much attention to...

Another positive outcome, is the VerticalSolutions Forecasts charts, I've become a fan of this profile, as it helps me to spot if we're moving with momentum or not during the intra-day price action.

Position's Details:
11/09 MNX Iron Butterfly
11/09 NDX Iron Butterfly

Price Action & Vertical Solutions chart: Notice the 5-day price spike showing strong reversal to the up-side, I got an alert warning on MNX last Friday... Studying ways to use these warning signs to my advantage

11/09 MNX Iron Butterfly

I hit my max loss on the trade, decided to hedge and give it one more day to see if the dust settles before I exit. It is easy to see we went from one extreme point of the chart to the opposite side, and because it happened in such a quick fashion, the position didn't have any time to recover.

11/09 NDX Iron Butterfly

We blasted through the break-even on the trade, the position is hedged and I'll give it Today for a back off, otherwise time to start exiting.

11/06 Daily Summary

Didn't do much during the day, I noticed the early-morning up-side pressure slowed down and realized we weren't going to push much further, that was easy to see on the VerticalSolution charts.

By end of day I rolled my short calls on both NDX and MNX iron butterflies. I noticed the 5-Day volatility chart shows a reversal from the down-side to the upside, that could mean trouble in the last week of the trade. Hopefully it won't be an aggressive move to the upside.

Position's Details:
11/06 MNX Iron Butterfly
11/06 NDX Iron Butterfly - Paper

Price Action & Forecasts:

11/06 MNX Iron Butterfly

The trade recovered a little bit, still underwater. I rolled the short 167.5 Calls to 172.5, that cut my deltas and increased the much needed theta. Still in the game, looking for a few quiet days next week.

11/06 NDX Iron Butterfly - Paper

I did a vertical roll on my NDX Iron Butterfly, didn't quite move all 5 spreads, only 4. Then I sold the long DEC CALLS I had. One thing happened when I was selling those calls: One of the sell orders wouldn't get accepted, it said I didn't have enough marging to sell the contract. I'll have to double-check with TOS to find out why, since it was a contract I already own, I should be able to sell it without changing my margin requirements. Live and learn here...

11/05 Daily Summary

We posted a strong up-side move! Take a look to the price action chart, no wonder this is a difficult month, we're posting several 1.5+ st. deviation days, that is not fun from a non-directional income trader's perspective. That being said, I'm still inside the tent, and working to stay that way on both the MNX and NDX iron butterflies..

I want to thank Vertical Solutions for their nice "current condition profile", this has been a very helpful tool for me to monitor market conditions without having to wonder too much into the price charts intra-day. Not to mention it really helped me on my MNX Iron Butterfly trade (see details on the posting).

Position's Details:
11/05 MNX Iron Butterfly
11/05 NDX Iron Butterfly Paper

Price Action and Forecasts:

11/05 MNX Iron Butterfly

I was caught with my legs down Today. For some odd reason beyond my understanding, I didn't submit the order to hedge against an up-side move. I know for sure I had it there in the profile chart, but forgot to set it up.

So, when I checked the market on my mid-day check, I looked at the price action and thought to myself : "why didn't I get an email notification about filling the long Calls? Humm, did the order fail to fill, or the email is simply late in its delivery.. let me check" Of course, when I opened the trading station, my next thought was: " ohh CRAP!" :)

Ok, what do you do when you find yourself like that? In the past I would simply spiral out of control, hedge the position and watch the market back off, making me even more upset.. Spend the entire day cursing myself for forgetting the contingent order on the first place, and then for ultra-hedging at the market's top...

...This time around it was different. I realized we had already moved 2 st. deviation, an extreme by all means, and that VerticalSolutions was showing a retreat in its strenght.. So, I went to lunch, came back and heged the position after the market retreated and when VerticalSolutions started to show a bounce in market strenght. Nice job Gustavo.. Yes, that is my self coach speaking.. :)

11/05 NDX Iron Butterfly Paper

I didn't do the strangle that I suggested Yesterday, that would have locked in about 8% of profit and we would be down to about 5% Today. The main reason I didn't do it is because I want to stay in the trade and see how it behaves. For future reference, this may be the best approach: to start taking away your chips if the market goes your way.