06/10 RUT 30-Day MISTERY

Update: Here is where trading with a mentor and support group really pays off. I was at loss as to what could have happened, and asked around. Dan Harvey, one of the best teachers from SheridanMentoring.com, came to the rescue, here is his two cents on the episode:

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Hi
Gustavo,
Your situation is a reflection of "market noise". As RUT dropped, volatility (and fear/uncertainty) rose. This will cause market makers to widen the bid-ask spread. Assuming that mid prices are used in the TOS model, the end result will be an apparent loss of value at any given time.

After the close the "real" pricing model will again return. You can see this same situation almost on a daily basis when the market has been active. Note your P/L at close (1:00 PM PST) exactly. Then, watch it for the next 15 minutes. You'll see it change even though the underlying price has not changed. Part of this anomaly results from delayed filling of market on close orders, and part is from pricing of futures.

Also, remember that indices still continue to trade until 1:15. So, a somewhat similar "noise" also occurs during the trading day as market makers are influenced by futures prices which in turn reflect fear, etc.

Also, in a down market, call premiums rise compared to their theoretical values as volatility increases. So, as you indicated, the call premiums did not fall off as fast as the put premiums rose.

D
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I also want to thank Lance Menold, Garrison Lee and Bobby Bhavsar, who took a look at the scenario and shared their thoughts with me. Now we know what to do next time: if the greeks are conflicting with P&L curve, trust the greeks and stay in the position if possible.

Live and learn, learn and earn. :)


I had a twilight zone moment on my RUT 30-Day condor. I'm not sure why, but this morning my profit had disapeared on me. Puzzled by the situation, and because I was completely in the dark as to why it happened, I exited the trade taking a small loss because of execution.

Now, here is why I'm still puzzled. First, look at the position as of Yesterday. Pay close attention to its greeks, you'll see that the T+1 line (green) has me at the same profit levels even if we hit 1 st. deviation for Today. With this kind of graphic, I wasn't in a hurry to exit.

Then the mistery: Several hours into the opening, 9AM PST, see where my P&L is.. It was oscilating between negative and +$30. Now, at those levels I was expecting to be down, but not by this much. The greeks were still the same, What happened??

My theory is that I got caught up in a pricing anomaly on the iron butterfly: The Call side was not losing its value at the same rate the PUT side was increasing it. Market makers were pricing the butterfly about $100 more expensive than it should be. Has anyone seen something like that before? And if so, would you have stayed in the trade?

I'm trying to figure out the best course of action here. The greeks were telling me to stay, the P&L was saying "no way"... It was like driving without the speedometer.


Now, here is what gets me going. See a picture of the position at end of day. Notice how P&L has seemed to be back in its place, almost exactly where the P&L chart from Yesterday was forecasting.

I'm looking for feedback. Anyone?

Thanks,

Gustavo

06/10 Pre-Opening game plan

As of right now, we're 50 minuts away from market opening and the /ES is moving up by about 10 points, /TF is up 6 points, so as it seems, we'll have a gap at the opening. Now let me look at each position in terms of what needs to be done (if anything).

My attention will go to DIA and RUT at the opening, keeping an eye on price action.

RUT 30-Day Condor: With /TF around 533, its overnight high was 535. If we gap to those levels, we'll still be in conditions to keep our profits from Yesterday, there is not much to be done, except wait for a pull back and possibly hedge or take the position off the table.

MDY 30-Day Condor: Good thing we hedged the position Yesterday, with MDY hovering 110, we'll be in decent shape, with profits to be made if we gap up and close the gap back down. Not much to be done, except placing some alerts at 111, just so I know where we are.

DIA Iron Butterfly: I took one of the short call spreads off the table Yesterday, that will help me with this up-side move. DIA is hovering 88.50, the gap opening will be at just about the profit levels from Yesterday, so we're only giving up the one-day time decay. I'll have an alert at the overnight highs, and will keep on watching price action. If we continue to push higher I may have to hedge, so before we open I'll look at how I can cut the deltas down once again.

SPY Double Diagonal: will be slightly negative at the opening, still far away from any adjustment levels, just keep an eye and place alerts within 1 st. deviation up and down.