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Tom's Trading Update for August 1, 2014
The video below reviews my SPX and ES futures options broken wing butterfly trades. The SPX closed down a few points but had quite a bit of movement intraday.
Enjoy the video!
Tom's Trading Update for July 30, 2014
The video below reviews my SPX and ES futures options broken wing butterfly trades. The GDP and FOMC announcement moved the markets twice today. Both times up initially, then a pull back. The SPX closed nearly where it started but had nearly a 17 point range…so lots of excitement for everyone! I'll update the trade with the new charts in the forums.
Enjoy the video!
Trading with Futures Options
About thirteen years ago, as I was approaching retirement from the U.S. Air Force, I knew I would have more time to devote to trading. I have a friend in Australia with two PhDs who built his own trading software in the 90s. His software exclusively used the ES futures for intraday trading. I spent a lot of time learning how to use his software and studying technical analysis and directional trading techniques. It's very different than the income style of option trading that I've gravitate to now.
Getting Educated
Before I started trading futures, I wanted to understand what they were and how they traded. The best place to start with are where the contract specifications are. In the case of the ES futures, that's at the CME's web site:
http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_contract_specifications.html
Tom's Trading Update for July 29, 2014
The video below reviews my SPX and ES futures options broken wing butterfly trades. I was filled on a put debit spread on the ES futures options after the regular market was closed. I'll update the trade with the new charts in the forums.
Enjoy the video!
SPX Aug 23 (W4) Broken Wing Butterfly
Time for a new trade in SPX. Another broken wing butterfly trade expiring on Aug 23rd with 33 days to expiration. The ten lot of puts are at 1945/1920/1860. The 1920's were about a -19 true delta (in OptionVue). I sold two lots at a $1.90 credit and eight lots at a $1.95 credit. I added my put debit spread hedge at 1945/1920 for $5.65
I put the trade on in the middle of the trading day. Fills were at or near the mid-price and I didn't have to wait very long to get filled…just a few minutes.
OptionVue Matrix
Rotating a Risk Chart
One of the reasons I like option trading is you can be so creative. Buying a stock or future is one of two lines: sloping up at 45 degrees or sloping down and -45 degrees. That's it. With options, we have so much more flexibility.
I gave a presentation on option synthetics earlier this week and part of the presentation was about rotating a risk chart. It's something I haven't heard anyone else talk about. It's how I think about what buying or selling the underlying does to an option position.
What do you mean rotate a position?
When I say rotate it means that you use the current underlying price as the pivot point and rotate the entire risk chart. Here's an example.
Start with a simple bull put spread using the ES futures options. Selling a put and buying a lower strike put:
What you don’t know about options synthetics CAN hurt you
I recently wrote a primer on option synthetics. To continue the discussion on option synthetics, I talked to Seth Freudberg at SMB Training about presenting for the Options Tribe about Option Synthetics. I'll be doing that on Tuesday, July 8th at 5:00pm ET.
The presentation will be for Options Tribe members but I'll try to get a copy of the recording for Capital Discussions. You can download the PowerPoint slides here.
Anybody Can Trade Options
My wife and I have suddenly become addicted to My Kitchen Rules and MasterChef Australia. Naturally, this has us constantly thinking about the cooking world and perhaps visiting Australia to partake of the outstanding food found there! I read a really good article on Usability from Dr. Jakob Nielsen’s Alertbox and couldn’t help notice the cooking analogy he used. I hope Dr Nielsen forgives the similarities and direct quotes from his article, but it occurred to me that trading options has a similar analogy.
Trading Options is like cooking dinner!
Is this the Market Top?
We've had some interesting discussions in our forums about the market topping. Garret is a long time Gann trader and showed us his charts that predicted the SPX topping on June 23 at 1959. The peak yesterday was 1968.17, one day off from Garret's prediction. Considering he did this a long time ago, it is very impressive!
Markets climb the wall of worry. In the face of an abundance of negative news, the markets keep climbing. At some point the markets will have a meaningful correction to the down side. Is this down move yesterday the start of the “big one?” No one knows.
SPX Jul 17 Broken Wing Butterfly
Time for a new trade in SPX. Another broken wing butterfly trade expiring on Jul 17th with 28 days to expiration. The eight lot of puts are at 1950/1930/1870. The 1930's were about a -22 delta. The trade was put on with a little smaller credit than I like, but it's enough to work with at 0.85 credit per spread.
I put the trade on at the end of the trading day. My last two spreads were filled less than nine minutes before the close. I didn't have time to analyze which put debit spread I wanted to put on so I'll see where the futures are going Sunday evening and make my plan for Monday.
Because I didn't have time to get my put debit spread on, the vega is a little higher, which the greeks calculator is warning me about. I should fix that first thing on Monday.