Well, sometimes the downside hurts and this week it nailed the Weekly Theta trades. The S&P 500 finished off the week with a slight gain, but it took a fairly volatile path to get there. Gold was hit this week and finished down 2%. My long Breakout System trade in Gold is still open and sitting around break even. Bonds were up again and that flipped the pSAR from short back to long.
Implied volatility was up nicely on Thursday and then fell off a cliff on Friday to finish the week unchanged. Everything is fine; nothing to see here folks. Stay long and carry on . . .
The Weekly Stats:
A note about trend . . . Trend on the daily timeframe is defined using Donchian channels and an Average True Range Trailing Stop. There are three trend states on the Daily timeframe: up, neutral, and down. On the weekly timeframe, I’m looking at Parabolic SAR to define trend and there are two trend states, up and down. In reality, there are always periods of chop and I’m using the indicator to capture the general bias of both the trend and those periods of chop.
Stocks ($SPY and $SPX – S&P 500):
The S&P 500 was down significantly on Thursday towards the end of the day and that stopped out the Weekly Theta trades. Earlier in the day on Thursday I was filled on two put spreads (see the details in the weekly trades section of this post). Those trades were doing okay for part of the day, but the market sold off significantly after breaking 1970 and I was forced to cover. The problem for me is that I work a day job and, as a result, I was not able to get out in time and took a much bigger hit than I intended. Sometimes that’s the way things go when price moves against you quickly.
So what did I learn with the loss? I learned that in order to trade weekly options, you probably need to be able to monitor the market and have the ability to get in and/or out at any point during the day. That can be an issue for me because I don’t always have the ability to get in/out and I can’t watch the market all day. Most of my options trading is done in a way that major issues tend to develop over time rather than in the course of an hour. As a result, I can avoid most major issues.
I’m trying to decide whether I should trade the Weekly Theta system on a very small scale or not trade it. I can reduce the size by using a 5 point spread and/or only trade one SPX vertical, but I haven’t decided what I want to do just yet. I know the system works, but I also know that I can’t always monitor the market during the day.
Donchian Channel System Market Stats:
One thing to note about the Breakout System is that on a week to week basis there aren’t many changes and this was one of those weeks. The big winner on the week was Coffee, which rallied against the downtrend over 5%. The big loser on the week was Gold (damn). The strongest and weakest markets remained the same and the only change is the order of the weakest markets. Last week Coffee (JO) was the second weakest market and this week it fell to the third weakest with Sugar (SGG) moving up.
The charts below give you a quick run through of my open positions and the closed NZD/JPY trade. The shaded ovals indicate the entry and exit points, however, my actual fills can end up being slightly different. All entry points are disclosed below in the ETF/Forex Inventory.
Trades This Week:
SPX – Bought to close 1900/1890 Jul 14 Put Vertical at .10
SPX – Sold to open and bought to close 1930/1920 Jul4 14 Put Vertical for .45/1.35
SPX – Sold to open and bought to close 1925/1915 Jul4 14 Put Vertical for .45/1.15
SPY – Bought to close Aug 2014 173 Put at .10
NZD/JPY – Sold to close 5,000 notional units at 87.669
EUR/USD – Sold to open 5,000 notional units at 1.35028
SPY – Short Sep 2014 178 Put (sold for .65)
ETF & Forex Inventory:
SPY – Long 12 shares from 188.58
WIP – Long 100 shares from 61.66
GLD – Long 33 shares from 126.48
EUR/USD – Short 5,000 notional units from 1.35028
For those of you who didn’t catch it earlier in the week, I had an interesting post on trading Iron Condor’s and Butterflies. I’m starting to work on the follow up for that post to discuss managing the risk in those positions and hope to have it done sometime in the next couple of weeks. Another thing I’m looking at right now is a way to quantify pull-backs and over-extended markets for selling options in the pTheta system. Incidentally, that is more challenging than I initially expected.
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