Systematic Put Write - September 2018

Summary

This is the first follow-up entry for a new position that I have opened last month. Unlike the credit spreads (vertical call/put spreads, calendars, etc.) this is a long term position: I will perform a systematic Put Writing on the Spanish Ibex 35 index.

What is a Systematic Put Write? 

This strategy is very simple, it consists of two operations every month:

• Sell one (or any amount) of Put Options with Strike almost at the money for the next month.
• Invest the nominal (value of the underlying of the options sold) plus the premium received in a risk-free fixed rate product.

Note: We will omit the second step, tough, as fixed rates are negative now in Europe.

What are the characteristics of this strategy?

• Sold options are cash-covered (you have the cash to buy the underlying).
• No adjustments are done.
• When the underlying falls, the strategy losses money but less than the underlying.
• When the underlying goes sideways and slightly upwards, the strategy gains money and beats the underlying.
• When the underlying rises sharply, the strategy gains money but greatly under-performs the underlying.

Put Write returns compared to SP500 and others from 1986 to 2008. Source Bloomberg and CBOE

All these characteristics make the strategy less volatile than the market itself and has given better results over a long period of time. Take a look to the Ennis Kupp + Associates study from 2009 (published in CBOE) for deeper insights.

Closed: ODAX October 2018 Put Spread

Summary

One day short of two weeks after having opened the trade, the contraction in the Implicit Volatility and a tiny climb in the DAX allowed me to close the Put Spread for about 60% of the maximum profit.

DAX 30 Index on September 18th 2018. Source Investing

I´m happy that I closed this trade early too (September Option Expiration has not even arrived yet, four and a half weeks still to go for October OpEx) as being in the market during the shortest possible time reduces risks and allows entering new trades from better positions.

New position: ODAX October 2018 Put Spread

Summary

The DAX index is hitting again the lower 12.100 level so I decided to open a Put Spread for the October expiration cycle (44 days to go).

DAX 30 on September 5th. Source Investing 

Six and a half trading weeks to go and an Implicit Volatility of 18%. My bet is that the support will hold and the market will rebound again. If things go wrong, I will adjust the trade when the short option reaches 30 delta.

Closed: September 2018 Put Spread

Summary

Barely one week after opening the trade, out of a total of six, I reached 50% profit so I decided to close the trade and take the money from the table.

DAX 30 on August 21st. Source Investing

New position: ODAX September 2018 Put Spread

Summary

This morning, with the DAX 30 hitting 12350, I opened a 11500/11100 Put Spread aiming for the September expiration cycle (39 days until expiration).

DAX 30 on August 13th 2018. Source Investing

Six trading weeks to go and an Implicit Volatility of 19%. The DAX index has declined a bit during this month so my bet is for a slight rebound and a continuation of this sideways market for some weeks.

If things go wrong, I will adjust the trade when the short option reaches 30 delta.

How to import CSV files into Parquet with Kite SDK

Summary 

In order to perform some data studies, I need to import a CSV file, generated by Yahoo Finance and containing historical data from General Electric (GE) into Parquet files in HDFS so I can later run some Spark Jobs on it. 

The data is a time-series and that should be partitioned per year and month (just for the sake of the example).

In order to have a quick solution (I do not want to write a Spark Job or Java application), I will use Kite SDK.

Steps to follow

• Clean the data with a simple AWK script
• Define the schema of the Parquet file (column types, etc.)
• Define the partition strategy that is going to follow (for more optimal querying)
• Execute the import

Calendar Spreads using Put Options

Summary

As I am not too happy with the results, I have not deployed any Iron Condor lately. Nor I have had the chance of deploying a Put Spread, which is a trade that I am much happier with.

In the meantime I have been reading about Calendar Spreads and done a bit of paper trading with them. Today I would like to share my thoughts on them.

Note: This is not meant to be a proper study on Calendar Spreads, just some notes I have compiled on the way. Any serious study on a trading strategy requires a proper set of back tests.

Example Trade Setup: Positions opened, days until expiration (DTE) and debit invested

The calendar spread is composed of two positions (in this example PUT options for the German DAX30 - ODAX):

• Same strike price: 12500 points in this case.
• Different lifespan: A shorter one, using the front month (32 days) and longer in the other, some three or four months in the future (158 days).
• Short/long: You sell the front option and buy the option in the future.

As the option in the future has more time value, this results in an overall debit.

For instance, this is the current status of a "paper trade" that I have simulated for a couple of weeks:

Type	Name	DTE	Delta	Theta	Vega	Debit/Credit
Long Put	December 12500	158	-43,58	1,62	31,82€	-390€
Short Put	August 12500	32	35	-3,68	11,83	90€

Results in this profit/loss graph:

The orange line is the profit/loss at the expiration date of the short option, while the blue line is displaying the profit/loss 9 days after opening the trade. Note that the amounts are all multiplied by 5 here as each ODAX option represents 5 contracts (or 5€ per point).