Position Adjusted: ODAX November 2018 Put Spead

Summary

Well, it seems that the timing was bad again and the drop in the DAX has forced me to adjust the trade when the short option reached 30 delta.

DAX 30 on October 26th 2018 Source Investing

I have redeployed the Spread to 10500 - 10100, however even if I get all the credit for this new spread, the trade will be a loser this month.

Systematic Put Write - October 2018

Summary

Yesterday was October Option Expiration day and it is time to review the movements done following our strategy.

Ibex 35 on October 19th 2018 Source Investing

IBEX 35 October Future closed at 8904 points, that is 587 points less (or -6,1%) than the previous month. This drop overwhelms the credit received for selling the 9500 October Put Option plus the credit received before and leaves the strategy at -3,8%.

New position: ODAX November 2018 Put Spread

Summary

After a nice drop from the level of the 12.400, and currently sitting in 11.650 points, I have decided to open a Put Spread for the November expiration cycle (31 days to go).

DAX 30 on October 16th 2018. Source Investing

Five trading weeks to go and an Implicit Volatility of around 19%. I will adjust the trade if the short option reaches 30 delta.

Closed: ODAX Oct - Dec PUT Calendar Spread

Summary

The first real Calendar Spread has not worked out and I have closed it today at a loss. The drop in the DAX index has been too strong in order to be compensated with an increment in the Volatility and the time decay of the sold option.

DAX 30 on October 9th 2018. Source Investing

Therefore, as it pretty much happened last year, I am back to square 0 with only three months remaining this year.

New Position: ODAX Oct - Dec PUT Calendar Spread

Summary

As the DAX 30 is climbing again back to the mid 12.400s while the Implicit Volatility has dropped all the way from 18% to 13% since the beginning of the month, I have decided to open a October - December 12450 Put Calendar Spread.

DAX 30 on September 21st 2018. Source Investing

If you remember, when Calendar Spreads were discussed, this trade involves selling a front-month option and buying another one at the same strike but further in the future.

The idea behind this trade, is to do it when Volatility drops and expect a return of the Volatility to its mean value. If that happens, the Option that we own far in the future will gain more value that the value lost by the Option being sold in the front month.

If by the end of the month, I have not achieved that increase in volatility, I will roll the short option into November in order to recover as much premium as possible, from the original debt paid.

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.