Friday, 21 September 2018

New Position: ODAX Oct - Dec PUT Calendar Spread


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.

Wednesday, 19 September 2018

Systematic Put Write - September 2018


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.

Tuesday, 18 September 2018

Closed: ODAX October 2018 Put Spread


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.

Wednesday, 5 September 2018

New position: ODAX October 2018 Put Spread


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.