I went on a small rant this week on my X timeline (@VegaOptions) about paid advisory services that don’t disclose their actual results. Many traders follow those services and think it’s their fault that they can’t make a profit when the system that they’re trading is flawed and nobody could make money trading it. If you’re paying for a service you should absolutely be able to see the advisor’s results. Go ahead and ask your advisor, I think I already know what they’re going to say!
Below are my trading fills for all SPX trades made last week. 7 orders, 15 fills. Further down in the post you’ll see the risk profile for the June Put Condor that I’m building. Those June trades represent 4 of the 7 trades made and currently show a $9,739 profit. The other 3 trades were short-term Calendars that were much smaller in size and lost a total of $235. Those were not part of my primary position and were made with a tight stop!
Below is the 4 risk profiles showing how each one of those trades effected my portfolio’s risk profile. There’s an old saying in the newspaper business (remember newspapers?) that goes “don’t bury the lede (lead)”. That essentially means don’t put the most important concept of a story in the middle of the article. Put it at the top! So here’s the lede of this post: I made 2 initiating trades followed by 2 Delta Hedging (DH) trades within 79 minutes and 125 minutes respectively. That’s approximately three 60-minute candles of trade time. Nothing special about that, many traders trade even smaller timeframes than that. The difference is that my short-term trades resulted in a position that’s 60 DTE (days to expiration). While most traders will have made a small profit or loss on the trades that they’ve opened and closed, I’m building a larger position based on my longer-term bearish bias. Next time you see a good setup for a trade, even on a short-term chart, realize that the chart’s timeframe has nothing to do with the trade’s timeframe!
Trade #1 was a June Put Debit spread. That was made due to SPX reaching a Fib resistance level. Don’t know what that is? Plenty of content on this blog regarding trade setups using Fib retracements and extensions plus my use of the 8 SMA bands so take a look at those after you finish this post!
Price turned down after reaching Fib resistance and as it was moving to potential support I rolled the Put Debit spread down while also selling a further OTM (out of the money) Put Credit spread creating a Put Condor with a net cost of $0. Not risk free, but a zero dollar initial cost.
Below is the risk profile of the third trade that I made. SPX was once again at resistance so I added a similar trade to the first trade that I made.
And, once again, SPX was approaching a level that I thought might provide support so I DH’d the trade. I wasn’t able to get all of the initial risk out of the position again but when I anticipate a potential reversal I act whether or not I’ve got a trade to zero cost. Following this trade the June Put Condor has a 31:1 reward/risk.
An important point regarding the risk shown above in those four risk profiles. That risk amount refers to the initial risk of capital loss to my portfolio. The current initial risk after those trades is $4,600 however, since the open profit of the position is a $9,700 profit I can lose all of that open profit plus the $4,600 of initial risk. That makes the current risk of the position $14,300 and the current maximum amount of additional profit in the position $135,700 ($145,400-$9,700). That leads to my final point: there is no such thing as a risk free trade! As long as a position is open then there is risk associated with it even if the initial risk is eliminated.
Questions or comments? Leave them down below or make a comment on X @VegaOptions.
Thanks for this. Question, if market stays in snap back mode and does not go down in June how will these positions be protected? Is there further way to hedge?
The cost of that Condor can be be reduced by continuing to narrow it’s width but I won’t be doing that. IF the market moves higher I can aggressively trade that move up using this Condor as a very low cost insurance policy in case the market makes a sudden move lower.
fantastic, thank you.