Skip to content
November 1, 2012 / redman59

A Day of Getting Smoked

As the title suggests two things got smoked today, the volatility in $IBM and $AAPL and the venison and beef I put on my Weber Grill.  I have previously posted my positions and adjustments in $IBM and $AAPL.  Last night’s post stated probable adjustments that I was going to do today.  My whole plan through recent weeks has been to trade small and seldom and I have been sticking to that as at times I become impatient.  Luckily this plan has paid off.

As for $IBM my plan was to adjust the position in the direction of the move of 1.50pts from 195.  Today it was to the positive side, so following my plan I added an equal amount of contracts in the trade I had on already and added the Nov/Nov1 200 Call Calendar  for a 1.01 debit (per 1-lot).  So my new risk profile is shown below:

The main take away from this is the increase in Vega as it essentially doubled by adding the 200 Call Calendar.  This is the thing that got smoked today and caused my original position to take a hit.  Even on the opening run up, the price did not justify the loss on the Calendar spread, but it was the decrease in implied volatility.  Being that a Calendar is long volatility, this causes more damage to my position.  Looking at $VXIBM (the $VIX for $IBM), you can see that it saw a -7.36% decline.  On the plus side it looks to be at the bottom of a short-term range.  Ideally tomorrow this position drifts towards the 195 price level while seeing an increase in volatility.  As of the close today, and all else being equal, for each 1pt rise in volatility this position will theoretically gain  $97 (see Vega on Risk Profile above).  Below is a chart of the $VXIBM showing the range I am looking at:

As for my $AAPL position I closed the Weekly put that I put on yesterday near the open for a -$84 loss.  I then closed out this week’s 580 Call by buying it back and then sold next week’s 575 Call.  Like $IBM, the implied volatility in $AAPL got crushed by -7.65% as measured by $VXAPL.  I decided to roll down the sold strike from 580 to 575 as I am still content with the upside profit potential and this also gives me more room to the downside.  This also captures a 1 standard deviation move  (blue highlighted area) to next week’s expiration, giving me a favorable probability along with chart structure.  You can see the order and new risk profile shown below with the orange line being the profile at next week’s expiration:

On the chart below is my downside breakeven and how it is also at a favorable support level that also would be within a 1 standard deviation move:

Increased volatility would also benefit this position as it would increase my Vega and also push my breakeven to a lower level (not substantial).  I must say that the price action in $AAPL is not encouraging, but I do believe we have some market upside and this would limit the downside to $AAPL.  Also I think buyers would step in near the 570 level as this also correlates with the low of the prior earnings report in where $AAPL saw a -4.31% decline (close to close).

Those are the market comments and below I included a picture of the meat that I smoked today on my Weber.  The london broil is on the bottom left and the rest is venison.  I never smoked a london broil before but thought what the hell since I was smoking some venison, 1 piece being a tenderloin.  Also that was another reason for adjustments today as I will be doing some rabbit hunting with friends Friday and Saturday so checking my positions will be limited.  One thing I might do is roll the $IBM sold strikes to next week or I just may close it out.  Either way I am looking more forward to playing Elmer Fudd than I am to Trader Guy.  It’s always important to remember when to take those breaks and right now is good timing.  I would like to be around for NFP, but that’s what happens when you hunt with people that aren’t active traders…but wouldn’t trade it for anything.

Some meat to share for the weekend.  Forgot to take after picture but damn that smoked food smells great and it also gets into your clothes.


Leave a Comment
  1. SPYderCrusher (@SPYder_Crusher) / Nov 1 2012 6:29 pm

    Randy, great write up. As you know options are not my skill set but I really enjoy your take on them, and your strategy and views. Great work on the blog too!

    My parents bought one of those green egg smokers and it is truly incredible how delicious it makes all manner of briskets, ribs, and steaks. Cheers to awesome BBQ!

    • redman59 / Nov 1 2012 10:53 pm

      Thanks, I appreciate the comments all-around. Yea times like these is where I really like options as you are looking to capture profit with ranges and the nuances of the greeks, mainly theta and vega. Through time and P/L and I have learned to step away from market distribution and concentrate on other things instead of being fully involved. Being in the market all the time creates stress that you really don’t see until you learn to step away at times. Your analysis (through the Trade Timer) has definitely helped in that aspect too, so I give a lot of credit to that.

      That Green Egg your parents got is the standard when it comes to smokers, truly a great item. I’m still trying to get the nerve to shell out the cash for one. I am usually last when it comes to things like that. Recent example is Under Armour. My friends had it but I always loved my cotton, but after buying some I can now say the UA is definitely worth it and believe in spending the money on it.

      Awesome parents BTW, buying the Green Egg, they know their stuff and yes cheers to some awesome BBQ. Seeing that smoke ring when you cut into it is a prize in itself and the smell is second to none.

      • Ritwik / Nov 2 2012 2:14 am

        AAPL goes ex-div on 11/07 I believe… what are you gonna do with your ITM short call?

      • redman59 / Nov 5 2012 8:40 am

        You are right in that it does go ex-div but I don’t plan on removing the short strike.

  2. Steve Place (@stevenplace) / Nov 2 2012 8:59 am

    your time spreads might be a little too short in duration

    • redman59 / Nov 5 2012 8:35 am

      Thanks Steve for reading and I appreciate the advice. This started out as more of a directional, reduced risk swing trade and the addition of the upside 200 Calendar was to avoid the 195 becoming a loser. This changed the characteristics and the vol hit definitely hurt the position.

      But when putting on to take advantage of the greeks, I will definitely use your advice and go further out.


  1. Submitting Orders the Old Way and Closing Trades in $AAPL $IBM « redman59

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: