NDX, DIA, PBR & USO Calendar Entries

[Gekkotrader]

Hello everyone,

Ok so I wanted to get into these calendars last week, but since quadruple witching day was Friday and volatility usually gets whacky during that time, Mojo and I discussed and decided to hold a few days before entering, just to see where the overall market volatility was going to go. The big factor was to see if market "vols" (volatility, not volume) would continue dropping or would they hit a support line and start turning up.

Yesterday and today have been great for my JPM calendar. We were able to turn a -7% loser into a +5% winner in a few days with our first adjustment. We'll see how it ends up of course...you never want to get too excited until the trade is completely closed out!

So since the volatility is continuing upward, I will add 4 calendars for today to get more practice. I will place my limit orders today before close...I'll keep you posted as they fill.

NDX- 3 contracts Oct/Nov 1725 put calendar for ~$27.00 debit. Although this index is more bullish than neutral, the volatility is low and rising again so it's a good time for calendar entry here. Since this is trending however, it requires maintenance so only trade this if you're able to manage it as we will most likely have to adjust this. We are putting on the put versus call calendar since my outlook is more bullish on this, so this calendar gives us upward gain potential if it continues up a bit more before adjusting.

DIA- (half-in) Oct/Nov 96 put (14 contracts)/98 put (4 contracts) /100 call (4 contracts)/102 call (15 contracts) Shotgun calendar for total debit ~$4.93
Like NDX, this too has more of a neutral to bullish stance with low to rising volatility so we shift our calendar to where we can get a little upward gain potential (see white profit curve on TOS Analyzer) should this continue to rise. Also, note that it is currently at 98.09 so we are right ATM (perfect time to put on the calendar). This one too will need maintenance so only put this on if you have the time to follow it. I did 14/4/4/15 the contract ratio to create a flatter "tent top" on the risk graph. This is called "ratio-ing" in trading slang....This ratio still does not exceed my trade size limit but it helps to create a smoother profit curve spread out wider within the breakeven range.

PBR- 13 contracts (half-in) Oct/Nov 46 put calendar for ~$1.10 debit. You'll see on the TOS Analyzer risk graph that it is not centered but shifted just off to the left. This allows upward gain potential (see white profit curve on TOS Analyzer) since I am neutral to bullish on PBR. I am also doing a put instead of a call calendar because I am expecting this leg to be the bottom side should PBR continue upward and I have to add my second calendar on the topside (would be a call). PBR has remained neutral since at least June and earnings is not until 11/6/09 so I have time to get at least one month before considering exiting before earnings. Also, volatility has started to turn upward after being in the lower 1/3 over the last 6 mths. This is also an ETF.. so luckily we don't have earnings, splits, or news events to sneak up on us. Brazil used to be the hotspot with ETF investors back in 2003-2008 (look at 10 year charts of PBR and EWZ as examples) however these ETFs are still trying to overcome the market downturn.

USO- 15 contracts (quarter-in) Oct/Nov 37 call calendar for ~$0.88 debit. Notice how this one has been a dud chart-wise since June with low but rising volatility now. I am undecided on trend here so I chose the call calendar which is the cheaper than the put calendar. This is also an ETF.. so luckily we don't have earnings or news events to sneak up on us.

Ok so with all this, I'll be posting any adjustments so good luck and Happy Trading!

-Gekko

[Gekkotrader]

Got filled on USO for $0.90 debit and PBR for $1.15 debit...DIA and NDX are taking a while because they had more of a little bullish move today with dropping vols....we'll see how they fill today or tomorrow. I am putting my debit order for $0.05 below the mid to capture a drop in volatility upon entry.

[Mojo]

With FOMC announcement today we will likely get a drop in vols post announcement. If you aren't already filled yet you may want to wait or be aggresive about your pricing.

Mojo

[Paulsei]

PBR was defined in your letter as an ETF. You may want to correct that

[Gekkotrader]

Woops- thanks Paulsei for noticing the typo...Sorry about that! I was trying to get my post done quickly, but I should have proof-read that.

Yes, PBR, is a company, not an ETF, but USO is an ETF.

Thanks again!

[Gekkotrader]

Ok, so here's what I have learned so far...It has been many months since I traded stocks because I was trading indices, so with USO, I did not check any upcoming economic announcements that could impact the trade.

So this morning right around 10:30am, I was working on something else while my spreadsheet (works real time with my trades in TOS) off to the side flashed red -23% then back to 8% loss within a matter of minutes! Woo Nelly. So here were the steps and questions that went through my mind to see what happened.

1) Once I noticed my red alert signal on my spreadsheet, I checked the chart and noticed the sudden drop in USO and gap fill on the 10min chart.
2) So then I asked myself--was there a news event? I checked http://fidweek.econoday.com/ (excellent site for checking all announcements in a calendar format) and saw the petroleum announcement came out at 10:30am EST and also the FOMC announcement was to come out this afternoon. This was where the problem was- had I checked it before the trade, I would have waited to enter until after the announcement in case of any crazy moves or sudden drop in volatility.
3) Once I realized the mistake, I looked at how I would adjust only when it stays below 7% loss for a period of time since there was fluctuation between -8% and -2.8%.
4) Then I immediately IM'd my trading partner (Mojo) with the adjustment before doing anything. This is where that emotional check came into play as he asked me a series of questions to determine if I really was emotional or not. Luckily I wasn't emotional about it, but just neglected that one step of checking announcements, so I am adjusting my position.
5) Here are some notes Mojo shared with me for how we should take our "emotional temperature" when trading:

Emotional Temperature
=====================
1. Personal life- what's going on
2. Distractions
3. Feeling rushed
4. Trading in general
5. About this specific position
6. Is or isn't Coachable
7. Over-focusing or analyzing
8. Violates any rules
9. Acknowledges mistakes
10. Sizing

So with all that, here's what I did to adjust the position once it stayed below 7% loss.
Since I was already 1/4 in the trade, I added another quarter on (15 contracts) of the Oct/Nov 34 put calendar for a debit of $0.85. This rebalanced my position and dropped deltas down significantly to a more neutral trade. Here's what it looks like now after putting on my second calendar.

http://imgsrc alt="USO Calendar- ADJUST 9-23-09" title="USO Calendar- ADJUST 9-23-09" width="641" height="379" class="aligncenter size-full wp-image-812" />
With the adjustment and second quarter of my position added, this brings my new cost basis to $1.75 and my new profit/loss to -1.4% as I write this at 2:20pm EST.

This was a good lesson for me so hopefully it helps you all too!

[jbphill1968]

Would it be possible for you to share your spreadsheet that works real time with TOS (removing your account info of course)?

[ANCOLL]

This emotional control advise is good

Emotional Temperature
=====================
1. Personal life- what's going on
2. Distractions
3. Feeling rushed
4. Trading in general
5. About this specific position
6. Is or isn't Coachable
7. Over-focusing or analyzing
8. Violates any rules
9. Acknowledges mistakes
10. Sizing

since it usually happens to me when the trade is against me
and I get emotional..

but Gekko, I couldn't open the link to the image..

[Gekkotrader]

Yeah there's nothing worse than your emotions getting in the way of your trades! It's good to have a "thermometer" for that!

Hmm, Ancoll, not sure why the image didn't open in this forum. On IM's front page you can see the snapshot of it. Let me reattach it here and see if it works.

[Gekkotrader]

Jbphill1968,

QUOTE: "Would it be possible for you to share your spreadsheet that works real time with TOS (removing your account info of course)?"

Unfortunately I can't post the spreadsheet publicly, however I can give you the main formula that will help you in building yours. In TOS under the trade tab, under the Layout section just above the option chain you can customize it and select the "Opra Code" of each individual option strike.

So when you build your spreadsheet you start by entering the price you entered the trade for each individual leg/strike, etc. Then you can enter the Opra Code for that strike using the following formula, for example, on JPM's Oct 43 put:

=TOS|MARK!'.JPMVW'

If you want to keep tabs of the mark price for JPM then use this formula:

=TOS|MARK!JPM

You have to be sure to use all caps when entering the Opra Code (believe me, it sucked to try to fix that issue when I used lower case)!
You can set your total profit/margin(or risk).

Whenever you use the spreadsheet, you have to open TOS first, then open the spreadsheet so it will sync with TOS real-time. Tech support at TOS should be able to help you as well.

Hope this helps!