OPNewsletter Aug’09 +7.8%, Sept +4% (Open)

The Aug OPNewsletter portfolio was closed for +7.8% (x-commission) and +3.8% including commissions. To allow room for some conservatism, i have used some “not-so-good” fills from OPN members even if my actual fills are much higher; and this leads to skewing the portfolio to a conservative scenario. Some members might have in fact done even better than OPN. However, [b]given the extreme moves it is not hard to imagine that some of the members might not have been able to achieve similar performance this month[/b].

There are a few examples- X 45/50/55 butterfly I opened for 1.24 but I counted 1.43 as shared by another member. I sold 44/46/48 butterfly upto $0.70 but I am counting $0.45. Similarly SPX 1035/1045 buyback was $1.25 but I counted $1.40 as shared by another member. In fact official SPX OPN portfolio closed for -4.5% while his was almost broke even. Similar things elsewhere in the portfolio. Then there was 560/570/580 RUT butterfly, those who kept it for speculative play were rewarded nicely (pls note officially we closed it earlier). It was gut wrenching, but in the end delivered great results. But that’s not the point, the point is that, this was a month where there will be variations in member’s performance depending upon buy/sell of hedges and execution timing, fills, etc.

Net, while I am encouraged that we were able to navigate from a -15% to positive territory, I am not happy. I have tough standards for OPNewsletter and this is not a month that I want to have a repeat for OPN (more than usual trading).

Market Measurement Jul Aug 2009Trending and explosive rallies like what we experienced from Mid July’09, are generally not the best friend for income trading styles especially for OPNewsletter types and on top of it, it hit at the time when we don’t want it. Last six weeks had been amazing. I covered the July update here. I am attaching a chart that covers both the periods. Notice X has gone up over 55% with several large corrections on the way. GDX first moved to 17% up, then dropped by almost 10% followed by upward moves of 11-15% followed by another correction on 10-15% and then again up. RUT has almost paired the gains where it was last week i.e. nearly 22% up and both S&P500 and Dow nearly 18% in last 6-7wks. These are no small moves for such a short period of time and if you add drop in IV on the way, it makes it even more difficult. Long time veteran traders can tell you while this may be good for directional traders (hindsight) it is tough for income traders. We had to adjust both RUT and SPX condors for almost one more std deviation and then close some.

All these fluctuations added to more and more adjustments, particularly for GDX and X portfolio. Net we had to trade significant number of contracts for a assumed 10k portfolio which was way too much. Though it is a cost of doing business, I am not happy about it.

There are two key learning from this month’s portfolio that I have started reapplying to Sept portfolio and hopefully you noticed those (those who opened September portfolios).

Learning-1: While capital allocation is still a key, I will not be bound by 10K particularly as this limits my choice of portfolio selections. Why change- This is for 2 reasons. 1) commission/portfolio return ratio will be lower thus reducing cost and 2) This will require less number of portfolios to allocation roughly 60% of targeted capital (4-5) as opposed to 7-9 for lower cash outlay portfolios. However those who have 25k or above should still use sound allocation policy as per their trading objective, not necessarily as OPN’s.

Learning-2: I shall try to send heads-up trade plans before market open so that members can plan for trading time or let someone place the orders for them, if needed. While this may lead to sub-optimum returns but still it might be better vs. panicking for fills. Pls do note though markets doesn’t always go the way as in pre-market hence sometime there will be ambiguity and it may turn out totally differently. I shall still send the message as soon as the trigger point is reaching so those who trade intra-day have an additional insight.

We are fine and are up 4% in the very first week for Sept’09 OPNewsletter portfolio. We have utilized almost 70% of capital and have allocated it over 5 income portfolios. If you would like to join for the OPNewsletter, pls click here to sign-up for the waitlist.

Profitable Trading, OP







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