Close Out (UMPQ/CBU)

Closing out the Pair.

UMPQ at 12.39, CBU at 27.93

Position Update

Currently running the portfolio at a gross leverage of 65%, and net short of 21%. A slightly bearish posture given the size of the rally. Somehow the skeptic in me is screaming SELL SELL.

Outright shorts in the portfolio now are

1) MAR -1.7%
2) PLL -9%
3) TIF -3.8%
4) CBU -6%


Long/Short

PNR/PLL
RE/PTP
HPQ/ORCL
UMPQ/CBU

Closing google time spread (Or trying)

Misread market closing time. Closed the Dec call at 4.2. Closing Jan call at 19.9 (hopefully).

New Trade (Software)

One of the rare software pairs trades on this site.

Long HPQ at 41.53
Short ORCL at 31.64

Some additional charts

Google Call Spread

Sell 12/23 Call at strike 600 --- $5.4
Buy 1/21 Call at strike 600 --- $20.9

Hypothetical Put/Call Time Spread

Another really short term trade idea. Opening up both a call time spread, and put time spread simultaneously. I'm using google as an example.

The strike is 600 for all four legs of this strategy. The bet is that google will trade between 600 and 610 between now and Thursday i.e. two days of trading. If that happens one could potentially make $750 in two days. Downside is if google rallies or drops 5% then you lose $1.5K. the info is based on one contract each.

Trade summary:

Ticker: GOOG
Instrument: Option
Type: Put
Strike: 600
Maturity: 2010-12-23
Buy/Sell: Sell
Price: 1.7
Implied Vol: 28%

Ticker: GOOG
Instrument: Option
Type: Put
Strike: 600
Maturity: 2011-1-21
Buy/Sell: Buy
Price: 16.6
Implied Vol: 28%


Ticker: GOOG
Instrument: Option
Type: Call
Strike: 600
Maturity: 2010-12-23
Buy/Sell: Sell
Price: 5.25
Implied Vol: 28%

Ticker: GOOG
Instrument: Option
Type: Put
Strike: 600
Maturity: 2011-1-21
Buy/Sell: Buy
Price: 20.6
Implied Vol: 28%

*Implied vol is an estimate. Could be +/- 2%.

Payoff chart:

Darn the google train!

Seems like is leaving without me :(... No worries. On a separate note outright short on NFLX seems dangerous at this time. With more than 20% of the float short, a short squeeze is a real possibility.

short CBU

Short CBU at 27.73

IB has an app for Droid!

Pretty nifty!

Short TIF

Ticker: TIF
Instrument: Option
Type: Put
Strike: 60
Maturity: 2011-05-21
Buy/Sell: Buy
Price: 3.45
Implied Vol: 34.5%

Close Out TIF Strangle

Good that we turned the short into strangle. TIF seems to be hitting bubble territory. Put goes worthless, Call closing at 4.85

Close Out (GOOG)

Closing out on google call spread. Still bullish on google, however slowing down for the holiday season.

Short PLL

Ticker: PLL
Instrument: Option
Type: Put
Strike: 50
Maturity: 2011-01-21
Buy/Sell: Buy
Price: 1.45

Close Out NAT/ERF

NAT at 26.02, ERF at 28.44

Quick One (Short NFLX)

Sell December 10 200 call at 0.35

GOOG call spread update

For most part it should be self explanatory. This is the performance impact for the stock price move for a Bull call spread taking google as an example. The total capital allocated in the portfolio is $59,400. If one wants to look at a different portfolio one could just use the P/L information which is based on one contract.


 

Portfolio Market Value	$59,400
Type	Call	Call
Expiry	12/17/2010	1/21/2011
Time to Maturity (Years)	0.02	0.12
Risk free rate	0.13%	0.13%
Volatility	28%	28%
Dividend Yield	0%	0%
Strike	600	600

The payoff function is based on entry price of 13.2 for the long call, and 4.0 for short call. 

Now let's see how this could turn into a black swan. Suppose we get a little greedy and sell one day call at strike 600. What's the probability of Google jumping $10 in one day? If it doesn't happen we get to keep $69 on one contract. If it does here's how it looks. A good 10% of the portfolio is wiped out if Google jumps to $646 by Friday morning... Given all the info about Gingerbread, chrome OS that is already out there is this likely?

 

Covering Some GOOG exposure

Selling Dec 600 Call at 4.0 (Keeping the January 600 Call open). In addition there's a small exposure through Short Dec 10 600 Call.

The portfolio is now net zero. Gross exposure is 62%. 

Close Out (ITW/IEX)

ITW at 50.4, IEX at 38.67

Short MAR

Buying two January 39 Puts at 0.49

Close Out MSFT

msft at 27.02, April 28 Call on MSFT at 1.08

Monthly update

Back after a two week break. Did some early season riding in Maine. Have not had the time to update the blogs.  Eventually I plan to move this trade signals platform over to collective2.com. I spent significant amount of time in enhancing the trading process. I will post additional results by the end of this month. I promise there will be some interesting findings.  It will give a better view into some of the industries, the return process, and back testing results of the portfolio.  The system is flexible enough to run for short term data as well as long term data. The only problem is the time required to run a 20 year simulation. To give an example, the commercial banks industry has 420 publicly traded names in the US. If we run co-integration test for all pairs in this industry, we are talking of 90 thousand computations for one day. When we run the process for 20 years the problem grows accordingly. We can add additional filters to reduce the number computations. Since I run four threads (because I use a quad machine) the run time is reduced signifincatly but still we are talking about a week to run the trading system for the entire US stock market (60+ industries) for a 20 year time window.


Now to the current portfolio. The pairs positions are being reduced mainly in anticipation of new findings. Better safe than sorry. The gross leverage in the portfolio is now about 130%, net of +50%.
I still don't have a complete picture of November performance.  For most part the month ended flat driven by losses in Google. This had to do with the inability to roll the hedges (on time spread) on black Friday (was on the slopes riding on first snow). No Groupon, and now google seems to be on the come back.  Closed several positions, but didn't have the time to update the posts. Will do a more detailed posting soon.

For now, GDP/TLM has been closed. KDN/WAB has been closed, a few opportunistic shorts on NFLX, and AAPL during last week worked well. The strangle on NFLX has been closed as well. The strangle could have been more profitable if I had used a balanced approach. The slight negative bias on NFLX worked against the portfolio.  January 600 Call on GOOG has been opened at an entry price of 13.2.

Changing TIF to Strangle

Now long Dec 60 Call (With Dec 50 Put).

Short TIF

Sell Dec 2010 60 Call on TIF at 0.68, Buy Dec  2010 50 Put on TIF at 1.06

Close EQR/KRC

EQR at 47.48, KRC at 32.83

NFLX

Sell 11/19 Put (strike 155) at 0.52 (basically close initial short to go long at the price). Real goal is to do a put spread (time), but can't get quote for next maturity. Oh well. For now taking the long bet on nflx. Hoping for no major crash in the next three days. if I could I would cover this with long put for December.

Close Out URBN/TIF

Urbn at 36.1, TIF at 56.1

Close Out DKS/ZUMZ

DKS at 32.9, and ZUMZ at 27.94

Have a good feeling for today

URBN is up 6% pre-market, DKS is up 7% pre-market. NFLX continues to slide.

We will see how this turns out!

Closing ZUMZ call

Closed ZUM call (Strike 25) at 3.4. Taking some losses.  For most part we are neutral now. The longs on ZUMZ through puts are still on. But most of the value there has been extracted.

Partial Close MAR

Closed 1 Call at 1.9. Taking some losses. Getting closer to neutral.

Fingers Crossed

Going in 20% short for tomorrow. More confident on the nflx position now after the CSCO debacle.  Wondering what's in store tomorrow. Only long tech position still open is MSFT.  Does have some protection in OTM call sold on it. I was thinking of next quarter to be the precursor to a tech bloodbath.  Seems like christmas is here early? Wait and watch.

Close Out (NGS/RDC)

NGS at 16.58, RDC at 31.82

Short NFLX

Sell 2 Nov 12 Calls at strike 180 at 0.87

Close out TRV/AWH

TRV at 56.9, AWH at 59.38

Close Out GOOG

Closing Out google call spread.

Close Out FSR/CB

FSR at 11.77, CB at 59.76

Close Out ADBE

Taking Profits.

Closed ADBE at 29.39. Jan 32 call at 1.7, Jan 36 call at 0.37

Close Out AAPL Put Spread

Closing 11/20 Put at 3.28, 11/05 Put at 0.56.

Close out ADBE Put

Close out ADBE Put at 0.17. Locking in the gains on the option.

October Performance (Tech bets save the day)

Ended the month down 1.5%. Some of the tech bets were the saving grace for the month.

Put Spread on AAPL contributed  0.4% to the portfolio.

 Call Spread on GOOG + speculative put selling contributed 0.7% to the portfolio.

MSFT contributed  0.5% to the portfolio.

ADBE contributed 0.2% to the portfolio.

NFLX contributed  -.3% to the portfoio.

In total the tech bets made 1.5%. I guess these are offset by 3% loss in pairs bets.

Short NFLX

Opening a small short exposure to NFLX.

Buy November 155 put at 3.6, Sell November 140 Put at 1.22.  Given that there are weekly options for the month of expiration. There are better opportunities to capture theta in these options. Would recommend selling earlier maturity options if only interested in theta. Beware that the delta move might kill the trade. Of course you will still be left with decent theta if the stock moves in your favor.

New Trade (Retail)

Long URBN at 29.44, Short TIF at 49.83

Time Spread on AAPL

Opening a time spread on aapl. Buy Nov 300 Put at 6.7, Sell October 300 Put at 1.31.  Worst case we lose $540.

Position Update

Current positions updated at the bottom of the screen. Portfolio is fully hedged. GOOG is closed, however the corresponding SPY hedge is open. Accordingly it is still shown among the active pairs. Portfolio is down 1.7% for the month.

Add to MSFT

Long MSFT at 25.12, Sell April 2011 28 call at 0.66

Thank God!

Closed out of GOOG just in time. Some blood bath tomorrow after AAPL? Almost to the moon and back! Hope SJ had started selling some calls on his own holdings.

Close Out GOOG

close out 580 Put at 0.6. De-risking. $150 in one day. Not bad!

Add some protection to ADBE position

Sell 2011 Jan 36 Call  at 0.40

Long GOOG?

Really short term Put looks attractive to sell. The 580 Put that expires on 10/22 is trading at 2.1. Selling 1 Put gives a delta exposure of +10K to Google with a down side protection up to $578. Of course if google crashes we end up with a 58K long exposure to google.  If GOOG trades above 580 on 10/22  $210 is yours to keep. Will the momentum continue for a week? Apple reporting on Monday is sure to beat. The tech frenzy might just continue for another week. Shorting equivalent amount of SPY could give additional protection.

Please note this is a high risk strategy for someone working on $50K in capital. If you are working on $500K then its a different story altogether. If your risk appetite is low please keep away. 

At this point options on aapl look very expensive. One could make a play on implied vol going down significantly after earnings. However constructing this position is more difficult and will require constant monitoring/re-balancing.  The vol drop after earnings could be very lucrative.

Close Out FRX

Close out Call on FRX at 1.6

Long MSFT

Long MSFT at 25.06. Like the 2.7% dividend. In addition some big Wall Street banks don't believe in this anymore. Do believe this could be a better bet than US treasuries. Where's the 10 year treasury right now? 2.53%... I will probably start selling some calls at some point just to get some downside protection.

Add to Short ZUMZ

Sell Nov 25 call on ZUMZ at 1.85.

T o recap

Long DKS, Short ZUMZ

Sell 2 22.5 Put at 0.85, Sell 1 25 Call at 1.85

Reducing Short exposure on ZUMZ

Not done by direct buying or closing of position. Instead sell November 22.5 Put at 0.83

Popcorn or sine wave?

Argument can be made that when a pair reverts to mean it will eventually follow through to the other side leading to the other extreme. I've not been following that strategy though. The stock price moves resemble more of popcorn style moves.  Also if anyone has better ideas on a close out strategy would be greatly appreciated.  Couple of things happened in the last few days. One pair hit the 7-8% threshold (UMPQ/CBU), but we didn't close out at that time and now we are back to square one. The other pair overshot our estimate (MTN/MAR) and we ended up closing out too soon...

Long ADBE

Long ADBE at 27.84. Purely speculative. Rumors of MSFT take over.

In addition to the stock, bought 2 call at 31 with January 2011 expiration.

Expect a premium of at least 30-35% to the current price, given the way deals have gone through in this sector this year.

Short MAR

Sell Nov 37 Call at 0.85

Close Out (MTN/MAR)

MTN at 38.2,  MAR at 35.92

September Performance

The portfolio is up 1.3% for the month.Entire history since inception in table form is also here.

Month	Portfolio	S&P 500
Jul-09	1.7%	5.1%
Aug-09	4.0%	3.6%
Sep-09	4.7%	3.7%
Oct-09	7.0%	-1.9%
Nov-09	2.1%	6.0%
Dec-09	4.4%	1.9%
Jan-10	4.8%	-3.6%
Feb-10	-3.1%	3.1%
Mar-10	0.0%	6.0%
Apr-10	-1.0%	1.6%
May-10	-2.5%	-8.0%
Jun-10	3.9%	-5.2%
Jul-10	-0.3%	7.0%
Aug-10	1.3%	-4.5%
Sep-10	1.3%	8.9%

New Trade (Energy)

Long NAT at 26.76, Short ERF at 24.69

New Trade (Retail)

Long DKS at 28.12, Short ZUMZ at 21.33

Close Out (GDP Partial)

Close GDP at 14.26, Close the October short call at strike of 12.5 at 1.95 (Covered call trade). De-risking and not much theta lift at the current price.

Still keeping part of GDP/TLM pair open

New Trade (Industrial)

Long KDN at 33.72, Short WAB at 46.10

Close Out Call on EQR

Close out Call on EQR at 0.85. Bringing the portfolio closer to neutral.

New Trade (Machinery)

Long ITW at 47.04, Short IEX at 35.03

New Trade (Machinery)

Long PNR at 33.37, Short PLL at 41.27

Close Out (ATW/CRR)

ATW at 28.31, CRR at 79.21

New Trade (Insurance)

Long TRV at 49.85, Short AWH at 53.16

New Trade (Hotels)

Long MTN at 35.61, Short MAR at 35.52

Close Out (NE/BRS)

NE at 35.42, BRS at 35.72

Close Out JPM

Close out of JPM at 40.25, October call at 2.99

New Trade (Energy)

long ATW at 26.28, Short CRR at 79.9

New Trade (Energy)

Long NGS at 14.87, Short RDC at 28.28

Close Out (PDE/CAM)

PDE at 28.76, CAM at 38.24

New Trade (Insurance)

Long FSR at 10.28, Short CB at 54.28

New Trade (Insurance)

Long RE at 79.62, Short PTP at 39.65

Partial Close (GDP/TLM)

GDP at 12.5, TLM at 15.79

New Trade (Energy)

Long NE at 30.56, Short BRS at 33.1

Close out (SSL/BBG)

SSL at 38.13, BBG at 33.53

Close Out (BRKR/VAR)

BRKR at 13.4, VAR at 54.34

New Trade (Commerical Banks)

Long UMPQ at 11.46, Short CBU at 23.67

New Trade (Oil & Gas)

Long SSL at 39.54, Short BBG at 36.9

Add to EQR Short

Sell October 50 call at 0.85

Long GDP

Sell 2 August 12.5 Puts at 0.33

Close Out (GSK/NVO)

GSK at 38.01, NVO at 85.79. Also Close NVO 85 Call at 1.7

Close out (AMZN)

Close out AMZN call at 1.08. Taking a hit. Mainly because of the limited time left in this trade.

First Anniversary (July 17th)

Was quite a good year for the fund. The fund was up about 28% for the year from inception. It was looking even better up until January of 2010, followed by couple of rough months. Good thing is S&P was only up 15% during the period.

Key take away for the year

1) More leverage doesn't necessarily mean better results. We ran the portfolio at a gross leverage of around 1.6 till January, and didn't have a losing month. However, increasing leverage to 2.2 in February didn't add much to the return. Added to the complexity and we started bleeding.
2) Never underestimate momentum. Some of the trades outlasted our patience and over priced stocks continued climbing. At the heart of our strategy we are anti-momentum, and believe in deep value. of course some of them could end up being clunkers.

3) During periods of panic, pairs trading is a good strategy to protect wealth. But if you want to make money, a bias towards long or short the market is key. One of the reasons for this is correlations tend to 1, and there is very little dispersion.

4) These are also great times to load up on quality names like MSFT, JPM (Of course I'll keep my personal views on TBTF, and big banks out of this for now) etc. As a bank, JPM is probably better risk managed than it's peers. We are also sitting on a good 10% gain on the JPM trade so far. Will probably soon close out of that.

Close out (CPB, KO)

Closed out CPB at 36.6, KO at 55.1. Realigning the portfolio for a new and more robust process. More details coming soon. Currently running a very broad based, detailed back test for the entire US equity market. I will publish the results once the back testing is complete.

Sorry for the delays

Due to some technical reasons, have not been able to keep the blog live.

Few new trades not updated yet. Not much has happened after that... Except for one trade.

1) Long August 125 call on AMZN. This one's a loss making trade. Was placed just before earnings at 3.35. Earnings disappointed. Option is now worth 1.6. Don't get in, if not already in this. Although I do believe eventually kindle will be a success. Kindl3 looks great. No wireless fees for reading books.

2) Sell October 50 Call on EQR at 1.3.

3) Buy September SPY 100 put at 1.08.

Close Out MAR/CHH

MAR at 31.53, CHH at 32.8. Have to post this at the end of the day mainly due to the restrictions at work. Will not be able to post trades instantaneously. :( anymore.

Close Out (FRX)

FRX at 28.3, Call on FRX July 27.5 at 0.9

Short NVO

Sell August 85 Call at 2.4

New Trade (Financials)

Long JPM at 36.0 Sell December 40 call at 2.31

New Trade

Buy September 15 Call on GDP at 0.55

New Trade (Med Products)

Long BRKR at 12.41, Short VAR 53.01

Clost Out (SPY PUT)

SPY Put 104 at 2.29

Close Partial (FRX)

Close half of exposure to FRX stock. Keeping all options positions open.

New Trade (Hotels)

Lon CHH at 34.24, Short MAR at 36.1

Close out (RBN/GRC)

RBN at 22.9, GRC at 27.72

Buy SPY Put

Buy SPY July Put, Strike 104, at 1.15

Close out (GDp Call)

Close the call at 1.75. Just to be conservative in this market.

Close out EQR call

Close the call at 0.2

Close Out (DMND/PEP)

DMND at 37.79, PEP at 63.33

Short EQR

Sell July 50 call on EQR at 0.9

New Trade (Educational)

Sell June 110 Call on ESI at 2.00

New Trade (Industrial Parts)

Long RBN at 22.09, Short GRC at 28.82

Close out Option on DMND

at 0.35

Close out partial (GDP)

Close out the puts on GDP... No directional bets.

Close out Partial (FRX)

Close out 200 in FRX... Part of re-balancing. Just getting closer to neutral and taking action against concentration breach.

Add to GDP

Seems like mayhem. Sell September 12.5 Put on GDP at 1.57

New Trade Food and beverages

Long KO at 53.09, CPB at 35.68

Close out ASH/MON

ASH at 54.68, MON at 54.19

Close out (BEC/PDCO)

BEC at 58.97, PDCO at 30.26... Bringing closure to our misery.

Close out NETL Call

at 0.25

Close out EDD

At 15.38

Add to MON/ASH

MON at 57.02, ASH at 59.30

Close out (XRAY/HSIC)

XRAY at 36.47, HSIC at 59.19

Close out VaR/SYK

SYK at 54.75, VAR at 50.67

Long GDP

Buy September, 15 call, Sell September 12.5 Put

Long Emerging Market Debt

Long EDD at 14.00

Close NVO Put

Closing out the Put on NVO... Keep the long/short trade on.

Close NETL Put

Close NETL Put at 2.00 with a profit of $75.

Netls Short Trade

Sell June 33 Call at 1.25, Buy June 30 Put at 1.1

Close out (JNJ/TEVA)

JNJ at 65.25, TEVA at 58.5

Close out (ITT/LII)

ITT at 56.51, LII at 45.74

Close FRX

Close FRX stock, keep the Call Options.

Close out (ELS/RWT)

ELS at 55.82, RWT at 16.99

New Trade (Med Products)

Long XRAY at 34.4, and short HSIC at 58.72

Close out (CSCO/NTGR)

CSCO at 26.57, NTGR at 26.55

New Trade (FRX)

Long FRX option Nov 32.5 buy in at 1.25

Close out MRK - Keep FRX

Close one leg of FRX/MRK trade. Close out MRK at 36.79

New Trade (Chemicals)

Long Mon at 69.9, Short ASH at 58.52

Close out (DD/ALB)

DD at 38.72, ALB at 43.31

Close out (BRY/SFY)

BRY at 31.73, SFY at 33.75

Close out (DOV/IEX)

DOV at 46.72, IEX at 33.19

New Trade (Medical Devices)

Long SYK at 57.19, Short VAR at 56.14

Close out (IFF/ECL)

IFF at 48, ECL at 43.6

Finally going a little short

Equity markets seem to ahve gone too far too soon. Adding my first directional bet in a while now. Short NVO at 79.2 (Buy one put at $2.12 Strike 75, and Maturity of June, 2010).

Close out (NWL/RDEN)

NWL at 15.59, RDEN at 18.16

New Trade (Forest)

Long IP at 26.98, Short NP at 18.6

Add to GSK/NVO (Drugs)

GSK at 37.7, NVO at 78.21

New Trade (Energy)

Long BRY at 29.36, Short SFY at 33.58

New Trade (REITS)

Long KRC at 31.78, Short EQR at 39.53

Close out (APD/MMM)

APD at 74.6, and MMM at 81.05

Close out (PH/SWK)

PH at 64.45, SWK at 57.85

Partial Close (CSCO/NTGR)

Close half of csco at 26.12, NTGR at 26.47

New Trade (Energy Resources)

Long GDP at 19.31, Short TLM at 18.63

Close out (EVVV/MEND)

EVVV at 16.05, MEND at 20.60

Add to (EVVV/MEND)

Long EVVV at 14.76, Short MEND at 20.77

Close out (DLR/NNN)

NNN at 20.02, DLR at 48.02

New Trade (Med Products)

Long EVV at 13.94, Short MEND at 18.79

Add to ECL/IFF

ECL at 41.39, IFF at 41.04

New Trade (DRUGS)

Long JNJ at 62.69, Short TEVA at 56.65

Close out (SPG/TCO)

SPG at 70.46, TCO at 32.62

Add to PEP/DMND

PEP at 59.24, DMND at 37.5

Add to NWL/RDEN

NWL at 13.49, RDEN at 16.68

Close out (NETL/MRVL)

NETL at 47, MRVL at 17.74

Close out (SNHY/PNR)

PNR at 31.1, SNHY at 22.2

New Trade (Drugs)

Long GSK at 39.06, Short NVO at 70.91

Close out (APOL/ESI)

APOL at 60.9, ESI at 96.90

New Trade (Industrial Services)

Long APOL at 64.13, Short ESI at 113.69

Closeout (CCMP/MSCC)

CCMP at 32.55, MSCC at 17.89

New Trade (Home Products)

Long NWL at 14.8, Short RDEN at 16.39

New Trade (Chemicals)

Long APD at 81.65, Short MMM at 83.77

Close out (HAE/CMN)

HAE at 59, CMN at 20.1

New Trade (Food and beverages)

Long PEP at 62.17, Short DMND at 35.7

Close out (RKT/PKG)

RKT at 51.12, PKG at 23.7

New Trade (Industrials)

Long IEX at 31.64, Short DOV at 45.97

New Trade (Drugs)

Long FRX at 31.24 Short MRK at 39.2

Close out (VMC/LYTS)

VMC at 52, LYTS at 7.656

New Trade (Med Products)

Long BEC at 68.38, Short PDCO at 30.23

Close out (Hain/KOF)

Hain at 17.99, KOF at 60.2

New Trade (Forest Products)

Long RKT at 47.5, Short PKG at 24.38

Close out (HSY/CPB)

HSY at 36.62, CPB at 33.00

Close out (SONO/IVC)

SONO at 26.00, IVC at 25.57