High Octane Alpha

PORTFOLIO GREEKS
(SPX beta-weighted)
Delta: 36
Gamma: -2
Theta: 93
Vega: 227
Buying power: $100,265
"Paper-folio" Value: $136,559

Well it sure was nice to have those sell stops below support sitting on my order book this morning in order to take advantage of that late-day market swoon (The exact orders were SELL -2 ES5U at 1277.00 STOP, triggers BUY +1 ES5U at 1271.50 LIMIT, BUY +1 ES5U 1274.00 right before the close). Basically that means I sold short the S&P Sept emini once the S&P Sept futures traded below 1277 then I automatically sent a limit order to cover 1 contract if the S&P Sept emini traded to as low as 1271.50 then just close out the 2nd contract right before the close (so I don't have any overnight directional risk in the futures). The futures trades were profitable $425 and the options book was essentially flat on the day (again helped by the fact that I had positive vega and positive theta going into the day as well as having -6 SPX deltas going into the day with the market going DOWN -9 points).

Not a great looking day for the bulls out there---the futures actually breached yesterdays high briefly, then turned around and took out yesterday's low (and then some!) by the time the market closed (see chart).

While I'm going into the weekend completely flat on my futures positions (closed out all my intraday shorts by the close to take profit), I'll be looking to re-open new intra-day shorts next week on any continued weakness--again, via sell stops below resistance. This strategy (continuing to sell short through support points) is how the paper-folio profited so strongly during the couple of dire sellofffs in May and June. Granted, some of these directional shorts lose money sometimes, but when they are traded properly (in reasonable size compared to the options part of the portfolio to where anyone futures trade isn't going to wipe out profits, but merely chew up a little here and there) they really do reduce a lot of intraday risk.

I really see risk as comprised of 2 components:
Total Risk = Intra-day risk + Overnight risk

I hate overnight risk. Just HATE it. That is why you will see me close out my directional futures trades intraday most of the time. Maybe I'll leave one or two contracts on if I've made a huge profit intraday on a much larger position of 6 or 7 contracts, but 95% of the time I'm flat on my futures book going overnight. I would actually go so far as to say that I embrace intraday risk. Intraday, I'm willing to take more "absolute risk" in dollar for dollar terms. But this is only because I feel like the intraday market is so technically driven (ie: chart patterns and short-term support/resistance technical analysis hold up well intraday), that it is very easy to define stop-loss points and profit taking targets. Since I've learned technical analysis from one of the best (Stan Ehrlich of http://www.stanehrlich.com/ and http://www.chartpattern.com/) I'm very confident in my ability to make the high-probabliity of success intra-day trades in order to scalp intra-day profits when market conditions are favorable (I define "favorable" as any trade that I feel like has a 75% chance of profit, or a futures trade that provides an "equal hedge" to my options book during the intraday timeframe). Since I always enter a stop loss for these short-term directional futures trades, and since I close them out 95% of the time intraday, I don't have any of the gap risk associated with holding positions overnight.

No new options positions today... I'm liking how my greeks are lookin' right now. I'll see how things open next week and decide how to rebalance things at Monday's close.