Premium (Unlocked): A Lazy Uncle Theta Gets 1.6% on June Double Ratio Diags

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“Hamburgers: the cornerstone of any nutritious breakfast.”

– Jules Winnfield, Pulp Fiction

“Sideways: the cornerstone of any StratOptions trade…”

– Uncle Theta, #strategic-options

Sometimes when the markets get as boring as watching paint dry, Uncle Theta sips away on his green tea. Smirking silently, knowing all the options he sold will go down to zilch. But he’s equally worried. Because he can’t sell again till he sees volatility come back to a respectable level. It’s a vicious cycle of satisfaction, anxiety and explaining people why he can’t pull the trigger on another trade just yet.

So while we wait for the Uncle to find us another trade, let’s recap what happened in June.

On May 30, we opened a double ratio diagonal position on NIFTY. If you haven’t yet, read  how this strategy is how we survive in this frustratingly low IV environment. We bought one lot of the July 9500-9800 Strangle and sold twolots of the June 9400-9900 Strangle.

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That’s just a shorthand for saying we bought 75 each of July 9500 Puts and 9800 Calls, and sold 150 each of the June 9400 Puts and 9900 Calls.

This is how the payoff for 29th June looked.

BTW, this was the alpha version of a Google Spreadsheet version of Options Oracle we’d been working on. We’ve now finished it and released it as an open source project. You can set it up for yourself following the instructions here:

StratoptionsGS: The Open Source Options Analysis Toolkit

Coming back to the position… Nothing much happened in June with NIFTY. It stayed stuck in the 9500-9700 range. The position would’ve made max profit at either of the near-month short leg strikes i.e 9400 or 9900. NIFTY seemed to move closer towards 9400 in the expiry week, and one day before expiry, we decided to close our position for a 1.67% gain.

The closing position log (using the StratOptionsGS template):

And that’s about it. This was the same position as the one we did in April. But even this strategy suffers from a very narrow range of profitability with most IVs around 10. So we’re waiting, and watching, and sipping more green tea.

(Quick note: We now have about 5.6% in this year on Stratoptions, which is about 1% a month for the first six. The next six should help make it up)

And hey, results season is upon us and we’re hoping to see some good short volatility opportunities in stocks for #experimental trades.