EVOLUTION

“So don’t fear if you hear
A foreign sound to your ear
It’s alright, Ma, I’m only sighing” – Bob Dylan

One of the benefits to documenting my trading is that I can look back to see the evolution of my style.  As I’ve mentioned, I’ve been shifting from trading the overall market using SPX and ES, to commodities including Oil and Gold.

One thing that became apparent is that the higher commissions in commodity future options can quickly erode profits.  A 4% gain can become a 2% gain and a 1% loss can become a 3% loss.  I believe you have to include the cost of commissions in calculating returns.

To combat this as well as try to limit the frequency of trades, I’m moving more towards long-dated, unbalanced strangles.  These are essentially naked puts and calls with an expiration further out than the broken wing butterflies.  The number of contracts is smaller (less commissions) and I’m expecting the frequency of opening and closing trades to also decline (again, less commissions).  Going further out in time will yield smoother returns.  I’ll be experimenting with how to manage these with regards to profit taking and stop losses as well as determining any bias in direction.

Here are my current positions.

Crude Oil unbalanced strangle – Using the October futures options (128 days to expiration), calls at $90 and 3x the amount of puts at $52 for a bullish bias.  Currently up 6.3% after 8 days in the trade.

Gold unbalanced strangle – Using the November futures options (166 days to expiration), puts at $1,200 and 2x the amount of calls at $1,600 for a slight bearish bias.  Currently up 1.1% after 3 days in the trade.

Volatility – Using the June VXX options, this trade is a combo consisting of an equal number of calls and puts at the $40 strike.  Currently up 22.1% after 23 days.  This will be a longer-term hold.