Performance Report Week 30/2015

The EuroStoxx 50 Index closed the week at 3,600 points. After the last move up the European markets went down again. After selling the upper range put option at 3,750 points the position fits just perfect in the profit range. The volatility went up slightly to 19 points, but through time decay we were still able to earn some money.

As there were no new positions opened since the last performance report, the break even points did not change. We are still earning a profit if the index will close between 3,275 and 3,850 points. Same applies to the next steps that have to be taken in case the index moves to close to our boundaries.


Performance Report Week 29/2015

Wow, the last week was a real blast in Europe! The Greek story transforms into a never ending fairy tale. The marktes are doing fine with that and so am I. Still, a 10 % rise in a week in a broad market index like the EuroStoxx 50 is an extra ordinary event.

For the short option strategy we usually want flat markets with little movement. Actually, we do have everything but flat markets. Volatility was huge and just dropped last week by almost 40 % from mid 30 points to 18 points. So how did the butterfly strategy do?

Below, I am giving a current status from the portfolio including all past trades that have been made. The overall total is currently 168 EUR. Sure, that is not the greatest result to get, but at least it is not a loss!

Still, there are 2 more months to go. The profit range is currently between 3,275 and 3,850 points. If the ESTX50 stays in that range we will be all fine.

As you can see, we are holding two straddles at 3,350 points and 3,550 points at the moment. At 3,750 points I have opened the short put position first to reduce the risk of further rising prices. Ideally, I also want to sell the short call option to complete the straddle, but I don't feel comfortable with the premiums right now. I would rather like to see markets moving up to 3,750 points, so that I can sell the call.

I don't think that we will go much higher than that anyway. The area above 3,800 marks the last high from this year and I don't think we will go above without further down drops.

Anyway, the butterfly strategy is a market neutral strategy, so I do not really need to care about where we are going.

The next steps to take are:

Selling the 3,750 call on rising markets between 3,720 and 3,750 points.
Wait and see on stagnating markets.


Adjusting downside protection and thoughts about the upside

The EuroStoxx 50 Index is up to almost 3,700 points after its last low at 3.300. That's an upswing of 12 % in less than a week of time.

After I have rolled my put protection in a quite unfortunate time, I closed my the short put side of my bear put spread at 2,900 points for the price of just 20 EUR today. That leaves me with two long puts at 2,700 and 2,900 points with almost no value. I will keep those puts as protection for the next 3 weeks. I don't see any value in rolling them up or out right now, although a long put for September at 3,200 would only cost me 100 dollars.

The upside straddle at 3,750 points

As the Index is above my next milestone at 3,650 points I am supposed to sell my upper put for the 3,750 straddle. That would be close the 2015 high around 3,800 points. My problem is that volatility is really low around 18 at the moment, so premium received will also be little with around 1,500 EUR at the moment.

That is the reason why I chose to wait after the weekend to see where we are heading to. If the ESTX50 keeps on moving higher, I will have to sell the put and the call option right away. I don't want to take the risk to be caught in the short put in the next down swing without the extra premium of the short call.

Also, I will buy put protection for the straddle somewhere in the range of 3,200 to 3,300 points.

On Sunday I will also post my next performance update. I am really curious to see how the strategy is doing!


I chose to follow the plan and sell the short put at 3,750 for a premium of 1,550 EUR already before the weekend. Now, I am thinking to add the short call option, too, but again, it's not yet time for this step. Patience is king when it comes to option writing. Lower break even now at 3,270. Upper break even at 3,870 points.


Performance Report Week 28/2015

Last week has been frightening. The EuroStoxx50 Index was locked in fear about the Greek financial situation and the stock market crash in China. Volatility went through the roof hitting more than 32 Points before closing at 27.88. The ESTX50 traded in a wide range between 3,300 points at the low end and 3,529 points on Friday closing.

That is a range of 6,9 % in one week! As I am following a short volatility strategy selling option straddles that doesn't sound to be optimal for the portfolio, does it?.

In the last week I rolled my long put insurance from July expiration to August expiration. In hindsight, the timing was not the best, but as explained in the last post, I could sell my July insurance for a profit and use that to buy the new puts. Due to the high volatility, the option premiums were also high, so that all in all my protection moved down a bit.

That is not a big deal because i also completed my 3,350 straddle last week so that it would be easier to extend my lower break even point if the market takes another dip. On the other side I can profit from additional income of the short put premium in rising markets.

So let's have a look at the performance of the last week and the current balance.

Currently, the premium earned is 6,930 EUR. For insurance, I earned 50 EUR from the July position. For August I paid 1,016 EUR for two puts each at 2,700 Strike and 3,000 Strike. Additionally, I've earned a credit for selling two puts at the 2,900 strike level for 538 EUR. All in all, insurance cost sums up to 428 EUR, reducing my overall income to 6,502 EUR.

If I would close all open positions now, my expenses would be 6,500 EUR for the straddles and my income would be 158 EUR from the insurance. My book profit would be 160 EUR.

All in all, I am still in a comfortable level even though the market used to trade in large gaps and big moves during the last 3 weeks. I am curious to see the result coming up in September!


Roll-out of Put Protection into August

The market volatility stays high as the July expiration moves closer. Because of that I have decided to roll my long-put protection out into August and add a bear put spread for extra protection.

The problem was that prices for the put at the 3,100 strike was fairly low when I opened it in June. Now, those puts value has risen by 50 % and next months expiration is even more expensive.

My strategy is focusing on getting protection for about 100 Euro. For that price I could only buy puts at 2,700 points which is by far too low based on my actual break even points around 3,100.

That's why I decided to add extra protection using bear put spreads. So I bought more Puts at 3,000 points and sold the complimentary amount at 2,900 points. In worst case they will pay almost 1,600 EUR and cover some of the losses.

Based on my current position with two open straddles at 3,350 and 3,550 I was supposed to buy two long puts. In fact, I sold my July protection for a profit at 151 EUR. For August I added two long puts at 2,700 for total cost of -194 EUR after commissions. For extra downside protection I bought two bear put spreads for a debit of 538 EUR - 822 EUR = -284 EUR after commissions.

All in all I paid 327 EUR for August protection.

I am planning to close the bear put spreads if EuroStoxx50 rises above 3,450 points. But that depends on the general market conditions after July 17.


Adjustment of ESTX50 Sep 15 Butterfly

During the huge drop yesterday, I have sold the second leg of the 3,350 butterfly. The short put with the strike same strike at 3,350 points like the call that I have sold last week earned a premium of 1,631 EUR. Total premium earned increased to 6,921 EUR.

Currently, the broken wing butterfly consists of two September straddles at 3,350 and 3,550 points and one long put 3,100 points with expiry in July.

The lower break even point is at 3,103 points and the upper break even is on 3,796 points. Maximum profit of 4,921 EUR would be earned if the EuroStoxx50 closes between 3,350 and 3,550 points on September expiration.

Upcoming adjustments are to open two long put positions for August as crash insurance. If the ESTX50 drops below 3,250 another call will be sold at the strike of 3,150 to extend the profit range. On the upside we do have plenty of buffer at the moment.


Performance Report Week 2015/27

Last week was dominated with Greek news and political stories. What if? What if not? In fact, the weekend brought kind of clarity, but still, there is not release of rumors and speculation.

Checking the last weeks performance of the butterfly strategy shows little impact. After the last options adjustment to extend the range on the down side, we are still pretty comfortable in the range of profits.

In sum, the EuroStoxx 50 closed around 3,440 last Friday. The value of the options sold is 5,390 EUR decreased by the cost of insurance of 100 EUR that rised in value to 156 EUR. Total depot book value is 5,546 EUR.

Based on the options premium earned to date , we are sitting on a loss in the books of 5,199 EUR - 5,546 EUR = - 347 EUR. As the options expire in September 2015, the loss is not relevant yet. If the EuroStoxx 50 Index would close at the current level of 3,440 Points we would realize a potential profit of 3,199 EUR.

But of course that is only hypothetical, as everybody knows that the index will not be flat for two and a half months. The strategy is to adjust our range as good as possible to keep the index in the middle of our profit zone.

By the time I am writing those lines, the market already opened with another drop of -2 % bringing us close to the next adjustment level of 3,350 points. At the moment we can still lean back and watch the markets. Next steps will be taken if the market declines furthermore.


First Adjustment of ESTX50 Sep 15 Butterfly

Today the next step of the Butterfly Strategy has been triggered. EuroStoxx 50 closed yesterday below 3,450 points giving the signal to sell the first leg of the 3,350 straddle. In hindsight it looks like the market is going to move more up than down after the last days of correction. But so be it, nobody knows the future.

In fact, I added another 2,248 EUR to the premiums earned. The total premium income is now 5,205 EUR. The new break even points are at 3,029 points and 3,710 points.

The next step of the strategy will be to sell the put option at 3,350 points and the call option 3,150 if the EuroStoxx 50 closes near 3,350 points. In case the EuroStoxx 50 moves up to 3,650 the next put option will be sold at 3,750 points.

The insurance at 3,100 points will expire in 3 weeks. Until then we have strong market crash protection. New put options will be bought in the third week of July.