Results: bad week, missed the CPI
Losses contained at 3.7%
Quick summary:
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Last week’s performance was driven by the CPI report that came in lower than expected, after which the markets rallied 5+%
We missed this prediction, and the subsequent rally was so powerful we had to close all positions immediately to avoid bigger losses
We did warn our users to stay on the safe side and wait until after the CPI to trade.
The one thing that saved our portfolio were the macro hedges
Portfolio was down 3.7% for the week, up 156% overall
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Last week’s performance and portfolio update
Two things carried last week in markets. First the US Midterm elections added uncertainty on Wed, sending markets down, while all of our short positions finished in the green. But elections don’t really move markets, at least not substantially. The Fed does (as we’ve seen the week before). Or in the case of last week’s CPI report, an eager anticipation of a Fed pivot following lower than expected inflation for October.
Look at that gap open on Thursday:
As we’ve announced on Thursday, we were forced to close all our short positions to limit our losses. Two positions saved our portfolio. First, the bull put spreads for SPY and DIA, which were bought back at a fraction of their value to get the full premium ($375 for DIA, $400 for the SPY). The bear call spreads had to be bought back at a loss ($730 for DIA, $744 for SPY). But overall, this limited the loss for the condors. Good save.
The put positions weren’t so lucky. The stop losses were pierced through immediately, so we just placed a fire sale order as soon as possible. We got out at larger losses, bringing the entire options position down by 48%. It could have been much worse.
But the overall portfolio was saved by the condors bull put spreads and, more importantly, the SPY and QQQ March hedges. They went up a lot (especially since the QQQ calls were bought cheap on Monday, so 3 positions were bought), more than compensating the losses from the macro positions and the long-shorts.
It was a bad week for our predictions, but the portfolio didn’t suffer too hard, and that’s the most important message.
The overall performance is still up 156% since May last year.
Options: 48% loss
As mentioned last week, we opened the following options positions:
As per our predictions, this week we are trading 368/369 to 385/386 SPY 11/10 iron condor (25 contracts) for $1300 total premium. We are trading separate legs, because of the potential event impact from the CPI report. We are buying a put for downside protection, 2 SPY 392 puts 11/10 for $8.35.
For DIA we we are trading the following iron condor: 319/320 to 332/333 DIA 11/10 (25 contracts). Also, separate legs. Total premium is $1150. We are also buying 2 DIA 11/10 332 puts for $5. Stop loss is at 50% for both.
We added this as well:
We already closed the bull put spreads of both DIA and SPY to take the full premiums there ($400 each). This offset the losses from the bear call spreads ($750 each, the markets moved fast against both positions).
It was a good idea to separate the legs to limit the condor losses, but the puts surprised us on the downside and we had to endure a bigger loss than we hoped for on these positions, especially after they were all in the green following Wednesday’s close.
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