AAPL Put Seagull
AAPL moved higher this past week although the move caused iV to fall bleeding out some of the profits. AAPL is approaching the short strike at 390 so I expect profits to pick up when Sep Theta starts kicking in. Currently there is a 33% profit.
NKE Call Seagull
NKE also moved higher this week slightly above the short strike. The IV skew has narrowed giving the position an additional $1000 of profit this week. The total profit is now at 11%.
NVS PCCRC
NVS moved up a little this week and is sporting a small 3% profit thus far.
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3 comments:
Tim,
I have been following you blog for some time, digesting your seagull and PCCRC trades. Recently, you opened a NKE call seagull trade. My question is aren't you concerned about the possibility of a sig drop in volatility? It appears Vol was around 33 at time of trade. Though this fits your criteria of being less than 40, I have noticed that NKE tends to drop to vols of 20 (based in IV study on TOS). Can you elaborate? I have had some tickers come through your scan recently, but I think the Vol is still too high in the overall market place and any sustained rally will drop the vol and move the seagulls to a loss. Is this a concern of yours? Thanks
Jon
Jon,
Thanks for the question. With the VIX over 30 I am very cautious about opening new PCCRC trades because of the risk of falling IV. NKE and NVS were not found with the typical spike scan (10% jump after earnings) or even the High flyer scan (15% jump in a week or 20% jump in a month or 30% jump in a quarter). Rather both of these trades were found with a scan of IV skew, which I only use in a higher IV environment when the other scans are not finding any candidates. NKE had a skew of about 5% (IV of shorts 5% higher than IV of longs). It also had the IV of longs < 40 and an IV/SV ratio less than 1. NKE also has the potential to make large moves (some other skew candidates were rejected because the stock usually does not move much, e.g. TGT). The IV of the long options in the NKE trade are pretty close to what they were when I entered the trade, while the IV of the short options has come down some, giving the profits. To answer your question, yes I am concerned about IV falling. I track IV on my trades every day and if I see a huge spike, sometimes I close the trade that day. NKE's IV of the long options have risen 0.6 % since the open of the trade. If that IV starts going down without a significant rise in the price of the underlying (which would offset the Vega loss), then I would consider closing the trade. With VIX in the 30s I don't expect the IV of NKE to drop to 20 quickly, so I am ok with this trade right now. NKE is reporting earnings in Sep so I will be out of this trade in 2 1/2 weeks anyway.
Tim
Thanks Tim.
I want to understand the environmental factors that affect the seagull/pccrc trades. I have yet to try one. Your explanation help alot. Thanks again.
Jon
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