Making money in a down market!
January 20th, 2010, 1:41 pm EST. Posted under Theta Articles by ThetaTrader.
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DOW – 194 @ 10,530
01/20/2010 – ThetaOptions – Making Money in a down Market.
We would like to take this time to illustrate how our TWO portfolios are holding up during a 200 point down day on the DOW. The following two images are snap-shots of our current positions within the (MP) an IRA along with a BETA weight pegged to the DIA index (The DIA is an ETF that is 1/10 the price of DOW Jones Index). Please click on the multi-page links to follow this post.
Current DOW Price: DOW – 194 @ 10,530 - 1:30 est
IRA Portfolio: The IRA Portfolio is UP $85 with DIA beta weight of -5.62 & Theta value of 10.28
Margin Portfolio: The (MP) is up $25 today and has a DIA beta weight of -5.66
Currently the (MP) is using $11,000 of margin or 20% of our total Portfolio size.
Delta Neutral (DIA):
Overall both Portfolios are fairly delta neutral with regard to the DIA Beta Weight & our Theta decay is positive.
DOW -100 @ 10,270
01/22/2010 – ThetaOptions – Our options hedges are still holding up.
Two days ago we posted how our (2) portfolios increased in value while the market dropped. Today we would like to share with you some additional news as the market continues to fall. Basically the DOW has fallen from 107 to 103 within (3) days, that’s about 4%. Therefore you would expect to lose about 4% of your overall value; right? Nope that assumption would be wrong here, since we’re only using about 20% of the available cash within our Margin Portfolio, our overall value is only down $235 or 0.3%. Folks, we’re only down $235 within (3) days. However if you multiplied a 4% loss from our total liquidation value of 56K, then we would expect to be down $2,240. We think that’s a pretty good hedge against a softly falling market. Keep in mind, we’ve been beating the S&P from month to month as it has risen as well. However, the fun part is keeping your account value UP as the market falls 
And that’s the power of options.
The IRA portfolio on the other hand is doing much better, it’s actually increasing in value but that’s mainly in part to our (2) nicely timed CAT & X diagonals.
Current DOW Price: DOW – 104 @ 10,270 - 2:50 est
IRA Portfolio: The IRA Portfolio is DOWN $102 with SPY beta weight of +26.2 & Theta value of 13.3
Margin Portfolio: The (MP) is down $222 with a SPY beta weight of +82
Currently the (MP) is using $11,000 of margin or 20% of our total Portfolio size.
Delta Positive (SPY):
Overall both Portfolios are some what delta positive with regard to the SPY Beta Weight & our Theta decay is positive.
DOW +60 @ 10,250
01/26/2010 – ThetaOptions – Theta is taking over now…
So here we are, (6) days after our initial post & our (2) portfolios have managed to gain back their P/L highs we had before the market started to pull back six days ago. The market is currently down 5% (@ 10,250) from it’s peak on the 01/19. Our portfolios are on track to make 2-4% for the month of JAN, which means will we beat the market this the month and squeak out a small gain while the market looks to take 2-3% from the average Joe. If the market were to finish the month right here @ 10,250 then our margin acct will have beaten it by about 7%. That’s a lot considering we’re only risking 10-15K in margin acct or 20% of the total liquidation value. The DOW is down about 5% from 10.700; now that would equate to $2500 loss if our entire portfolio was invested in the DOW. However, we’re looking at making 3-4% for the month AND we did it by ONLY RISKING 20% (15K) of the portfolio.
Current DOW Price: DOW +60 @ 10,250 - 2:07 est
IRA Portfolio: The P/L Open is back UP to $677 with DIA beta weight of +42.3 & Theta value of 12.81
Margin Portfolio: The (MP) is back up to $1233 with a DIA beta weight of +43. Our daily decay rate (Theta) is +$36.78. In theory, that means we’re making $36.78 per day!
Note: The VIX has dropped from 27 back down to 22.80 and that’s a big part of why our spreads are returning to profitability. We sold most of these options during a LOW VIX period.