You’re as cold as ice

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Performance:
YTD P&L: Unch
MTD P&L: Unch
WTD P&L: Unch

My blog title mainly has to do with how cold it could get next week where I live.

I live in northern Iowa. I bet you are jealous.

Although, in a lot of ways, my portfolio was as cold as ice. In the sense that my P&L didn’t move. In the sense that one of my buy and holds took the high honor of being the second worst performing stock on the S&P 500 today.

Even with those negative aspects of my portfolio this week, there is still plenty for me to be happy about and, to be honest, I ended this week feeling the best about my portfolio than I have any other time this year. I will get into the “why’s” later, but let’s look at the negatives first

Issue’s this week
The biggest issue that plagued my this week was that one of my buy and holds ABBV tanked hard on Thursday and Friday. The total loss between these two days was somewhere in the 9-10% range. Ouch. The positive spin on this is that thanks to having a diversified portfolio and strategy, my portfolio completely absorbed the loss and was able to end the week unchanged.

ABBV takes the honors of 2nd worst performing SP 500 stock today

Positives this week
Even though the market didn’t give me quite the pullback I had hoped this week, it did allow me to keep my short premium positions open for another week and milk some decent premium out of them. My short QQQ’s strangle swung from a large loss to a small profit, and my short XLE strangle went from a small profit to a decent profit. So the positive here is while the pullback wasn’t deep enough to maximum profits on the strangles, it did buy me time and as a premium seller time is one of my most precious (and profitable) commodities.

I was able to sit on my positions all week until they were ready to roll to the next expiration today. My strategy involves automatically rolling positions to the next expiration once their DTE reaches the teens or low 20’s. The reason I do this is to lower gamma and delta risk that start to exponentially pick up in the last few weeks before expiration.

I had recognized last week that I has violating one of my most important rules which is to not be over-leveraged, which is greater than 1x leverage on any group of positions. XLE and QQQ had become very highly correlated and my leverage was around 1.4x. When I rolled my positions to the next expiration it gave me an opportunity to let one of my XLE strangles roll off, and now my QQQ + XLE leverage is right at 1X. Perfect!

Another thing that I was able to do while rolling was to re-position my strangles. I have complained about this since starting my blog 3 weeks ago, but I had poorly initiated a number of positions in December, and that continued to haunt me all the way until now. The scheduled roll today gave me an opportunity to remedy this issue and get my positioning right.

I was finally able to adjust my positions

My new positions are now a short strangle in XLE and a short strap strangle in QQQ (2 calls to 1 put). The reason I did a strap is to reduce delta’s from my long stock positions. In my mind this position is a strangle with a short call as a proxy covered call to my long stock. My theta is sitting just below 0.1% of my portfolio. I have a lot of capital I haven’t put to work, so I may initiate some new positions next week to get my theta closer to my 0.3% goal. My delta’s are now slightly positive, but with a delta to theta ratio of 1:1 I consider my portfolio basically neutral.

Looking Ahead
After making slight adjustments to my portfolio over the past few weeks I now have resolved almost all of the issues and strategy violations I had started the year with. The only part of my strategy that my portfolio is currently violating is the size of my buy and holds. Right now each one of my buy and holds are close to 20% of my portfolio size. I am going to resolve this by simply injecting more capital into my portfolio. I plan on doubling or tripling my portfolio size next month which should bring those positions to around 6-10% of my total portfolio size (my strategy limit is 10%).

The other issue I am looking to resolve is not having enough diversified short premium positions and enough diversified buy and holds. This is simply an issue of low capital. Once I have more capital in the account I will be able to add in some more buy and holds and initiate some new, uncorrelated, short premium positions. This should go a long way to further reduce risk, and make it so no single position has too much affect on my portfolio.