Put the Short Premium in the Bag

The tale of October happens to be the tale of my friend, “Mr. G,” and what he did to turn $39,727.47 on September 30th into $56,239.25 on October 31st.  How’s that for some trick-or-treat plunder?

Here is the breakdown, separated by types of trades, of which there were only a few.  I’ll number the types and show the dates and entry and exit points.

1. The greatest number of trades were made by selling short shares of TVIX on different dates between September 22nd and October 23rd, and buying them back on different dates between October 5th and October 28th.

Between September 22nd and October 28th, TVIX declined by 47%, from $11.11 to $5.92.  Had Mr. G simply sold short approximately 419 shares, which would be about -$4,653 worth of TVIX on September 22nd and bought those back on October 28th for $2,480, he would have been able to realize the same gain:  $2,173.  Most likely the brokerage is happy with his trading habits.  Instead of making those two transactions, he traded with a frequency comfortable to him,  based on risks he decided to take at the time and with larger and smaller amounts from day to day.  Also, he put more or less into this mostly-ongoing short TVIX position based on availability of funds in his account surrounding other trades which he considered more important at most times.

2. A trade parallel to this one was some UVXY shares sold short and then bought back to close, which was soon replaced by another lucrative trade.

As you can see, on October 5th Mr. G sold 200 shares of UVXY short at around $46.28.  The very next day, he bought those shares back for $42.73 and made a profit of $699.35.  Here’s what’s interesting:  He closed the short at 10:06AM on October 6th.  Now, according to Mr. G, he must have had four cups of coffee that morning, because during, between, and while taking care of that trade, he went and did the following:

At 9:47 AM, before closing the short shares, he believed that the sharp overnight drop in UVXY would be followed by a bounce (as pictured in the chart, he turned out to be right) so he sold two puts that were deep in the money.  Less than one hour later, when those puts were less deep in the money, he bought them back for a tidy gain of $167.  (See below for details.) In the interim, of course, while watching his under-one-hour-dry-cleaning maneuver otherwise known as taking put buyers to the cleaners, he closed the short shares from the day before and moved on to his next method of turning volality into dollah-tility.

3. (category three of Mr. G’s trades which is the above-mentioned limited foray into the short-selling of UVXY puts.  Think about the layers of inversity there for a moment.  Selling puts on a leveraged ETF that purchases futures contracts on the VIX, which… Never mind, shaking head and moving on now.)

4. The largest amount of profit in Mr. G’s account during October was made by selling shares of SVXY he bought at various points during September and October.

He ran 887 shares of SVXY through the washing machine and found $10,049 in the dryer which represents a gain of 23% (he bought $44,364.30 worth of stock, sold the same stock for $54,413.43.)  That’s a lot of extra socks in the dryer that came from who-knows-where.  Actually, it’s known where they came from:  The S&P went up by 6% between September 10th and October 23rd, and the VIX decreased by 45% during that same time period, and Mr. G sought to participate in the stability-building in the market by buying SVXY low and selling it high.  In addition to shares, he also dealt in calls as such:

5. Bought the December 45 and 50 strike calls for something in the neighborhood of $8.50 and sold them later for something in the zip code of $11; he had ten honking contracts so this was something under $2,500 in extra wallet-stuffings by the time all was said and done.

6. Sold some calls on SVXY and bought them back for a punishing price soon after, which was the only significant money-loser Mr. G experienced this month.  That’s another story for another day which will never come, because the story cannot be told (in this venue.)  Sold some puts on SVXY and bought them back for nearly flat; sold some others and let them expire worthless so that a tidy profit was realized on a two-day trade.

The month ended with only the expiring options to be settled (for full profit to Mr. G and a total loss to the put holder) over the weekend, and a fresh, clean slate of working capital with which to generate more returns in November.  Thanks for following along with “guest blogger by proxy,” Mr. G, who gave permission for his adventures and misadventures to be documented for entertainment and maybe even 15 minutes of fame.