Friday, May 6, 2011

Neutral Nick Update- Delta Neutral Trading Style that tries to hedge 300,000 bushels via big time premium collection. Ahead nearly 3 million shooting for 20-25 million profit?

Neutral Nick update 5-6-11
 
As the commodity world falls apart so are Nick’s dreams; or at least his stress level has shot up tremendously as he is now adjusting by a couple million bushels at a time.  I.E. just two days ago his delta neutral or delta bushels was short 300,000 bushels; per his goal of staying short 300,000 bushels.  But after today’s fall apart he found himself 3 million bushels or so LONG.  Ever heard the story of long and wrong?  Well it sucks!
 
 
 
 
 
 
 
 
 
Here are a couple of quick charts or PL Graphs.
 
Nick has been wondering what it would be like to be a pinball inside a pinball machine; as the players simply run things up; but the ball gets whipsawed on every move.
 


 
How much extra margin did these trades add?  No CLUE!  But if I had to guess I would figure nearly the margin that they added to his bottom line; which if he exited today at the closes was up nearly 3 million and now with projections has a chance to be up 17 million ish on an unchanged market and about 18.5 million up 20 cents or so from here.  So that it self isn’t bad; but frankly everything else about Nick’s system isn’t exactly fun when considering the stress associated with the decisions he is having to make.
Soybeans where adjusted via the sale of  35 of the 12.00 puts, 35 of the 13.00 puts, 250 of the 14.00 calls, and 300 of the 13.00 calls.  Total premium collected was about 1.2 million.
Sold 40 of the 7.00 puts, sold 200 of the 7.70 calls, and sold 100 of the 8.50 calls.  Collected a premium of about  ½ of a million. 
Wheat he wasn’t as out of whack but he still had to add the following trades
If we end at or near these level he did add an additional 2.1 million in premium collection.
For corn he sold 105 of the 6.50 puts, 360 of the 7.50 calls, and 1,000 of the 700 calls.  Boy it looks like he paid another years college for his broker.
Today’s trades for Nick where once again all sales of options and all July options.
Now let’s assume that Nick hasn’t already jumped ship, his wife still by his side, and his banker well he is probably sweating more then Nick at night.  Assuming all the bad things that in reality probably happened; don’t or didn’t happen to Nick he went on today and once again adjusted his position.  (The one thing I am learning is one needs to have deeper then deep pocked books if you want to try anything close to this out of the box strategy.  Be prepared to bet everything and then some) 

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