The Freedom Factory

Sen. Rockefeller proposes bill that would give government sweeping powers to control, monitor, and regulate the Internet, ACLU demands public schools stop blocking gay web sites on public computers, Rep. Jane Harman calls incriminating NSA wiretap “abuse of power,” National Service legislation signed into law that will cost $6 billion over 5 years by hiring “paid volunteers,” government will need to issue $2.4 trillion in new Treasury securities in 2009 to meet budget shortfalls and bailout program requirements, and U.S. to give another $5.5 billion to automakers… Continue Reading

This is the fifth consecutive week of losses for the Fund, with a 5.28% decline due to continued foreign currency and commodity declines. The bulk of our losses (~ 4%) are dirctly attributable to capital loss on our long natural gas hedge, namely ITM call options for Chesapeake Energy (CHK). The remainder of losses are comprised of adverse downward movement in the utility sector and further declines in euro. On a positive note, our hedging operations on euro prevented significant loss with uncharacteristicly severe downward price movement. Current spread ratios prevent further downward loss on that insurance bet, and even open the possibility of capital gains if prices further deteriorate.

The Fund lost 2.05% this week, closing out a terrible month with a total loss of 25% for August. Despite increased precautions in our risk management approach, we suffered severe losses driven by currency markets. Unprecedented appreciation in US dollar hit us hard on multiple euro bets, and also took a toll on our commodities positions. Overall, the Fund is down 4.59% since inception. Continue Reading

The Fund had its two worst weeks since inception with the close of August contracts. We lost 12.87% last week, which followed a 11.44% loss the previous week. The good thing about trading one month duration contracts is that the pain is over. All bad assets have expired and are no longer on our books. VPAG is now fully invested in September contracts, with all positions well within acceptable risk parameters. Expect a slight dip this week followed by gains through expiration on 9/19. Continue Reading

The Fund closed out the week with a 2.57% gain,  bringing July performance up to 11.98%. Overall, the Fund is up 27% since inception in March. Higher than normal volatility across all asset classes made for a tough month, but the Fund pulled out well ahead of our benchmark. Our portfolio is currently 85% invested with a 15% cash reserve. All positions remain well within acceptable risk parameters, leaving the porftfolio in a strong position going into August options expiration on the 15th.    

June results are in, with VPAG earning 13.87% for the month. We closed out the week with a flat gain of 0.15%, while the overall Fund’s return since inception is 10.26%. Two-thirds of our portfolio is currently allocated in July ’08 contracts, written on U.S. small cap stocks, long term bonds, real estate sector stocks, oil, and natural gas. One-third of the portfolio is in cash, to be partially allocated over the next couple weeks. Continue Reading

Iron condor credit spread strategies are particularly vulnerable to severe market movements, either up or down. For a portfolio predominantly allocated towards this trading strategy there are certain steps one should consider to protect against potentially catastrophic events.

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Government policy drives markets. With trillions of dollars being spent by Congress and doled out by the Federal Reserve in one bailout plan after another, we all need to think about how these programs will affect our financial positions.

Will we experience hyperinflation, the kind that can wipe out our life savings? Or will these targeted bailouts stimulate tremendous growth in certain industries?

In one of my favorite movies, Rounders, Matt Damon relates that in poker “if you can’t spot the sucker in the first half hour at the table…you are the sucker.” Read my book, Obamanomics: How To Invest Over the Next Administration to make sure government policies don’t make you the sucker!

Spread strategies are the cornerstone of writing options for income. The following wikipedia link offers a nice overview. The spreads I advocate and actively trade are vertical spreads that involve simultaneously buying and selling contracts with varying strike prices on the same underlying security, with the same time to expiration. Furthermore, I strongly advocate constructing net credit positions in which you exploit the time decaying nature of option prices. There are three strategies that fall into this category:

Bear Call Spread

Bear call spreads involve constructing a call spread that makes money if the underlying asset does not settle above a set strike price at expiration. For instance, I currently have a Sep07 520/530 call spread on GOOG. I sold 520′s and bought 530′s, netting a credit to my account since the 520′s are more valuable than the 530′s. I have a 100% win if GOOG settles below 520 on the 21st of the month, so keep your fingers crossed!

Bull Put Spread

Bull put spreads are constructed by simulatanously selling and buying puts with varying strikes on the same underlying security with the same time to expiration. The position earns maximum profit when the asset’s price settles above the strike of the put you sold. A current example in my portoflio is a Sep07 470/480 bull put spread on GOOG, in which I sold 480′s and bought 470′s.

Condor Spread

The condor spread is my personal favorite. This position is constructed by simultanously implementing the previous two strategies. The 520/530 call and 470/480 put spreads on GOOG are two legs of a condor. The above profit-loss diagram shows that maximum profit occurs if GOOG settles between 480 and 520 on the 21st of September.

The margin requirement for a spread is the difference between strikes (the spread) minus the credit received. In each condor leg there is a spread of 10, which is multipled by 100 shares per contract, for a total margin requirement of $1,000 minus the credit received. This adjusted figure is the amount of collateral my broker requires I keep in cash to cover my trades.

The most you can lose in any of these trades is the margin requirment.

The great thing about condor’s is that credit from both legs is subtracted from the same per-leg margin requirement, which can significantly lower the figure. Rather than adding each $1,000 leg, the total requirement for both legs is that amount. This is because the legs are perfectly negatively correlated and the underlying security can only assume one value at expiration (It cannot be both below 480 and above 520!) This is a great way to maximize ROIC and bound risk.

Getting Started With Iron Condors.: With real estate prices still falling, stocks whipping around like crazy, and even U.S. Treasury bonds becoming increasingly risky, it pays to investigate alternative forms of investing. One method I use regularly is selling market insurance.

Every investment involves risk and everyone has their own objectives. Some people want low risk and are OK with low returns. Iron Condor trading strategies turn these people into your clients.

Learn how to use options to start your own insurance business, having the market pay you to insure its risks. Get paid regular premiums every month! This Iron Condor trading system will teach you how to become your own insurance company, managing the market risks you assume. Don’t go into this blindly! Learn how the experts use options to generate steady income.

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