Matthew Whiz Buckley

Matthew Whiz Buckley
Contributor since: 2012
Company: Top Gun Options
This trade is currently up 133% or $600.
-4.40 is the max risk per contract. We're taking in .60 and it's a $5 wide spread.
We have various risk management criteria at Top Gun Options and the contract size reflects that.
Adjusting contract size obviously will impact the risk vs reward ratio. This was also a weekly trade. 4 days.
Seeking Alpha has long or short as their publishing options...they're not fully up to speed on options terminology.
We're selling a Bull Put Spread which technically makes us short since we sold the spread.
Hope this helps.
I haven't met a human yet that can predict what the right side of the chart will be.
Not one.
Christopher -
I could not agree more.
Vol is historically cheap at these levels.
Time to become the house and start selling some hurricane insurance while the sun is shinning. If anyone thinks vol is going to stay down here with an election between a socialist and a capitlaist, a war in Syria/Iran/Israel, and a coming fiscal cliff, I've got a bridge to sell you that Ted Kennedy liked to use.
When vol is cheap you buy it. When vol is expensive you sell it.
I'm getting long vol like you read about in 'Getting Long on Vol' monthly.
Jimmcv99 -
The Top Gun Options Primary Model Portfolio (PMP) is up over 70% since I became the PM on 1 March.
In May, the worst month in 2 years in the market, the PMP was up 32%.
You can take a test flight here and see for yourself:
Jabbertherapy -
Care to expand a little on your sophomoric driveby?
Lephturn -
It's a proprietary tool we use at Top Gun Options.
You can give it a test flight here:
Thanks for all your comments and questions, I will look to knock these out as soon as possible.
Suzerain -
I strongly disagree. There's a 'simple reason' you have posted this comment -
You obviously do not monitor your positions or have stops/limit orders on your trades. At Top Gun Options we close one spread in our iron condors if it looks like we're going to lose 50% of the credit we collected on that leg. And based on our trading SOP (standard operating procedures) we usually make this decision long before we get close to 50% loss. We can either roll the spread up/down and/or out, in addition to closing the profitable spread and/or rolling that up/down for additional credit.
Iron condor's are not 'set it and forget it' trades. If you're letting a 'spike' wipe out your profit for the entire year you're simply not managing it right in my opinion.
We employ the iron condor only in certain market conditions and only on certain symbols based on our experience. Our Primary Model Portfolio is up over 40% in the past 3 months - 3 months that have seen some large market swings and events.
Best of luck.
There are a couple ways we manage iron condors at Top Gun Options.
1. We know our max risk before going into the trade so we know if we do nothing, how much we can potentially lose.
2. At Top Gun Options, one of our trading rules of engagement is that we will close the losing spread in an iron condor if we lose 50% of the premium collected.
3. Finally, we can roll up or down the profitable leg, while doing the same with the unprofitable leg. With an iron condor we want to split the uprights, but if we shank it towards one of the uprights, we can simply move the uprights...something I think kicker's at FSU wish they could do ;)
Thanks Dan! Not asking you to risk any money, that's between you and your registered investment adviser, financial adviser, or broker dealer.
My column is meant to teach people about potential rewards and risks with options.
Thanks Fastball.
Expectancy is a proprietary calculation we do at Top Gun Options as part of our risk management and trading SOPs.
Joshua -
Agreed - when you post an article the wizard only allows you to put long or short, it's built for stocks, not options. They're working on this.
You're right, at Top Gun Options we're long MGM and using cash secured puts and if assigned, covered calls, to generate consistent income.
This spread could be bought back right now for .14, a profit of .17.
That's a fairly nice return in a week.
Kelly -
You're not confused imo, you're right on. At Top Gun Options one of our trading rules of engagement is:
When vol is cheap, you buy it.
When vol is expensive, you sell it.
A lot of roads lead to Rome, this is the one we took in this case because we like collecting premium and liked the theta profile. But you're correct, based on the market stall for the past couple days this trade is very profitable, as would have been a call spread.
In our Advanced Model Portfolio we tend to trade straddles and strangles around earnings to take advantage of the rise in implied vol and vol crush and this earnings season has provided some great opportunities to employ these tactics.
Happy hunting and make sure you hedge!
Hi Montgomery -
The VXX has not traded below it its entire existence. Could it during the time frame of the trade? You bet.
But looking at the techincals and the seasonality of what historically happens in May, along with Greek and French elections on May 6th where it looks like the 'keep on partying crowd' will be voted in, and a jobs report this Friday after a poor ADP report today, we just don't see vol in the VXX falling below 15. We bought the 14 put as a hedge so our loss is limited.
We entered another VXX trade in our model portfolio - a May 16/15 bull put spread x100.
We see vol increasing or maintaining the mid teens and not falling through 15 unless world peace breaks out...which we don't think is happening any time soon.
How did you derive Max. return probability = 71.73% ?

That number is based on the percentage chance that the price of the VXX will be above 15 at the expiration of the options. It is determined solely using the forecast volatility numbers and the log normal distribution that is generated. In this case I feel that the estimate is actually low because volatility is mean reverting and VXX is very unlikely to go below 15. I keep the number as it is because it gives me a sense of the probabilities of the trade, but in this case there is more to the trade than just that number.
What about break even high of 30.31? I would think the break even high at expiration would be 14.69 for VXX.
Top Gun Options Iron Condor Analysis spreadsheet was used for this calculation. The call strikes of 30 were just used as placeholders and the breakeven value of 30.31 should just be ignored.
What is the Expectancy of $1192 and how calculated?
Expectancy is calculated from the probabilities of the trade being successful or failing. It is just a rough measure of how much of an edge we have in the trade and NOT a specific prediction of the trade results. I use the forecast volatility value to generate a Log Normal distribution of possible outcomes of the trade and use those values to generate a Probability Weighted average result for the trade. Honestly this is very complex to answer in a quick post, but we talk about it in our Live Trade Briefs periodically.
Why would you trade this for .19 profit when you have to pay commission on 4 legs of the trade?
My VXX trade has a Max profit of $0.31. Even after $0.02 in commissions it still has a very respectable $0.27 profit on $0.69 margin cost. The only way I would be taking the $0.19 profit is if the market moved quickly in our direction, allowing us to take a smaller profit quickly. This is the smart decision if we can take the smaller quick profit, then reuse the money we just freed up for different trades. The $0.19 was only one possibility and one I would happily take if it happens.
Why not use $VIX options to construct a bullish trade on $VIX, so that you don't have to suffer from the constant negative roll that VXX is subject to because of contango?
The VIX options have a much wider spread ($0.05 - $0.10) when compared to the VXX ($0.01 - $0.02) and it would basically be impossible to do this specific trade with them.
I am not sure I understand the question.
We had no position in CRM before entering this position in the Advanced Model Portfolio. We entered into an Iron Condor under the assumption that we were getting a very good credit for the trade relative to the risks and that it was unlikely the CRM would drop below 125 or go above 175 before May 19th.
CRM has recently flattened out. The upper and lower limits on this trade are a significant distance from the current price of $156. The reason for the trade is to make money on a highly likely outcome.
If an investor believes that CRM is going down that is fine, they could employ a bear call spread. There is enough room for both of these trades to make money. There is $31 dollars between the current price and my short put. A short player has plenty of room to make money there before my position is hurt in any way.
We actually held this position through earnings with the reports of GOOG wanting to enter the NFLX space. We knew in addition to earnings that this news was going to depress the stock even more.
We got out of the position at $18.03 yesterday after the open for a healthy profit.
Travis -
I appreciate your comments. This is not a 'strategy' it's a 'tactic' and there are a lot of interpretations for window dressing, including the end of quarter selling of large winners.
But your second comment is correct - that's the trade we saw at Top Gun Options - AAPL had a heck of a run in Q1 and many held through the end. But at the first sign of 'fire', these institutions sold andit underwent it's recent 'correction'. Now that the room is empty the heavies are coming back in for Q2.
Regarded Solutions -
There are many roads to Rome, yours is one of them and your opinion.
We're both heading the same way.
Hi GrnWave -
Our trading rule of engagement with our Top Gun Options model portfolio says will will never risk more than 5% on any one trade. The Primary Model Portfolio is a notional $100k so the max risk in this trade is approximately 45k.
There were tighter spreads we looked at but with earnings next week we wanted our short strikes out enough to take advantage of the rise in implied vol but close enough to be worth it.
You bet!
Thanks for the kind words.
Normally I look at Vega risk as how far can the IV go against me if the assumptions for the trade fail.
If the trade is long volatility then I take a look at how low the IV has gotten on the particular stock and use that as a hypothetical floor. You could call it support if you wanted. This is specifically support for the Implied Volatility and has nothing to do with the price of the stock. To get a rough idea of the Vega risk I look at the current IV of the option and see how far it could drop before hitting this support. This difference is multiplied times the Vega value for the complete options position and it tells me how much I can lose if the IV goes against me.
These are all rough estimates and I use them to get a sense of the trade. It is a basic worst case scenario analysis I do.
Well said Mike.
I agree, I definitely see a pennant forming but based on fundamentals and current market environment I think the breakout will be to the upside.
The BE on the trade is 173.85 and we currently have a 76% probability of BE and a 75% probability of keeping all the premium we collected.
Position up over 17% in under a week.
Care to enlighten us as to why you 'don't think this will happen'?
Good article in the WSJ today and AAPL facing problems in Europe over subsidies.
I think AAPL is a little hypoxic at these levels imho.
You nailed it.
And behind them, or maybe in front of them are our own 'Greece's' -
CA and IL.
Loving this trade today, over $4600 in 3 days