During Recent Market Carnage, OTS Locked In 16.80%, 32.20%, & 41.49%

As we move into Quarter end, many investors and traders suffered a sizable drawdown in mid to late June. As a professional trader, a focus on implied volatility, probability of success, and a typically contrarian market view have served members well since the inception of this service back in December of 2010. A summarized description of recent action in the OTS Portfolio is described below.

On June 13th the OTS Portfolio took a Put Debit Spread on VXX. The reasoning behind the trade was the expectation that volatility would decline going into triple witching on Friday’s expiration. As expected, volatility contracted and on June 19th the VXX position was closed for a gross gain per spread of $21. The maximum risk per spread was $125 so the trade produced a gross gain of around 16.80%.

While volatility contraction going into triple or quadruple witching is a high probability event, it is not a certainty. However, as can be seen above the trade worked nicely and we were able to exit with a tidy profit with a very short-term holding period.

The 2nd trade that was closed for strong gains was a MA Put Diagonal Spread. The trade was entered on June 19th and was subsequently closed on June 20th for a holding period of less than 36 hours. The trade produced a gross gain per spread of $285 on maximum risk of $885. Thus, the trade produced a gross gain of 32.20% on maximum risk per spread.

As can be seen above, MA was trading near the top of its recent price range and we used a diagonal spread to take advantage of time decay and lower prices. Obviously we saw a big selloff transpire in MA shortly after entry and the trade structure produced some strong gains for the OTS Portfolio.

The final trade that was closed prior to the June monthly option expiration was an AMZN July Put Butterfly Spread. AMZN was trading near the top of its recent price range and as a contrarian I took a short position that would capture time decay and profit from a decrease in the AMZN stock price. The trade was entered in the OTS Portfolio on June 18th and was closed on June 20th.

The AMZN Put Butterfly Spread took a maximum risk of $470 per spread. The trade produced a gross gain of $195 per spread. Thus the overall gross return on maximum risk was 41.49% per spread. As can be seen below in the chart, the position was net short AMZN and members entered the trade right before a large selloff transpired.


Ultimately AMZN fell further, but we were able to lock in some nice gains in a short period of time. Typically the OTS strategy focuses on entering a lot of trades and locking in profits quickly. My goal is to take at least 2 – 3 new positions each week while managing other open positions.

The majority of opened trades have a better than 50% probability of success based on the implied volatility levels at the time of entry. I typically focus on a probability of success at the time of entry between 60 – 80% and my track record has about roughly a 70% probability of success on all trades entered since the OTS Portfolio inception.

Right now I have been slow to add any new positions into this bounce higher in equity prices, but if prices continue to drift higher the rest of Thursday and into tomorrow I will likely begin looking at the short side again in specific names in the near future. This week I have been pretty quiet in terms of new positions, but I suspect that I will start to get busy on Friday and into the early part of next week with new positions.

Obviously the recent performance has been outstanding, but most long-term members would tell you that the service helps teach option traders how a professional option trader views the marketplace with a focus primarily on probability driven trading where implied volatility and time decay are commonly the primary profit engines for trade entry. The service is a great value from an educational standpoint and I welcome you to give it a try. Happy Trading!