Papale on Managing Holiday Positions

By Steve Papale

The obvious thing I should write here is something about its been a great 2015 and happy 2016, best wishes, health, happiness, love, etc.  Well I could say all that but instead I’ll just say “Felice Anno Nuevo” and “avere un benedetto 2016”  and finally “migliori auguri , la salute, la felicità e l’amore”.  Oh yeah, I’m Italian.

During these holiday weeks things seem to slow down when it comes to trading.  Lot’s of market participants head home and markets tend to have less participants than normal.  Back in the day when I was a floor trader, I too left for days or longer to spend time with family and friends.  Of course, as a trader your never really completely remove from the markets.  But I had a particular procedure I conducted each time I left for a few days or ahead of a long weekend.  Pretty simple really but very helpful.

Just before I was ready to leave I would look over all my positions and greeks to make sure I was flat.  Being away from the floor and in those days online access was not what it is today, if markets got crazy it was hard to make any adjustments.  What I would then do is advance the days in my model forward to the day I was coming back.  So if it was a Thursday and I was coming back on Monday, I would run the position with 4 days removed.  It was then like looking at a position report when I got in Monday morning.

Remember there are 3 things that change our options valuations and greeks – implied volatility, underlying price and time.  Can’t predict the first two.  But by taking out the days I could see how all the greeks – delta, gamma, theta and vega were going to look when I walked in to work on Monday morning. So I would now flatten out the position based on what I would be seeing on Monday morning.  With online access so easy now and many of our positions being more managed based on P/L or underlying level, this may not seem like such a big deal now.  And of course the OptionVue software shows the effect of time on greeks via the T lines.  But the takeaway here is always anticipate and look ahead at your positions.  We teach this strongly in the mentoring program when covering risk management.  Any information we can capture and use can only help our trading.  Have a happy and properous 2016.

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