Archive for the ‘Harvey's Tools’ Category

How I’m making money with the SPY

August 6th, 2012

Here’s how I’m making money with the SPY.



I make a profit anywhere above SPY=$121.

This started off as a skillet, but as the price went up, I got a margin call on the 149 short calls. (Only time I’ve ever got a margin call while making a profit )

So I covered them for a few cents. I kept them in the table, but with the Number set to 0.

(It was pretty silly of me to sell them in the first place at .01. I only did it for the foolish consistency of keeping the skillet symmetrical. It also lowered my margin requirement a little.)

Now, I have a completely free run on the upside.

This is probably a good strategy to use whenever you’re bullish. You not on;y make money on the upside, but even for a long way on the downside.

Last month was great – I pulled in over $8K. I had more trouble getting good deals this month, but it looks like I’ll get over $5K.

I will get more bang for the required margin buck if I use this method on less expensive stocks. SPY and GLD are a bit too expensive, but I’ve been using them because they’re so liquid and have options that go way out in both directions.

Harvey Frey


May 22nd, 2012

You give the program a list of stocks, typically similar in some respect, and you want to decide which are better.

- The program looks up or calculates several criteria that people might be interested in to compare stocks, and lists them for each stock.
- But most people don’t have a feel for what’s a good or bad value for most of those criteria.
- Where the criteria have a clear direction from best to worst, it computes the deciles of the criteria and color codes the boxes. If there’s no clear better/worse direction, It leaves the boxes white.
- So if a stock is among the top 10% of stocks on that criterion, it’s colored bright green, if among the worst 10%, it’s colored bright red, with steps in between, so for a stock that’s in the middle 10% of that criterion, the box is a kind of brown.
- So you can scan across a row, and a lot of green boxes are good, and a lot of red boxes are bad, or at least means you should think about whether that criterion matters to you for what you plan to do with the stock. If you’re planning on shorting, maybe a lot of reds are good.
- If you don’t know what the criterion definitions are, there’s a link at the bottom that goes to a page that explains them all.

Here is an example:

GLD hedge with a potential for $4000 for the month

May 20th, 2012

A couple of months ago I wrote a broad symmetrical hedge on GLD, expiring in June.

With the Euro so parlous, I expected GLD to rise, but it has dropped dramatically, though not yet at my stop loss point.

I was considering aggressively protecting my left flank by writing a cash-positive ratio straddle on that end.

But, since I don’t understand why GLD is dropping, and therefore having no idea of how far it could drop, I decided instead to liquidate at a modest $400 profit.

Now I’ve written a new June hedge, centered at the current price, bringing in apx. $900 but with a potential for $4000 for the month.

It’s a narrow long strangle and a wide short strangle. I call it a ’skillet’, because it has a flat profit in the middle, sloping up to the edge, and then falling steeply into the fire.


Black line is profit at expiration.
Red lines are stop loss points.
Blue lines are the predicted profit curves before expiration. They’re labeled (on the right) with the days left till expiration.
Green lines are current price, flanked by historic probabilities of one-day moves each way, 80%, 95%, and 99.9%.

-Harvey Frey

Harvey’s tools can predict the future

April 23rd, 2012

We are constantly working on tools to help visualize option trading.  The latest tools graph out complex multi-position strategies.

Take, for example, the following complex strategy:

Buy 10 170 calls (~2.04) Bought @ 1.64

Sell 20 176 calls (~1.06) Sold @ .85

Buy 10 150 puts (~1.8) Bought @ 2.25

Sell 10 145 puts (~1.02) Sold @ 1.305

Buy 3  160 calls (~5.44) Bought @ 4.67

Sell 6 166 calls (~2.99) Sold @ 2.50

Buy 3 160 puts (~5.12) Bought @ 6.06

Sell 6 155 puts (~2.95) Sold @ 3.65

This is an eight position double butterfly ratio spread on GLD, the gold ETF, when Gld was at $159.31.  The break even points are 141.62 and 180.38.  Anything outside of that range starts to create a loss.  Stop losses are set at 146 and 175, but one should not rely on stop losses.

Harvey’s Manage Hedges tool permits you to predict the profit or loss BEFORE EXPIRATION by doing a statistical analysis of the past three years to see what the odds are of a movement during any one period that would put the position into a loss.

When graphed out it looks like this:

Predict the profit or loss BEFORE EXPIRATION

The blue lines are for 60, 50, 40, 30, 20, 10, and 5 days remaining. The dark green vertical line is today’s price, and that there are 3 sets of brackets describing the probability of a 1 day move, in progressively lighter shades of green – a 20% chance, a 5% chance, and a once in 3 year chance.

You can see how they approach the black curve, which is the value at expiration. Before looking at the graph we thought that this was a pretty safe bet.  But after seeing the graph it became clear that the break-even points are much closer than we thought until we get within a few weeks of expiration.

With a major investment, users would be able to adjust their stop loss points daily.