In this report

Executive summary

For another year, I’ve had the great fortune of writing Excell with Options. I really appreciate the opportunity to talk about financial markets with people. The goal from the beginning was not to produce trade ideas that will make money for people. It is to show people what is possible in using options to express your views. Can you leverage your ideas so you can be more profitable? More importantly, can you build in protection for your idea in the event you are not correct in your view? That is the beauty of using options in the implementation of ideas – one can more specifically fit the needs of their portfolio. 

However, after 30 years in the market with over 20 of those on the buyside, I also know people want to assess the ideas they are being shown. I can tell you that I wasn’t trying to put out ideas to make you money and you might say that is a cop out. Heck, if I were in your seat, I would say the same thing. Thus, last year I decided to go through all the ideas to see what I did well and what I did not do well. This is a process that I would recommend all traders go through. While doing this, one can discern if there is a bias in their approach. Maybe one can also see that they are more successful in some products than in others, or in some time horizons and not others. 

That is what I aim to do as well. I will break the ideas into seven different products – Rates, Equities, Agriculture, Energy, Metals, FX and Cryptocurrencies – and discuss the ideas I had over the year and how they turned out. All in all, it wasn’t a bad year despite being too biased toward mean reversion for most of the year. But I will let you be the judge of that. Here we go.


Interest Rates in 2023 – SOFR, 2-Year futures and 10-Year futures

We started the year with a discussion of SOFR futures and options. For many it was still an adjustment after years of LIBOR. However, SOFR has established itself as the go-to product in short-term interest rate derivatives. Already in January I was looking at market expectations vs. a possible FOMC policy path. It may be difficult to remember, but the market was pricing in rate cuts as early as June despite the FOMC being much more hawkish. My first idea was to sell a June 95.25 straddle and to hedge one leg by buying a June 95 put. The idea was that the interest rate market would calm down but if anything, there was a risk to tighter FOMC policy. Futures were 95.15 when the idea was put out and ended up settling at 94.40 in June. Since I had recommended buying the 95 put, if looked at purely on a breakeven basis, this trade was a scratch. However, we can’t forget there was a spike to 96 in the futures in March around the banking crisis. Because of this, one might suggest it was a losing trade. I think that is fair, however, I positioned it as a breakeven trade and given where we closed, I still think it is a scratch. 

In April, I took another stab at SOFR options this time looking at mid-curve options and focusing on inflation expectations. The idea also sought to take advantage of skew which was favoring call options, so I recommended selling 1 TS2M3 95.50 call and using the proceeds to buying 2 TS2M3 95 puts. I took in a small amount of premium to do so. The future was 95.375 when I recommended the idea and by expiration, the future closed at 94.75, thus my structure which took in some premium, also closed below the long put strike, so I would call this trade a winner. 

As the summer was ending, it was then time to look at 2-Year futures, again with a focus on inflation. Inflation after all has been a powerful theme throughout 2023, even as we end the year. The idea here also looked at what was driving inflation, namely oil, and factored in the cross correlation between 2-Year futures and oil. The idea was that there was little volatility priced into options on 2-Year futures so traders would be well-served to get long implied volatility before the data. Futures were 101.22 and I recommended a 101.75 straddle.  Breakevens were 101.10 and 102.06 and implied volatility was 2.4 if one wanted to delta hedge the straddle instead. With a low of only 101.02, and close near 101.22, the trade was not successful on a breakeven basis. As historical volatility was in the 1.50-2.00 range over the life of the option, it was a loser on a delta hedging basis too. Three trades in and I am 1-1-1 heading into the last trade. 

I was given a chance to redeem myself with the last trade of the year, meaning rates ideas perfectly bookended the Excell with Options this year. In the last blog written in early December, I looked at a calendar spread around the FOMC meeting in December. The notion was the market would be relatively calm before the FOMC, with a possible catalyst being the meeting. The focus was on the 10-Year options, and I looked to a Dec 8- Dec 22 110 call spread with futures at 108.25. As I write this, the FOMC meeting has not yet happened. However, in the interim period, futures traded up to 110.10 by December 8. As I wrote in the piece, a trader would have a decision as to what to do if we ended up near or just above strike at expiration. As I look at it, I can assess it in two ways. First, there was a net premium paid in the spread but given implied volatility moved higher as the futures did, one could trade out of the long calls even as they covered the futures against the expiring December 8 and net a profit from the spread. From this standpoint, the spread was a winner even though it did not work out exactly as planned. On the other hand, a trader may say that the reason to get long the December 22 calls was to be long gamma for the FOMC catalyst. If this is the case, the trader would need to buy back half of the futures they got short from expiration, in which case they would be long a December 22, 110 strike straddle for the FOMC meeting. The jury is still out on this way to trade out of the idea but given one could simply have traded out at the first expiration for a profit, I would say it may turn out to be a winner. 

All in all, not great but not bad either. Two winners, a loser, and a scratch, subject to some interpretation. The rates market wasn’t too bad to me this year. How about FX?

Foreign Exchange in 2023 – Japanese yen, euro, Australian dollar

For the next four reports over the year, I turned to the Foreign Exchange market. I cut my teeth in FX, starting here as an intern during college, and then getting my badge on the CME right after graduation. I love to look at the FX markets because I think there is a lot of information in them about how money is flowing around the globe. For me, investors assess where they can generate the highest risk-adjusted return on capital and allocate there, then we can see the actions taken in the trends of the FX market. I always find something interesting. 

We started the year in the middle of February looking at the yen. I think the yen is probably the best risk-on, risk-off tool we have in the markets. Given the extensive capital surplus in Japan, the moves in the yen can be indicative of how global investors view the landscape. The idea in February was to assess the new Bank of Japan Governor and what this might mean for changing monetary policy and changing flows of capital. My thought was that the yen was on the cusp of breaking down. I looked at the skew levels and the tentative support the yen was perched above. I suggested selling a yen call spread for April 6 and using the proceeds to buy 2 yen puts. I suggested call spreads in case there was intervention in FX by the BOJ as a trader can’t be short that tail. The call spread strikes were closer than the puts, but I thought if yen broke, it could be a sizable move. The idea would make money if the Yen was below 72.50, it would breakeven from 72.50 to 78 and would lose above 80. Futures ultimately had a move from 75 to 72.75 and then rallied to 77 before settling again at 75. Given a trader had the opportunity to trade out of this position, even if the settle was essentially where we started, I feel it is fair to call this trade a winner. After all, not every trade, in fact very few trades, are carried to expiration. We are looking for profiles that allow us to leverage and trade out of an idea when it moves in our direction, or which provides insurance, so we don’t need to trade out when it doesn’t. On this front, the idea fits the profile of winning trade.

In May it was time to come back to the FX market because we were beginning the U.S. debt ceiling debate. The thought here is that the U.S. Treasury is very reliant on foreign investors to buy the U.S. debt. In the write-up, I looked across various FX markets to see where there might be a dislocation between futures and interest rate differentials, money supply differentials or economic differential. The market that stood out the most to me was EUR/USD. I was focused on a move higher in EUR vs. the USD and so I sold a 1.0800-1.0650 put spread and used the money to buy a 1.1025 call. Futures were 1.0900 at the time. The trade would win if global investors got worried about the ability of the U.S. to fund itself and weaken the dollar. As the can was kicked down the road, this concern never came to fruition. The dollar rallied and the currency pair ended up settling at 1.0725. No other way to cut it, this trade was a loser.

I came back to FX in July and by now the focus was on China and whether there would be stimulus in the latter half of the year because of the struggling Chinese economy. I looked at many measures that showed the struggles. We discussed CNH but focused mostly on AUD/USD, which is highly correlated to China’s economy. The idea was that either China would stimulate, and you could see a positive move in products correlated to the economy, or if there was no stimulus, you might see a big move in the opposite direction. I used a STRAP which is a straddle that adds a leg, and so a directional bias, in the direction one is most leaning. I bought a .6750 put and two .6750 calls. The breakeven for the idea was .655 and .6850 with futures at .6700. This idea was working before the Excell with Options was even published, as futures climbed to .6900 as it came out. In the subsequent weeks, as no stimulus appeared the AUD proceeded to collapse to .6478 by expiration. Thus, the futures moved above the breakeven on the upside and below on the downside. It was a position on volatility and boy did we ever get volatility.

The last FX piece of the year came back to EUR/USD and discussed the market idea that we might be going back to parity. Still reeling from my position against the dollar earlier in the year, I hypothesized that there was still plenty of volatility in the pair, certainly more than the market was pricing. I bought a 1.04-1.06 strangle with futures at 1.0588, skewing my strikes lower because I felt if it moved lower, volatility would pick up and I wanted to have the strikes that had the most vega on a move lower. However, the idea also had a good breakeven on the topside in case we moved higher. In fact, the breakevens were 1.0803 and 1.0170 and the implied volatility at the time of trade was 7.6. Futures moved higher to 1.07 before we even published, and then continued even higher to 1.10 by expiration. The implied volatility for the strikes we bought stayed around 7.0 so we didn’t give back much on vega and made a lot on our deltas. All in all, a winner.

I would argue that in FX this year, I went 3 and 1. I know some may suggest the initial trade wasn’t a winner, but one could have traded out. Worst case, it was 2-1-1 and so I would say it was a good year in FX.

Agriculture in 2023 – Corn, Wheat, New Crop Corn and Feeder Cattle

I love agriculture. I admit that prior to writing the Excell with Options, I only sparingly traded agriculture. It always seemed like a market of people who knew a lot more than I did. However, the more I dug in, and the more I saw the liquidity improving across a range of products, I got more and more interested. Now, it is one of my favorite products to write about because there are so many potential catalysts in the market – geopolitics, weather, inflation, seasonality.

I also wrote about agriculture four times in 2023. The first report came out in March, as I looked at New Crop Corn and assessed the prospective plantings report, yet another catalyst in the product. I looked not only at the futures spread between May and December, but also the implied volatility spread between the two expirations. All was done with an eye toward the possible catalyst on March 31. I looked to sell 615 puts that settled into the May future and buy two 590 calls that settled into the December futures for zero cost, using skew, volatility spreads and futures spreads to my benefit. The report ended up being a non-event, but the May-December futures spread did move as I had hoped. The problem was the May futures rallied and the December futures didn’t really go anywhere. Thus, my calls on the December future expired worthless on the day of the report, and so even though the futures eventually rallied to 627, I did not participate. It ended up being a scratch.

I was back in May with a chance to redeem myself. This time the potential catalyst was the WASDE report on May 12 but also the Black Sea agreement which had a deadline of May 18. I looked at ideas in both Corn and Wheat for traders who may have different views based on the geopolitical backdrop that might affect Wheat more than Corn. I looked at short-dated calendars where I sold one May 19 620 call and used the proceeds to buy two May 12 620 calls as I thought the Black Sea agreement was not important for Corn, but the WASDE report was. The futures were 579 at the time. I took in a small amount of premium to do this. After the report, futures traded much lower as record numbers were anticipated in Corn. Both options expired worthless but since I took in some premium, it was a small winner.

On the Wheat side, I felt the opposite as Corn. I felt the Black Sea agreement was a bigger catalyst than WASDE. Thus, I sold a May 12 640 call and bought a May 26 670 call. Futures were 620 at the time and moved up to 663 after the May 12 expiration so the short 640 calls expired worthless, and I was left long the 670 calls. These still expired worthless but I had a chance to trade out for a gain so I would still call this a small winner.

Moving into June and now the possible catalyst was the acreage report (you see what I mean about agriculture and all the catalysts? How can you not love options ideas in this product?).  This time I ventured out and gave three ideas – one for the bulls and two for the bears. For the bulls I suggested if you were long December futures, you should add leverage to your view by adding a 590-650 1 by 2 call spread. As I said, this would mean the resulting position was long a 590-650 call spread and a 650 buy write. Futures were 559. Futures rallied to 616 before collapsing to 502 and then continuing to grind even lower. I could call this trade a loser, but it really did no worse than being long futures. For the bears, I suggested approximating binary traders by looking at put spreads with very tight strikes such as 525-520. The idea was that the premium is very low so you can essentially do as many as you wanted to have a binary position of futures being below 520 at expiration. For the bold, I said you could even make this zero cost by selling the 580-585 call spread to fund it. Futures ultimately fell below 520 at expiration meaning the put binaries were a winner. Even if you funded the idea with the call binary, it is possible you could have withstood the volatility. Since the core view was for bears, and these binaries would do better than futures, I call this a winner. So, a mixed bag between the ideas.

The last ag idea of the year came in September, when I looked at the feeder cattle market and posited what an El Nino might mean for futures spreads and volatility spreads. I was focused on the November – January spread and suggested buying January puts and using November puts to fund the idea. It was not zero cost, but it did allow me to reduce the cost. The futures spread never really changed but given I was long a 265 put in January and short a 255 put in November and only paid 4.50 for the spread, the fact that both ended up in the money means I made the difference between the strikes (10) or doubled my money. It didn’t work out exactly as I had hoped – I hoped November would go out worthless before the collapse in futures – but it still made me money.

Looking back across the year, I had a number of winners, and I had the one report that was split. I think the best part was helping to show how many different types of catalysts there are in the product, how one could also incorporate the futures spreads, and therefore how one could structure ideas that could win even if things didn’t pan out exactly as hoped.

Metals in 2023 – Gold and Aluminum

There were two reports on metals in 2023, one about gold and one on aluminum. Given one ended up being a loser and one was a scratch, it may be a good thing I didn’t write more about it. Let’s look at why I struggled.

At the end of March, I wrote about gold. The idea here was that there was a big disconnect between real rates and Gold futures. There was also a disconnect between futures and the shares outstanding in the gold ETF. The thought was that futures might move lower to reestablish this connection, so I wanted a bearish idea. Instead of simply buying puts, I wanted to add leverage to the idea by selling a call spread to fund the put purchase. I looked at early April expiration and sold a 2025-2075 call spread and bought 1930 puts. Futures were 2000 at the time and moved to 2040, or above the strike of the calls, by expiration. No other way to say it but this trade was a loser. Perhaps what I got wrong was that there were many macro events going on at the time, and thus looking for mean reversion during this was perhaps too optimistic. Maybe I got greedy by trying to make the idea zero cost, meaning I lost more money than if I would have just bought the puts. Guilty on both fronts. It was just one of those ideas you hope to learn from.

I did get a chance to come back to metals in September. This time, I was focused on all of the labor market news that was hitting the headlines, with the UAW strike beginning. The view was that this would dramatically slow auto production. This would have an outsized impact on aluminum given the high percentage of content in autos that is aluminum. I once again decided to sell a call spread to fund my puts (sometimes you never learn). Futures were 2200 and I bought 2100 puts, funded by a short 2300-2350 call spread. Futures spiked higher and never traded below my 2100 put strike. I can say the idea worked better than short futures because in spite of the move higher, we ended up below the 2300 strike at expiration. Thus, it was a scratch.

Tough year in metals in 2023. Back to the drawing board and time to focus on new ideas in 2024.

Cryptocurrencies in 2023 – Bitcoin and Ether

I didn’t fare much better in cryptocurrencies this year. In some ways this is surprising to me, because at the start of the year, in my Substack blog, I wrote that I thought the best disruptive technology this year was eher and not in the Nasdaq. Thus, I have been leaning long cryptocurrencies all year long. However, when it came time to find trade ideas for Excell with Options, it was more of a mixed bag. Let’s see what happened.

The first report was at the end of April and the focus was on the Shapella upgrade which would allow traders and investors who had staked their ether, and were locked in, to withdraw their ether. For me, this was a positive catalyst, because traders could access their ether and might then feel more free to use the network and even stake more ether because of the lessened restrictions. In the note I even talked about how the move from Proof of Work to Proof of Stake – The Merge – the previous year was a catalyst that fizzled. I was still bullish, however, and suggested a June split strike butterfly 2200-2500-2700 with the idea that the pace of the move higher might slowdown, but there would still be a bias to drift higher. Futures were 2100 at the time and by expiration, had fallen to 1850.  My bullishness despite knowing the last obvious catalyst was a fade was my downfall.

I was next at it at the end of August with a bit of an esoteric idea, looking at a relative value idea between Bitcoin and Ether. The idea revolved around financial conditions and how that should mean Ether should outperform Bitcoin. I recommended selling one October 29,000 call in Bitcoin and using the proceeds to buy sixteen October 1800 calls in Ether. However, by the end of the month, on the back of ETF headlines among other things, Bitcoin spiked to 35,000. Even though Ether moved higher to 1810, it could not keep up and my relative value idea failed.

I got one more chance at redemption in the second to last report of the year. This time, I looked at Bitcoin and saw it had a really good run this year. I suggested traders may still want to HODL (Hold On for Dear Life) given the halving next year, however, they could look at two different ideas to hedge out any near-term noise through January. I looked at both a put spread collar for January, where one would sell a 45,000 call to fund a 36,000-31,000 put spread. I also looked at a 45,000-55,000 1 by 2 call spread to overlay vs. long futures. The focus here was to show traders that by using the QuikStrike simulation tool, we could see the market to market for different scenarios of the underlying. Most would think the put spread collar would protect better on the downside than the 1 by 2 call spread. However, in the short term, given the mark to market effects, the 1 by 2 call spread would do just as well on the downside and would do better on the upside if that is what transpired. Thus, I suggested a 1 by 2 call spread to overlay vs. the futures. Futures proceeded to move from 38,000 to 45,000 before settling at 41,000 at the time of this writing so traders listening would have definitely been better off.

My bullishness on Ether certainly worked overall in 2023, however, it may have clouded my judgment in trading around the Shapella upgrade catalyst and in looking at a Bitcoin vs. Ether relative value trade. Another note to self to make sure your biases are not impacting rational decision-making.

Equity Index in 2023 – E-mini S&P 500 and Nasdaq 100

I hope I have a better run of it in equities, as I have struggled a bit in the last two products. I wrote about the equity market three times in Excell with Options, the first time coming at the end of January. This time I was looking at earnings as a catalyst and I asked if the E-mini S&P would breakdown or breakout when the news hit. With futures just over 4000, I suggested one could sell a 3920-3870 put spread to fund the purchased of 4150 calls, all for zero cost. Traders were short, the technicals pointed higher, so I wanted a bullish trade that was protected on the downside, because if I was wrong, there was a good amount of downside in my opinion. While futures settled below strike at 4100, they did trade to a high of 4208 and so traders who followed would clearly have been able to trade out at a profit.

Moving into June, I wasn’t as upbeat about the equity market. The concern was the liquidity that was coming out of the market as a result of the debt ceiling and the Treasury refunding. I believed the Nasdaq 100 would be the equity market that was most impact by declining liquidity. I decided to try a different type of idea, a jade lizard, for July expiration. This idea sold a 140-136 put spread and a 148 call. In addition, I suggested adding the small hedge (0.22 deltas) to make it delta neutral at exception. The breakevens on the idea were 13,770 and 15,384 vs. the futures at 14,703. Over the life of the options, liquidity was definitely not a concern, and futures rallied to 15,600 or above the breakeven. Thus, the trade was a loser, even if by a small amount.

The last equity report of the year came in October, where I was again looking at Nasdaq 100 options, but this time focused on the catalyst of an FOMC meeting. The idea there was to consider a trader who was long futures and was worried about the outcome of the FOMC meeting. What could they do? The options market was already putting a premium on puts so it was costly to hedge. Thus, I suggested the trader who wanted to hedge to consider a futures replacement idea, where they sold their future and bought calls instead. This effectively gave them the profile of a long in-the-money put. The idea had a breakeven of 14,855 when futures were at 14,992. It definitely would do better on a move lower than higher because a move higher would deliver equity exposure with the drag of premium, albeit lower than the puts. In addition, it was predicated on someone who wanted to hedge.  Well, the futures had quite the move between early October and early November, moving from 14,900 to 14,100 before rallying to 15,100. Given it had a better breakeven than puts, and that a trader could have traded out of the position and back into the futures I said they were long, I will call this idea a winner.

A bit better showing in the equity market than in the last two products. Maybe I am back on the right track. Time to look at the last product for the year.

Energy in 2023 – WTI Crude and Natural Gas

The last product I want to cover in the recap of the year is energy. I think energy is maybe the most interesting product right now, given all of the changing geopolitical winds, in addition to the domestic politics of an energy transition. If we add in the views on whether there is a hard or soft landing ahead, the energy space should continue to be a very good product for ideas in 2024. Importantly, how did we do in 2023?

I started in early March by looking at WTI. The idea here was to look at the 40th anniversary of the WTI product. It coincided with the Strategic Petroleum Reserve hitting a 40 year low as well. I anticipated a lot of potential moving parts with these drivers and differing opinions on demand so I suggested traders could buy April 76-80 strangles to take advantage of expected higher volatility going forward. Over the life of the options, crude moved from 77 to 65 and back to 83.50, so trading outside both breakevens and giving traders plenty of opportunity to re-hedge deltas. Definitely a winner.

In early July I moved to the Natural Gas market and thought we were about to breakout after a disastrous end to 2022 and start to 2023. I suggested selling an early July 2.85-2.65 put spread to buy a later July 3.20 call as a way to get long this breakout. However, futures which were 2.86 at the time, dropped to 2.65 by the first expiration and only rallied back to 2.75. While nat gas proceeded to rally later on, this idea was definitely a loser.

The next month, I moved back to WTI and was talking about global demand. I went for a very bullish idea, choosing to sell a weekly 76 call and use the proceeds to buy three of the 81 calls with futures at 78. This was quite bullish of me on these global demand drivers. Before the report was even published, futures had rallied to 81.30 and then proceeded to rally even further to 84.89. Definitely a winner on this idea too.

Can I end on a good note? I am 2 and 1 in energy for the year. What will the last idea be? In early November, I returned to Nat Gas. I am still bullish even though it had rallied after my last idea had expired. I am looking at a colder than expected winter, and while seasonality is already priced in to an extent, futures positioning and technical analysis kept me bullish though a little cautious. I looked at a broken wing butterfly, with strikes of 3.30-3.45-4.00. I paid .25 for this with futures at 3.48 and a breakeven at 3.67. Futures dropped to 3.10 before it was even published and then went further to 3.00. Since we traded below the lowest strike, I only lost the small premium paid, so it could have been worse, but was a losing idea nonetheless.

Thank you for reading Excell with Options in 2023

I wrote twenty-four reports for Excell with Options this year. By my count, my track record was 12 winners, 9 losers and 3 scratches for a hit rate of 50%. However, the slugging percentage was much better with some big winners to my credit. Traders can certainly win with a hit rate of 50% especially if they are smart about implementation and keep losses small when they are wrong and have good leverage when they are right. That is what I hoped to do this year. 

While I certainly struggled in some products, I did much better in others. I will keep this in mind in 2024 and keep learning from my mistakes and keeping my biases (like mean reversion) out of my process. 

I hope you enjoyed the Excell with Options this year and will continue reading. I know I enjoyed writing all of the posts this year. 

I wish you the happiest of holidays and most prosperous of new years. Good luck trading!

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