Wrecking Ball Strategy
Sometimes when I get excessively “short” or “long” on something, I end up needing to use a special strategy, or a tool, to get things back in line, or back to where I want them to be. I call it the “wrecking ball.” How it can form is, I allow a few short options to accumulate as I roll them into a ball whose position is in opposition to the direction I’m in trouble with. For example, if I am in a net delta short position on something, and I have a lot of short calls that are just not finding ways to roll upward, I will accumulate a ball of options that are long delta, in this case short put contracts.
Then, I will use that wrecking ball to move through time and smash things up while I either shift short call contracts or close them. Sometimes the wrecking ball misses, and sometimes it crushes. The idea is to make it accumulate cash, then use that cash to either bust up the troubled positions, or simply bump them up (or down) in the price direction needed. All of this is very visual, and obviously options don’t have physical interactions with eachother. They only do in my mind, or on paper (on screen) where they can be graphed and then you see how they appear to conflict, or try to occupy the same space.
So yeah, it’s a metaphor.
What does it look like in action? In September, the NASDAQ went on a pretty good run, and my short strangles with QQQ end up pretty inverted, and just keep going further that way. So then I opened a position, and started to let some short put contracts roll into that until the first wrecking ball got formed for September 15th.
SEP17$592 x4 [2DTE play]
Added three more to make it a x7 Wrecking Ball
Result: +50.6% $1,211
That completed on “FED Day” Iteration 1 was a success.
SEP19$592 x7 [2DTE]
Result: +81.9% $2,308
Rolled vertical to $598 because of sharp price increase.
SEP19$598 x7 [1DTE]
Result: +46.6% $768
Rolled to Sep23$598
SEP23$598 x7 [4DTE]
Result: +67.8% $1,531
At 1DTE, rolled vertical to Sep23$600
SEP23$600 x7 [1DTE]
Result: +67.1% $796
At 0DTE, rolled to Sep24$602
SEP24$602 x10 [1DTE]
Result: RedRoll#1
Added 3 more CSPs to make it 10x. Then rolled to Oct1$602 carrying the loss to future date.
Oct1$602 x10 [7DTE]
Result: +8.4% $655
At 1DTE, rolled to Oct6$603
Oct6$603 x10 [6DTE]
Result: +73.4% $4,507
At 4DTE, backflipped to Oct3$606P
Oct3$606 x10 [1DTE]
Result: +59.2% $1,067
At 0DTE, rolled to Oct7$608P
Oct7$608 x10 [4DTE]
Result: +79% $2,727
At 0DTE, rolled to Oct10$610P
Accumulated gains: $15,570
Oct10$610 x10 [3DTE]
Result: RedRoll#1
A dip in price caused this to need a roll out to Oct24$611. The cost to roll this out was $21,059.
Oct24$611 x10 [14DTE]
Result: +7.2% $1,644 (flipped back to green)
I had to wait 11 days to make a move on this wrecking ball. On Oct21 there was a price surge in the morning that allowed me to close this trade with a profit even though 3 days remained. I performed what is known in my trading universe as a “Back-Flip”. This is where I close a trade but instead of rolling it forward, I am rolling it backwards into a nearer date. This is an aggressive move with the motive of either hedging other nearby strikes, or resetting to go forward again. The success rate of backflips is not very high, but they do serve a purpose.
Oct23$614 x10 [2DTE]
Result: RedRoll#1
The back-flip had to be rolled forward again, carrying $4,793 this time to the next cycle at Oct28.
Oct28$614 x10 [6DTE]
Result: +39.3% $3,974
After only 2 days, this Ball flipped back to green again, and closed with a tidy profit while rolling this vertically up to $618. This is because of an upward pop in the price of QQQ.
Oct28$618 x10 [4DTE]
Result: +75.9% $2,387
The vertical roll was closed one day early, as I back-flipped it to Oct27th, and up to $623 because QQQ was still surging yet again.
Oct27$623 x10 [0DTE]
Result: +47.1% $407
This was a 0DTE play. Back-Flipping the expiry from Oct28th backward, and up $5 in strike is a move to aggressively close the position that is still 1 day away, and then find a way to capture the cost paid to pull off that move in only one day. This time the cost to perform the backflip was $756 but since I was given $863 to enter this position, which only eventually cost $456 to close, it was a success. The Wrecking Ball was paused at this point because my instincts told me a drop in the overall market could be imminent. That dip never happened, in fact QQQ surged a bit higher. On Oct30th however, there was a dip back to this range, and so I opened the Wrecking Ball once again for Nov14th, 16DTE which is a pretty long play for what I normally do with this tool.
Nov14$626 x10 [16DTE]
Result: +?% $?
At
The Wrecking Ball is a formidable and dangerous tool to say the least. At the same time, it serves a purpose to capture gains while my delta is negative, which feeds opportunities to “fix” positions that are Red-Rolling.
What I mean by that is, I always carry a fair amount of short CALLs with QQQ. These are short positions that are betting AGAINST the market to go up. Over time, some of these positions can drift into situations where they’re now very low, and it’s not likely the market will dip back down to sort them out profitably.
Doing this aggressive move with the wrecking ball creates income that can be spent on fixing those out of position option contracts.
Ironically, over time, there occasionally appears shock drops, and moments that can allow those CALLs that are in trouble to self-fix. What mean by that is that the price dips low enough that I can actually roll a short call contract out & up without actually having to “pay” for it. The credit received by the roll is enough to move the strike sometimes by $5 or even $10. Of course, when this happens, what do you think happens to the Wrecking Ball? That’s right, it becomes a position that is “in trouble” on it’s own.
For me, this is what hedging is all about. Normally one side profits while the other side struggles. Because of the oscillations, eventually both sides are ultimately profitable, and there are rare periods where both sides can roll along and be profitable at the same time.
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