2017 Results Table

Below is a snippet of the 2017 results with time slices to see relative draw downs across all three trades.

The RED defines when we’d have exited for the trade but sometimes I tracked what if we hadn’t. I don’t even see a drawdown for the HS1 in 2017 (short of the -209 on the Jan 19th trade).

I will be testing the HS1 in random entries as well to see how the DIT changes and how bad draw-downs can get.

New Trade Results

I’ve been backtesting 3 variants side by side from 2014-2017 w/ entry during a SPX down day of at least 0.5% and a corresponding VIX spike. The High vol entry makes the management of the trade much easier, the more the spike and down, the easier it is to manage. I’ve been testing the HS1, HS2 and the new fulcrum trade . I am not done yet but it’s close. I will be presenting at a mastermind next week and will be talking about the trades and its results.

So far I’ve not had a loser for the HS1 variant which I manage in a specific way. The drawdown has been less than 400 a unit as well. Very very good. The average days in trade is about 48 so far and the return is about 12.5%. The more higher VOL entries will sometimes get to profit in 8-14 DIT especially in more bearish conditions. Beautiful trade.

Here’s what it looks like at initiation:

Despite what it looks like to the left, in a black swan event, it will pick up and handle it just fine if not at a profit.

Here’s a few of the trade initiated around Aug 24 crash date:

Aug 20, 2015 ENTRY

Aug 21

Aug 24 Crash day

Despite the left side, it does pick up and reach profit target on the 21st AND almost double the profit target on the 24th.

The market moved from 2035 to 1890 and it did just fine.

The same goes for the Jan 2016 slow bear move down. It just crushes.

Yep, it’s a game changer. Horny Communist!?

Spent most of the day backtesting and working with the group on slight tweaks to the new trade as well I looked at parameters for adjusting, profit taking, margin expansion and so on. (Some tweaks are basically using different synthetics to better the greeks and so on IE you can short the market directly or you can create the same thing with a short call and long put at the money. But you then have some benefits re VEGA (vol) if the market falls re the long put) So you play with that stuff to get a better reacting trade while keeping the profiles relatively the same..long story short—>Buh-Bye STT and BSH. This thing is it. I’m saying hi to an old friend named optimism. I was down in trading mood this week and It think it showed. I guess at the same time, I mean, I didn’t have my combos on yet (PC2) and I was still struggling with the financing and so on which there was a light at the end of the tunnel. I just wasn’t feeling it. Now I am.

Like I said in the previous posts and above which might not have been obvious, the bulk of my current trading portfolio was still in individual BSHs, STTs and financing there in, NOT combos. A true struggle it was for me. I had not gone live with combos yet (not with any large amount). Had I, it would be just fine (not close to as good as the new stuff, but good). So I’m still old school and am suffering with poor profits from being unable to finance the BSHs in this environment. My reverse calendar financing DID not do well, my NPs were barely existent in some of my BSH financing and my STTs are suffering from bizarre option skews (OTM puts holding value). This whole thing was kinda a mess and resulted from a lot of things not going my way. Still, I am profitable, I just sucked.

So right now, I mostly kept backtesting the new parameters (when do we take profit, what if we move an option here or there and so on and playing with all sorts of dates to see how to setup the profit taking in the trades and to get a feel for draw-downs and so-on. I couldn’t keep up with the developments in the group and in the trade itself re parameters. So I probably backtested this thing in various small forms across every date possible 🙂 It’s using very familiar parts that I’ve traded a millions times before, so it’s not as if its going to do something unexpected but still diligence is required. I think we’ve nailed it now.

I’ll have a solid basket of 5-6 trades all working together and I am going to go live this upcoming few weeks. I’ll be going from the cumbersome financing BSHs, STT mess skipping over the combos and into the efficient versions of said combos that have accomplish the same things with elegance and ease w/ better profiles and greeks. The key thing is these things will be a blessing to manage. Looking forward!

The title had Horny Communist in it. That might be the name of the trade variant as a member noted that the Leftie tent was so big, he kept thinking of lefties/commies and we added a small tiny horn at the front (stolen from the Rhino trade) hence the name Horny Communist :). I kinda like it. This trade mixes ATM style properties but with built in black swan protection.

Game changer?

The last few days it appears we have found a ‘game changer’ that accomplishes what the STT+BSH trade does but without all of the issues that come with financing BSHs and relying on timing requirements for said financing and BSH initiation :). Basically, the entire thing I failed at doing properly this year due to how crazy the market’s been with both OTM puts holding value in the STT. The BSH financing wasn’t working across expirations via the reverse calendars and I was not getting any significant down days to get on naked puts to finance the opportunistic BSHs I put on. I heard this year was the historically worst year for 0.3% or more down days. There was barely any. Like the environment was with Rhinos, the worst possible, this environment was with this STT+BSH trade. Apparently I have the worst timing. I’ve been checking across option disciplines, it seems any delta neutral strategy has been failing since May due to the OTM puts holding value due to binary event type environment (War w/ NK can start, missiles can be launched on weekends, debt ceiling, Trump idiocy, and so on). This includes M3, Rhino, STTs themselves, combos, time trades etc.

There’s a few groups of trades we work on, one set is based upon cross expiration skew reversions and we call these time trades (TTT, T5 etc) which are usually not model-able in the sense that we can rely on any option software modelling to produce a risk profile of any real value. From backtesting, we know that they have probably the most EV of any trade we’ve done but they also lose on unpredictable internal market events (not market movement) but rather skew changes across expirations. This can cause draw downs of 100-300% though rarely. On the opposite end, they produce 100% returns regularly on an average of 10-12 days in the trade. The group was putting so much time into these trades (no pun intended) but we could only ever use 1-3% of our accounts. These types of trades take a lot of time to get comfortable with and it requires a lot of backtesting various conditions.

Thankfully, the focus of the group shifted to risk profile versions of our base trade…namely the STT and BSH and combos therein. The start of the movement away from relying on BSH financing and timing came with the advent of the PC2 which does really well but requires 45-60 Days in trade,is very cumbersome and requires 2 BSHs, a financing put and a PCS and PDS (STT). That’s a LOT of contracts/commissions, a lot of opportunity for slippage all while the p/L target for the combo itself is quite low. IF there was no alternative, this would be the trade. For me!, I haven’t even started THIS trade live with size yet, I am still trading BSH+STT and financing methods therein. These trade profiles are fairly similar to each other across their iterations. the STT, STT+BSH or the combos that we’ve set forth, usually these are kinda known in how they’ll react and where they’ll have weakness. Then Ben G came up with a similar risk profile of these combos but with far less contracts, no requirement for BSH (it’s built in) and a much better greek profile. Essentially, a slap on trade with like 3 contracts (replacing 7) that is easier to initiate and has a better behavior. He called this the Sail trade (though it has similar profile to a combo, it looks more like a sail). He’s honed this over the last 4 months and realized its weakness is that it needed to rely on specific entries (be it high vol or be it using a trend system where delta is erred). If put on in High vol, it basically doesn’t lose and produces 10% on margin. The trend following one is similar. Ron then produced a trade that again, mimics the profiles of a combo trade but with a MUCH MUCH simpler setup, better greeks, better everything at least compared to the PC2. It’s temporarily called the Fulcrum trade. Basically the last 3-4 days we’ve had people from all over the world back-testing it and Ron’s mentioned it will be the replacer of his entire base trade, namely the STT combos 🙂 I would agree. It’s solid. Though it appears we have a game-changer, it requires very onerous testing to ensure and hone how adjustments are made and where to setup profit taking etc. Now I need to test every single possible date even though I know a trade with this type of profile is docile and has already really been tested in various forms before. I’ve done about 25 different trades and so far the only time its break-even to slight loser is during the last 2 months re binary events and out of the money (OTM) options just not losing much value.

The trade does 5% on margin if its outside tent and 10-20% if it’s inside tent. It will do better if we err starting deltas using a trend system and the average DIT is around 30 from what I’ve seen in my backtesting.

This new trade replaces the STT+BSH combo with a much simpler more powerful setup, it’s a lot less contracts, it can be put on in ANY market condition, it’s an “always-on” type trade. The greek profile is fantastic, it does well through Aug 24 (max profit!), it crushes the Jan 2016 market and it does well in low vol. What more can you ask for! We can do it in futures and we can do it in SPX and possibly RUT. We’ve got scaleability and we’ve got low variance. Can’t wait to test this thing more. I do have 9 units on right now LIVE via ES on Friday. Wanted to test out execution.

I have a feeling the STT+BSH (using financing methods) and the PC2 might have just become an antiquity right now.

Sep 13 Update

Not a whole lot going on,

On the super low vol pump up during the last 13 days, I did enter a bunch of BSHs and set and enter much of the Jan STT at a higher UEL on the one down day we had. So the higher UEL is helping financing some of the BShs but not completely and I wait for ANY return of vol to get them paid off. When will this period end? This is the last time I work BSHs like this. I will enter a BSH factory and do opportunistic STTs, Sails and T5s. I just suck at financing these things.

My year is pretty crappy, I’m positive but it must be around 10% or so max thus far. I guess I can’t complain but I feel like I am just waiting for some sort of vol to happen so I can get out of my Dec STTs and start entering all the new setups I have (which all require some volatility to enter). The whole year went to shit re returns from the original Rhinos I had on in Jan-Mar and my poor payoff of BSH financing (RC’s didn’t work well enough and my over-patience for high vol entries of NPs didn’t go as planned). All of the poor performance is to do with my poor financing and using archaic strategies that we no longer use (it was all we had at the time). I attribute this year as a final year to my on-going learning and setup of the dream trading portfolio 🙂 If I can’t break 50% next year, I will question everything. I know that sounds crazy.

I did put on a small Rhino the other day but the up move has it in negative currently. I am still trying to get out of my T5 which I am seeing some value come back in.

As I mentioned, I am convinced that a BSH factory is a great core trade and pairing it with some opportunistic STTs, some Sail trades (High Vol entries and trend following entries with bias) will be the move going forward. I’ve been backtesting it like mad and I am getting crazy returns on any date I enter for the BSH factory, within 6 months or so. It’s a great income trade, but I can only use a fraction of the account on it re initial risks at the beginning. We have exposure for like 10-20 days. I will likely try to tool old structures I have on to compensate this risk so I can put on more and more.

I am back in Cayman now, boredom is starting to set in more regularly but I am getting a lot more work done 🙂