Nov 26 – Trade Update

What an interesting month October was. The market fell pretty hard and not only that but the technical indicators on all sorts of metrics deteriorated to points not seen in a long long time. A lot of damage was done and this thing won’t recover without a lot of reparation. During all of this, the VIX did not spike and the OTM option values did not move relative to the move in SPX. This presented problems for a lot of the OTM trades that require BSH activation. KPBR hedges failed miserably and a lot of people experienced a lot of pain from that in our group. BSH’s barely activated leaving temporary P/L and balance issues in OTM trades which can compound into margin issues and panic removals. It didn’t affect me but it affected other people. What did affect me was margin expansion issues and broker (systemic) issues especially at EDF. My main account (@ IB) is crushing right now which is nice. My EDF account is down modestly through it all from its peak profit. Mostly because of broker panic issues and margin expansion of the HS3 (I won’t trade this again).

To me, this last period provided us with the most interesting back-test data period that I’ve ever seen. It was a swift but controlled fall of just over 10% where the VIX did not spike nor did skew change all that much which showed which trades were swimming naked as the tide pulled out. It shows how OTM trades do in a 10% decline where BSH activation does not really occur. It’s given me all I need now to fully construct trades that take into account BSH protection including swift but controlled moves down, systemic/margin issues including expansion and loss due to temporary P/L issues and so on. I believe we’ve got all the pieces to the puzzle for some smart refinements to the existing engine. We’ve got great backtesting data for crashes and now we’ve got market types like this and Jan 2016. What conclusions did I make? Well, the newer version has BS/hedge protection that’s much closer to the OTM structure such that grind downs, crashes, or any move will be protected and this also solves all the margin expansion issues. It costs about 30% of profits but as a combo this thing will do 30% non-compounded a year and when you compound it monthly over the course of 36 months, it’ll be close to 240% over the course of 3 years. That’s good enough. It’s slow paced but whatever.

My rhinos have been crushing through all of this. Not surprisingly. I’ll be doing these often when the pricing is good (I’ve been paying $1-$1.15 for a BWB) where usually pricing is like $3.00-$3.50. This solves upside issues and gives you more room on the downside.

I got approved for an IOM seat at CME which gives me much reduced rates for futures. I’ll be paying something like 77c total all in for each futures options contract. Sweet.

Poker: I played the online party poker millions yesterday with 20MM guaranteed. Busted 550th out of 1600 when my TT vs 66 had the opponent hit a damn 2 outer 6. If I won that I think I would have min cashed at least for 5x my buy in. Ah well. Such is my luck in poker. Getttttting siiickk of it.

Back in action after MTL (BSH, Rhino and Current status of trades)

I am now back at my desk after an eventful 13 days in Montreal. The trip did not work out as planned. Ash and our toddler got super sick and I had to deal with the market for the first 4 business days of the trip. EDF was on me like white on rice and forced me to capitulate a large portion of my account at a pretty crappy time. I went from 290 or so units to 77 units and from the 77 I had to get down to 40. So almost a 85% reduction in risk. Insane. That cost profit and added a very unneeded layer of stress. EDF is a small portion of my overall account which is good. My main IB account is actually profitable through the event as of today but it did have some draw down during some of those crazy days. Wildly, I have the most theta combined that I’ve ever had. If we end up anywhere in the 2550-2850 range within 30 days I gain something like 400k which would end the year reasonably especially after EDF and the Feb event. Overall, I’m like break-even from Oct 3 onwards because of the EDF issues but have loads of premium. Just have to get through these mid-terms unscathed.

Rhino pricing has been insanely good around $1 to $1.30 area (means very low upside risks and much easier to manage). So I’ve been putting those on quite a bit. I also formed a few BSh factories today as pricing on the longs finally fell enough. I’ll probably be doing a lot of BSH factory (two versions) and Rhino type trades while the pricing is good.

    Poker

I busted my last tournament in a gross way which almost had me want to retire. I had 66 on 6T2 flop. Got a guy with Aces all in. Ace hit on the river.. (2 outs) and I busted…horrific. Getting sick of these 5%’ers hitting on me when it counts.

There’s another really nice tournament in my backyard (Bahamas) Party Poker Millions Caribbean. It’s only a 1 hour flight and I get free biz class upgrades, so I can fly in style. I was kinda considering hopping over on Friday night until Monday but I dunno if I will. Disillusioned a bit 🙂