Trades: The Year so Far

For the last several years, I’ve gone deep into the “lab” working on backtests and coming up with portfolio compositions that work. The focus has been on the reduction of variance by diversification which in turn increases geometric return and lowers time spent in draw down. We aren’t perfectly diversified but every little bit helps. We focus on what we can do which is spreading out the time of entries, spreading out the types of income trades (each with their own nuances and own particulars) and we spread out the type of black swan hedge each has. A fully entered campaign takes 11-13 weeks and involves putting 1/13th the portfolio in action per week across 3-4 different types of income trades. Each week is a different spot in the market and represents different strikes. This gives us skew diversification and naturally allows for older trades to hedge/protect newer trades. Not only that, but the entries of the black swan hedges (inherent and built into each income trade) are also spread across different strikes naturally through time.

Are each of the income trades perfectly diversified? No, but they are a bit and that’s the best we can do. They each have their own quirks and weaknesses and any bit of help we can get in diversity helps with the reduction in variance especially by having their entries spread over time. As well, each income trade has it’s own brand of BSH which is quite different from each other. All of that helps.

The tests we’ve done (we can only really do from 2014) suggest an annualised return of 43% or so without the black swan factory (which is a separate portfolio of trades). We’re on target for 25% this year so far and we’re at 41.11% since April 1st, 2020. If you go 1yr, it’s better, at 50% for the last 12 calendar months. Pretty closely matching. We’ve had no Black swans since April 2020 so the results match. Now, If you couple in the BSH factory the returns go drastically up (due to the events of Aug 2015, Feb 2018 and March 2020) to an average of 70% a year backtested.

Of course, now that everything is compiled and running, I am just following the system and doing the trades as they were tested. It’s got to be the most boring year of trading I’ve ever experienced and that’s by design. It’s systematic and there’s little draw down or stress. I am fully aware that during an event or crisis, it’ll be a fun few days but there shouldn’t be any draw down to deal with, just a maniac removal of risk and locking in BS profits. It won’t be boring and that’ll come sometime but during the normal days, it’s about as benign as you can get. Systematic, emotionless, and predictable.

The active research is naturally to find a 4th or 5th strategy that we can combine into the already existing infrastructure to further reduce variance. Eyes are open but nothing makes the cut just yet. It’ll take a lot to make it into the mix. The focus now is on opportunistic addition of BSH during IVTS spikes and black swan factory composition research. My life job is to eye up new strategies (that are in my realm of skill) and to see if they’d work and fit well, to focus on convexity and composition of trades that provide convexity (positive exposure to black swan)

Planes, Gains, and Automobiles – Part 3

We departed Santa Fe, NM for Lake Powell, Grand Staircase in Utah. It was a longer drive but a much much more fun drive compared to the previous legs. We had long stretches of road, I mean, I bought this car so I could “gooo faassster” which is the point of the car, no? Probably my favourite purchase ever. Or maybe it’s a mid-life and I crave too much attention, either or.

Nearly every gas fill-up or stop, people come up and chat about the car, which is cool. Most didn’t know they made an SUV. So it’s mostly about that. One guy had an extra tire back in Albuquerque and wanted to send it to us for free in LA. We exchanged info and he’s seriously going to send it for free when we were back. What a nice guy.

We got to our stop in Lake Powell (Under Canvass) which is a glamping type setup. It’s a series of tents (most have hot running water, fire places etc) with a common area, restaurant, fire pits. Very cool. Comfortable camping. Always sleep pretty well when I stay in Under Canvas. Wish I could have stayed an extra day here, well, actually in each location just to see the sights, but we were on the road each day for about 6-8 hours.

Grabbing some good solid video and shots

At night time, with the ridiculous camera in the iPhone, we got some pretty cool night shots. Went exploring a bit while slamming some Truly’s and Scotch which was probably a bit irresponsible. You can see the stars in the shots. Yeah, we were climbing some small cliffs….bad idea with Davis (the dude below).

Actually, a night shot. It was pretty black out but this is what the iPhone Captured

We woke up pretty early the next day, got ready for the shortest leg which was to Vegas. We had plans to hit up Monzu Pizzeria (best pizza ever), meet up with my poker coach (didn’t happen as we got tied up) and to basically just muck about showing Davis the city (he hadn’t been there). I’ve spent a lot of time in Vegas during the WSOP (a month at a time) and it’s been a while since Covid, man, the emotions of competing flood back in. Though my family does come visit, it’s often just for a week or so and I’m there alone playing tournaments each day which is an interesting mental state deviation from normal life both negative and positive. Hard to explain but I can’t wait for the next WSOP in October so that says something! I’ll be licensed PPL and can fly myself to and from LA (1 hour flight) without disrupting the family too much re having to stay over. I can fly back when I bust a tourney.

We got in, expecting to ball it up and get valet at the Wynn but it was closed so we just parked in the normal structure, got our bags and got to the rooms. We ended up opting for two suites as we were sleeping in the same accommodations the whole way down and they were super cheap being during the middle of the week and Vegas was fuckn’ empty! The most eerie thing ever. Check out the pics here. Not a single person at the pool etc. Was so weird to see. No europeans, No Canadians just Americans …it was like the whole rest of world was removed from the mix.

We ended up having Monzu, going to Venetian, touring the strip and then having some sushi at Sushi Mamba. After that, we got free drinks at the Wynn and played some BJ for fun. We lost. But it sparked me wanting to get back into Card Counting and bringing the team back (Ash and I did on our road trip back to Canada in about 2 weeks from this trip and it was awesome…)

The next morning, we had breakfast and started our final leg into LA. Fresh as daisies, thanks to (I seriously think it’s a life hack) Drip Drop. I take these electrolytes that I found out about in Necker. They’re a powder thing you put into water …I’d do like 1-2 during the night when I am drinking and 1-2 in the AM and I seriously have zero hang-overs and negative effects. Highly recommend. We used every single day this trip and we had some messy nights with zero issues next day.

Next up, LA, which was arguably more messy and eventful than the whole trip!

As for trading, the entire trip, the trades just increased in value but we did hit stagnancy in P/L from about Jun 4 to present as the market vol increases. All in all, good results, I think it’ll end up at 25% for the first half of 2021 which is exactly as modelled. It’s been steady since 2018 H2 and quite boring which is what we’re after. Boring trading is good trading. The whole setup is a play on diversification. It’s diversified in time, entries, types of trades, types of black swan hedge and this creates a smoothing of volatility which allows for better compounding. Older trades hedge off newer trades, this most recent down move and vol, is actually preferred by the entire portfolio as we’ve had older trades like Aug, Sep entries that have a hump built up. All of this together, creates a system of trades that don’t care about any market move. That’s the point. It can feel slower, boring and unexciting but it’s steady and it’s $

Planes, Gains, and Automobiles – Part 2

We made it to Austin sometime around 8pm and as we entered the city, three homeless guys came over with metal buckets and shit in their hands dancing around the car, I hadn’t been so nervous in a long time. They just danced and said some stuff and left, thankfully. The nightlife was insane, definitely pre-covid levels. We bar-hopped and had some Indian food and called it a night. We ended up waking up at like 11am which was nuts. We obviously needed the sleep from the flying and driving up to that point I guess. Flying 9 hrs in a prop makes you really tired because of the vibrations and lack of pressurisation. Speaking of which, Chris had got his second vaccine the day before the flight and was reading 76% O2 levels…he wasn’t feeling to good so we reduced altitude. There’s not much you can really do when flying from California towards Texas, Santa Fe is 7500 feet above sea level. Is what it is.

Anyways, we didn’t take many pictures there and left pretty early in the AM towards Oklahoma City. It was pouring rain most of the way which made for slower driving. When we arrived, the valet met us and was super excited, he hadn’t been in a Lamborghini but had it tattooed on his face! We had to ask him for a picture!

The hotel was actually pretty damn cool, it was an art hotel. We admired the art and then made our way into town. At every bar we were asked if we had guns on us. That’s new for me. Seemed like a clean cool small city. But like most of the stops, we didn’t spend much time exploring, more or less, driving during the day and hitting the night life since it’s been so long since we’ve been able to just go out and have some beers in a bar with-out restrictions. The next stop is Santa Fe, New Mexico at a 5-star resort where we had hoped for a more low-key relaxing night.

Here’s some pics of the art:

During this week, the skew changed and I noticed a lot of profits incoming, might have been the most I’ve seen to date actually in $. I think it was about 7-8% total gain on the week period. So yeah, it was a big week for gains which was strange…usually when I go on a trip, I am dealing with chaos, it’s just how it goes for me usually 🙂 Made the trip all that much better. We had gone through a period of about 1 month where the balance did not move at all. I notice that a lot but the piper has to be paid eventually so I knew it was coming in eventually.

On to Santa Fe, I hadn’t realised it was so high up (7,500 feet) but I noticed similar physiological things as I do when flying up high so googled it. I was right. We were high up. I probably should have known that but it was neat that I could tell something was up (no pun intended).

We got there, had some dinner and walked all around for hours, eventually we ended up at a real, and I mean real, local bar. The patrons were literally a cast from the movie clue. It was ridiculous but super fun. We had a biker gang in there, we had a random dude with a peeked hat acting super sketchy, some random old guy rolling cigarettes and then us in bright designer hoodies…The pours at this place, omg, half glasses of Tequila for $6.

Santa Fe is also an art capital of the US. I almost wanted to buy some but it’s gotta wait.

Next stop Under Canvas Lake Powell….to be continued.