September 2023 – Travels and Trades

Planes, Gains and Automobiles 2023

The big aviation trip of the year was the flight from LA to Toronto and back during the march break holidays. It was a bittersweet departure as I had just picked up (the day before) my new car and I really wanted to play with it, drive it, enjoy it, but instead I got teased and had to park it in the hangar just hours after as I had an early departure the next day. Such a sweet machine but maybe a bit too much. Whatever. You only live once.

I flew myself and my family to Toronto and used the flight back as an opportunity for additional training in Instrument flying. On the way back, the family flew commercial, and I met up with a friend and my instructor for a 4-day training session/boys’ trip. I am instrument-rated, but I like to manage my risk and occasionally get solid refreshers and higher stress training. Mitigating risk. The CSIP that does it is also a friend, so the trips are always fun. It’s been sort of tradition to fly one way with him as we usually go back to Canada on holidays.

On the way to Toronto, we flew through the desert and over the rockies and into the midwest plains. The usual first stop is Page, Arizona (Lake Powell) and from there we typically stop in Omaha or somewhere like that, usually for the night. It takes about 9.2 hours of flight time to get from LA to Toronto in this plane. The jet version is about 5.5 hours. Not bad.

So in the picture below, we were somewhere around Barstow, on the edge of the desert, when the drugs began to take hold. Just kidding, that’s a Hunter S. Thompson quote, but the picture above the clouds was in fact above Barstow.

Pretty uneventful trip, took 2 days, flew IFR most of the way which makes it very easy. You’re part of the system and on a air highway, so things just flow better. When I arrived, I instantly headed up for some relaxation at the favorite part of my house. A few local friends came over and used the weeks to see family and friends.

On the flight back, the plan was to get to LA relatively quickly then use a few days to get more used to flying IFR in the LA airspace. We flew first into Milwaukee to clear customs, always easy, and ended the night in Omaha. I actually like Omaha quite a bit. Always have a really good time there. Unfortunately, it was raining this time so it was a bit more annoying.

The following day we departed for Salt Lake City which was a bit out of the way, but we just didn’t feel like doing Vegas again and none of us had been, so it seemed like a good idea. It was. Good learning moments and also very cool scenery.

Pretty complicated airspace given the mountains and class Bravo. So, my instructor task loaded me by having me cancel my IFR clearance into SLC and reroute to a small airport sandwiched between the bravo and the mountain peaks. Was high task load and brought in a bit of problem solving. The airport is just below Ogden in the image below. Fun stuff both in departing and arriving 🙂 Good training.

The next day we made it back to LA where I reunited with my car (and my wife) for a quick dinner and that was that! Successful flying and some good lessons!

Risk, back-testing and drawdowns

When I first started out in options a decade ago, there were only basic backtesting systems, namely Option Vue (which, actually just recently went out of business due to lack of adapting and other reasons). It was not only cumbersome and slow to test but the datasets were very limited, we didn’t have the option data in a variety of market types to really test out strategies. We basically had EOD data pre 2011 and I believe 30 min data after that. That gave us what? Like 3 years of good testing ability. Further to that we had less expirations.

This is an era where trades like the Modified Iron condor were popular. These sets of strategies were borne from the limited data set I mentioned above. They had produced consistent unchallenged small gains for a handful of years only to be dinosaured when the inevitable bulldozer came while picking up these pennies (ie Aug 24, 2015). With this new data set and many more to come (Bear 2016, Low vol 2017, Feb 2018), many other trade types started to be developed, using a much more varied market data set. It was also when the first inklings of the pre-PMTT group came about when I started a skype group to talk about the Rhino trade. From the ashes of these previous trade systems, our group was born when Ron took the reigns and created PMTT.

There’s been a lot of talk in my group about curvefitting and having OOS periods now that we have access to automated tools where we can essentially backtest loads of iterations in very quick time. It’s true, when I backtested the HS3EZ, 488 and 484+2LP it took 100+ hours to properly do. I had one set of parameters and if I changed them, that’s another 100 hours :). I am certain I’ve spent 2000 hours+ backtesting in the last decade, if not more. We can now test that AND any changes in a few minutes. This creates a problem of fitting data by removing losing trades by filtering w/ new parameters etc etc. I am betwixt between the two camps of thought when speaking about the PMTT type trades only. When I am looking at the algo trading or TAA, I am firmly and obviously very focused on OOS testing and curve fitting. The edges are less and the variables much more variant. You’re searching for small edges that need a LOT of data to confirm because the edges can be or can come from something much more ambigious as is the case in algorithmic trading. It’s a definite concern for PMTT types of trades, but just not as much.

The PMTT type of trades are not the same thing as algo trading or trading futures or utilizing parameters like the TAA guys use which have less pronounced and even ambiguous edge with much more variables and variability in those variables. Our edge comes from the very robust premium inherent in the market of which acts like insurance and the pricing of this insurance is less variant and affected by less variables than other non-option trade types. The pricing of an option is via the corresponding greeks which I view as almost like a device of rubber bands which can only stretch and pull so far. We don’t need 1000 samples of bear markets and 1000 samples of low vol periods. There’s only so much that can happen in our structures. With that said and related to my betwixt comment I believe that any strategy created from a limited data set needs OOS testing before going full hog, especially if you’re only testing from 2020+. Which I am currently seeing a lot of. I firmly believe we should be using all data available to us to create these strategies (that means 2014+ at very minimum). This gives us the 2014 Oct crash and unrelenting V-Rally, the 2015 crash, the 2016 prolonged slower bear, the 2017 low vol run up, the 2018 crash, the Oct-Dec 2018 bear, the 2020 crash and subsequent huge 2021 rally and so on. I think a strategy can show returns in a full test in those markets as well as random sampling within AND it has a solid hypothesis and theory of why it should work, then it is robust enough for me to slowly add in.

In regard to risk and draw down, I also believe you can appropriately reduce overall risk with solid well thought out and well tested diversification and trade development and you can in fact limit max draw down on the portfolio of trades by doing this. By limiting draw down you increase geometric returns.

I don’t think drawdown equals risk.. It is just not that simple. You can diversify, you can mitigate, and you will have better geometric returns because of that. Risk mitigation=return. My life is just focused on this aspect, reduce risk and draw down for better geometric returns. There is volatility tax and it’s much more attractive to limit your draw down to allow for better compounding. I always say this, but its the time series of returns, the pathway we take in our bets, that is the most important.

WSOP and Mixed Game results

From May 24th until about Jul 11th my hobby time focus was on the World Series of Poker of which I mostly played mixed game formats like Razz, Omaha 8, Triple Draw etc. I had been getting coaching pretty actively for the preceding 6 months specifically in mixed games and it mostly paid off.

In my first series dedicated to mixed games, I cashed in 3 world series tournaments with the best being in the Omaha 8 limit WSOP event, where I got 24th out of 1150 or so runners. My best result in any tournament to date. Despite getting to the final 3 tables out of like a starting 130 tables, it still hurt, and it still felt like worst thing ever. I have a feeling that nothing but a 1st will be satisfying, what a terrible hobby to choose for gratification 🙂

I had chip lead at one point even got some attention from the poker press (and the cool photo below) but alas, I wasn’t able to close it off and made the final 3 tables before busting shortly after. The blinds increased pretty quickly towards the end and a series of bad hands just decimated my stack. No regrets though, just unfortunate luck.

After that, I ended up playing in the Razz 10k and it was a bust but I did get berated by Phill Hellmuth for about 3 minutes which made it all worth it. It’s almost a mixed games initiation. Made my whole series worth it. It might have been worse than this clip

I then ran into a series of bad luck hands that busted me in two day 2s. The worst being a 2-7 triple draw hand where I made #2 on 1st draw (7-6-4-3-2) and got beat by #1 on his 3rd draw. Horrible. Same as this hand

The next one was in a Razz hand where I had a 2-3-4-5-6 and ended up losing to a wheel. Both day 2s and both near the money. I did end up cashing in the triple mixed event in 49th and the 9-game mixed event for 40th (most difficult tournament and skill requirement). Successful bunch of events especially the 9-game.

In March, I had ended up getting 56th in the Wynn Millions no limit tournament, my first tournament after the WPT world championships, I felt pretty confident after this run lol. This was one of my deepest runs in no-limit. I didn’t mind busting this one, felt like I had as much luck as I could have. This December, they’re running the millions with a 40mm guaranteed, the biggest prize pot guarantee ever I believe. I’ll be there! Probably the first tournament I’ll play since the July main event (which I busted on day 2 with AA).

So the year for poker was kind of successful, I had the big score in December of 2022 at the WPT world championships, the deep run in the Wynn millions and the 3 mixed game deep runs. I’ll take it. I’ve taken a long break from poker (kind of like I did with this blog) and haven’t studied or looked at it since July. I don’t plan to until November.

Trade and Fund update

Been a long time! Seems to happen like that with posting and my personality for some reason. I asked my friend to force me to post more often with a prop bet. It’s a good historical record of my trading and life journey and it seems to be appreciated by others. So, I guess I’ll be posting more often! I’ll do separate posts for my trading thoughts and my one for each of my recent travels. We had several big trips including a big European road trip (the first since pre Covid!) which was once a yearly thing.

After a rocket of a year in 2022 posting a gross of 59%, the fund return has slowed a bit during the first half of 2023 but it has picked up in the last 45 days or so. I still expect to end the year around 25-30% gross which with the environment shift and slow start would be an excellent result. Slow periods happen in all trade variants and is to be expected. We’re mitigating drawdown and managing risk. We took a bit of a hit in March doing just that but it’s better than the alternative.

We back-tested the period from Jan 1 to Aug 1 of 2023 to see if it matched our live results and it was the same result. Just a slower period for the style of trades. The environment is transitioning from the bearish year of 2022 and the bottom part of the option chain is starting to normalize to pre-covid era. Owning that part of the chain can cause a drag. Just a guess.

You can see the flatness of returns from 2023 in the equity curve of a very similar representation of the strategies below.

The mastermind group has really seen an uptick in development with the advent of automated backtesting via mesosim and other products. We’re seeing a large growth in crowd sourced RnD amongst the group. A lot of smart people are putting their heads together to create very exciting trades and trade types. This can provide for very exciting diversification opportunities, which is what I am all about. It should be quite interesting times ahead with trade development. My workload will no doubt go up as I investigate various changes to trades and research new trade types.

The fund structure is now US registered and we’re able to accept US investors which was a very arduous and complicated process.