Back at it – April

After what was a very rough period from Feb 2 to about last week, I am starting to recover and regain my ambition and motivation.

I had a rough go with IB margin rules during Volmageddon (Feb). They had implemented a 30x rule which basically summed up the total value of the options and if it exceeded 30x the value of your account, you had severe restrictions with adding new positions/contracts EVEN if they were risk reducing. During what was one of the biggest vol spikes and thee biggest change in volatility (VVIX) the option pricing sky rocketed across the board, and when summed up vastly exceeded 30x. It’s a ridiculous rule and it was an unknown rule. IF I had opposing positions where I sold a put at $5 and bought another put at 4.75 they would sum the position as 9.75 even though there was no substantial risk in that position. In the vol spike, options 10x or more so they’d be $50 and 97.50. This summation technique would put the account in violation of the rule. This gave me problems for when I had to roll or remove hedges. They also used some bizarre calculations that would restrict even further. This left me in a very precarious position where the complexity of removing hedges and positions was very difficult. I couldn’t get off my variety of hedges unless I literally liquidated the entire account which would have been impossible during those few days. I tried as best as I could to remove hedges and small parts of income positions but I just couldn’t get it done in time and the hedges collapsed in value and the STT remained compromised.

Anyways, I’ve been nursing these remaining positions since February and have recovered much of it but not all. I hope that maybe I can get to full recovery by May or June. That’s my year so far.

Suffice to say, I am working with new brokers and won’t be using IB for PM type trading (STTs, HS3s etc). I will also be moving my base trade towards HS3 type trades, STTs in higher vol down moves and John Locke style trades (M3, X4v17 and some BB) as a booster and to bring back some diversification in my trade plan. I still like ATM type trades. I remember when I had the Aug 24 crash with my MICs (this happened right when I was learning the Locke trades and was just initiating). Soon after I had recovered the entire loss from Aug within 4-5 months using M3s and BBs. Anyone that traded MICs, would know just how bad those did during Aug 24 2015. I liked trading those things (M3). I eventually switched to Rhinos and did modestly with them but I hate the upside exposure on runaway markets. Though, I mean, I did Rhinos during one of the biggest up moves in history in the RUT. No wonder I was frustrated with those.

Anyways, that’s my current situation and plan re trading.

I am in Canada now visiting the office and some family and friends. I will be back again for the Montreal Party Poker tournament and probably touring Europe again this summer. I’ll post more about those travels and the trading complications there-in.

7 thoughts on “Back at it – April”

  1. I thought it was only me that was having issues with the 30X thing in IB. I didn’t know it was new. I thought it was there all along.

    1. When you combine that damn rule with their other nuanced margin rules, it made it almost impossible to function during the days surrounding the vol event. Apparently I didn’t quantify nuanced broker margin rules in my risk calculations…..

  2. Sorry to hear that it has been a rough couple of months for you.

    Are you not harvesting the PCS in your STT’s at all anymore? I would’ve thought that the explosive up move in January 2018 would give you a great chance to harvest the PCS and leave your (essentially paid for) PDS on

    1. I did when appropriate, but the PCS were super expensive all the way until recently. I did have wider STTs though. I still take off risk when the PCS is equivalent to $1-$1.20 for a 50 wide

  3. Hi T&T-
    Did 30x rule also affect /ES E-mini Futures options trades or only SPX Portfolio Margin trades at IB? If only SPX trades, then why not to trade with /ES at IB, I know commissions cost would be higher.

    1. Hi DG,

      I never knew about the 30x rule previous to the correction. That and the combination of other margin requirements made it impossible to know how an OTM PM based strategy would work on this specific platform. We’re basically messing about with a very low yield trade if we considered it on Reg T by taking advantage of PM calculations and nuance. When shit hits the fan, the positions are closer to ATM and the -12% slice on STTs etc will be extremely pronounced. If you can’t roll hedges, you have to remove all the structures straight away.

      Anyways, re ES. Commissiosn are too intensive for STT/HS3 type structures at IB. I’d suggest a more bespoke broker with better rates. IB is fine for ATM trades in SPX but not ES. I don’t believe it’s the best option for OTM/PM based trades though.

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