May 14, 2019 – Trade Plan (STT BWB + BSH)

I ended up closing out my Jul 18 and Jul 31 STT remnants at a pretty awesome profit. I am left with August, September and October. The Aug and Jul ended up acting as moderate hedges to the Oct/Sept expiration which actually put my balance higher through the modest volatility events last week and put it right positive in the past two days. I am on target for a 20-22% H1 2019 and will end June at around 17%-18%. Exactly as predicted and planned.

That’s the beauty of running these in expiration campaign style. The older ones protect the newer ones and everything just meshes together perfectly. The older ones will hedge the 3-8% drops as you fall right into their built up profit zones and anything greater than 8-10% will be likely covered by the BSH OR you’ll have time to roll (if it was a slow grind) either way you’re good and only dealing with modest drops in P/L. Feels like a beautiful well oiled machine now.

I am not straying or considering much else in terms of trade types for the main portfolio. I want a clean year of just STT+BSH and I want to be a master of just one main trade type. I doubt I’ll deviate much other than finding more efficient ways to adjust.

All in all a good year so far.

6 thoughts on “May 14, 2019 – Trade Plan (STT BWB + BSH)”

  1. Hi Patrick,
    It’s impressive that results are matching so closely with your expectations. Do you have any losses built in to those expectations? What % of your STT-BWB’s (assuming monthly deployment?) have been closed w/ a loss?
    Thanks,
    Matt

  2. The only time an STT-BWB is closed for loss is on a max loss. Or something super obscure based on some personal bias re market events etc. Maybe during a binary event you’d close for slight loss and wait for it to be over? They’ll always eventually recover as time passes. So it’s more about the draw downs. I haven’t yet closed for a loss.

  3. Hey Patrick – VERY nice work. I have a quick question about drawdowns. I am seeing my STT-BWB drawing down a fair amount on these 5-10% drops. Are you seeing the same? Even in this past couple of days (with the China trade stuff) I saw a 5-6% drawdown. I am running 488’s so maybe that’s part of it… not sure. I’m also running them across expirations. I have July, August, Sept, and Oct on right now. Just curious if you are seeing the same drawdowns or if the older 484’s are protecting better than the 488?

    1. Thanks! I didn’t have much of any draw down at all except for one single day (the weird VIX/Skew issue about 3 weeks ago) but soon after it was completely normal and I was in fact profiting quite large. I went from 12% to 18% in 2 weeks (for the year). I have 4 expirations of STT and I harvest diligently as well as adjust by adding bullish or bearish STT when required. The older 484s really really popped up quite well during this move hedging the initial draw down of Oct. My Oct expirations are now almost close to profit target too. Go figure.

  4. I’ve been watching the STT trades (and BST) since their inception and am wondering how they would perform in a true 87′ type crash where the vix would be north of 100.
    The risk I can see is two fold;
    1) The T lines would be way worse than projected by option modeling and
    2) Brokers would certainly raise margin requirements (albeit temporary) on all account types (they have done it at IB in the last 10 years for obviously much less than a true crash) which would lead to margin calls at that worst time.
    That being said during the 87 crash there were plenty of signs before as the market was sliding weeks before it happened so it did not come out of nowhere.
    Curious to hear your thoughts, thanks.

    1. The BSH would compensate for the STT and the T+0 lines will be definitely different than modelled but it’d be on the good side. That left area will pop due to the BSH. You can see this in the Aug 24 and Feb 5 events and it’d be even more pronounced in a larger swan where vix hit 100 etc. The BSH activates the most in a BS as per the name and the general weakness of the combo is in quick moving markets (down) where the BSH doesn’t trigger (a sharp move down that’s contained). In a true BS, you’ll be covered with the BSH if you are trading it appropriately.

      You will have the 30x or 50x rule likely trigger so the tricky part will be neutralising trades. You’ll have to get off the BSH and you’d do that by closing some shorts in the STT and freeing up margin to remove the BSH. Won’t be easy but you should be in a profit situation. Ideally, you’d just close everything as best you can. At least close off the risk. I practice this and did a presentation at the Mastermind on how I’d do it.

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