Oct 10 Trade update (STT-488,STT-484 and BSH Factory)

On the 8th of Oct, the market fell pretty hard into close and the skew/vol were favourable to enter a 488 STT, so I did. I allocated about 25% of the planned capital as the conditions weren’t quite good enough for a 50% or full entry. I was able to cash out at 40% profit target the next day. I did. Why did I only do 25%? There’s probably 25 entries since 2014 where I’d go 100%, however that said, I have to re-evaluate my criteria as it was implemented for the 484 which is a slightly different trade. I may lessen the requirements for the 488 by a fear spike and VIX 18+ for at least a 25% allocation. (VIX is really a very crude way to measure the entries, I just say it because everyone knows it and what it represents re market conditions..but in reality I’d be looking at a whole slew of things to determine entries). If VIX is above 27 and we have a capitulation day, I’d probably switch to 484s unprotected but everything below that I think a 488 might be the answer. I still have to confirm backtest everything and how the exact opportunistic entry system will work but for now it’s a start.

As mentioned a few times, right now my portfolio consists of a blend of a TAA base, some bond rotation (low vol–municipalities, senior loans etc etc), a strategic LTI portfolio, some sectors rotation and a cute factors system. The above represent a 0.75:1 on capital. Then on top of that, I have an active BSH factory for income and lotto. The BSH factory method I use now produces 18-20% a year but will return incredibly during an Aug 2015 (161%) or Feb 2018 event (62%). This is a producer in large events (crashes). On top of that I have 15% allocation to at-the-money (ATM) options trades such as the Rhino and bearish butterfly. If we have any large vol events (opportunity) I’ll enter 488s and 484s. This is my portfolio.

I closed out most remaining options trades except the allocation I have to ATM Rhinos. I have a bit of January left and that’s it. I will work to close those as the next week or two go by. Mostly in cash in terms of options allocations. I am forming a new BSH factory to try and up it’s size relative to my account, it was a bit lower. Not a whole lot else to report on re trades.

2 thoughts on “Oct 10 Trade update (STT-488,STT-484 and BSH Factory)”

  1. I enjoy your posts immensely. Generally speaking, how do you determine your risk budget? Low gamma positions can lead to a false sense of security, especially when modified vega is reasonable. Are you governed by 20% slide risk? Or possibly vomma? Or do you find another quantifiable metric best? In other words, what creates your pain.

    1. Thank you 🙂 I really need to keep posting more.

      For OTM options I try to be opportunistic as possible these days. I am waiting for a VIX 23+ environment with evidence of margin redemptions and capitulation or forced selling. On this, I’d enter a 484-STT which reduces my Vega/skew risk as much as possible and would allow an on average 10 day to profit target type trade. The idea is to be in and out as quickly as possible and only in times of market calamity. There’s about 24 entries since 2014 but the average return is still quite high if not as high as always on trades that would have the vomma/vega risk from going low vol to high vol. The transition from a VIX 12 to Vix 23 is very painful in those trades. Whereas a 23 to 30 is less so and much more temporary (in general).

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