bearish butterfly – Page 3 – Travels and Trades

Oct 18 – Rhino M3 Trade Plan

Been a while since I posted. I haven’t needed any catharsis so that’s probably why 🙂 What a great/fantastic two month period we’ve had…I mean the market (RUT) didn’t move up 7% in a cycle! Can things get any better? The last two months have made the entire year, I might even achieve the 7 figure profit in a 12 month period IF the next two-three months behave. Major Major milestone. When I say behave, I mean it goes down, stays neutral or goes up 3-4% max. That’s all that’s needed. What a journey. I started trading by investing in AAPL and BRK.B, frustrated with the lack of hands-on, I got into earnings volatility options plays via www.steadyoptions.com and eventually on to Modified Iron Condors only to experience the most dreadful trading experiences in Oct 2014 and Aug 2015. Learning experiences! I finally stumbled onto the M3 and BB courses via John Locke and here I am trading BWBs in my own way profitably and into 2017.

As my portfolio and trading size gets larger, I’ve been putting on more and more Space Trip Trades in an effort to hedge my portfolio by way of cultivating the STTs to the point where only debit spreads remain on the first set while cultivating the other expirations to the same point. My main concern is an 9%+ gap down overnight. I want to be protected in any flash crash and a gap down of any size. It’ll take some time to cultivate the STTs to the point where they are providing protection for both the ATM trades and the uncultivated ones still in process (in the case of a 12%+ move). Once, I have adequate hedging I’ll start to increase my size past what it currently is. I’ll probably be sticking to SPX with versions similar to the White Rhino and Jim Riggios 100 point butterfly. I really like the approach Jim Riggio takes. Sell volatility when vol is high and buy volatility when vol is low. Simple. I’ve changed my style a bit and I don’t use calendars and I will probably be doing versions of reverse-harveys for the upside rather than using call BWBs. It’ll be sometimes selling or buying iron condors as adjustments to the butterfly structure (depending on skew and volatility). I might have to call my trade something else, probably will end up calling it PEAK.

My November trades are all 10%+ and I have already started closing them all out by removing risk and unwinding the structures.
I’ve got Dec expiry on and I’ll look to put on some January as we get closer to the election (option premium will be elevated and the BWBs cheaper to buy). I might hold Dec but if I am anywhere close to a 6% profit, I’ll probably close them ahead of the election. They’re doing very well right now so it’s possible.

Sep 29 -Rhino M3 Trade Plan

Nothing too exciting related to the trades this week. I usually have some sort of market opinion but I really don’t right now. My guess if I had to state one is that we’d see some more weakness into October and probably touch 2040 and rebound up to 2300/2400 into the end of the year.

I put on some more SPX Rhino trades today. The pricing got way better in the afternoon and I bought several 2160/2100/2020s @ 2.75 and 2.80. Across all of my accounts I have 370/740/370 on. Big. Lots of downside room and lots of upside room at those prices. I’ll probably try to close them all by Nov 8 (start later and end earlier).

Here’s what one of the Dec SPX Rhinos look like

I’ve got a bit of RUT Rhinos on but not as much. I had great pricing early on but been struggling to get pricing I liked the past few days.

I’ll manage the SPX upside if we should break 2200 by selling condors or RHing. I probably won’t use calendars this time around. I do like how Jim Riggio (Kevlar) handles his trades. Not much else to say right now.

I’ve had to do nothing with any of these trades lately, boring, which is good. I am erring to start more like 86-88 DTE and end by 30 DTE. I am working on a full backtest with some updated rules and adjustment types.

Sep 26 – Trade Plan

My whole day was spent closing down October trades. The SPX monster one reached 10% profit on planned capital, my other SPX ones hit about 7-8% as I was a bit more conservative with upside and the RUT one hit 5% or thereabouts. We’ve got 25 DTE and I am more comfortable starting larger trades later and exiting earlier, plus the SPX one was already at profit target. The debate is on tonight and if Hillary falls dead, faints, coughs for 20 min or anything else, I worry the market will open down big and if she does well, it may open up up big. So yeah, I closed them down and I am happy. I have some 200+ units on Nov/Dec across all the accounts and I didn’t need any Oct exposure.

I got some champagne for the debates (it’s sort of entertainment isn’t it?) and to celebrate the big result for the month. I cleared about 180k in profit across the Oct trades. One more month with a good result would put the account at about 30-40% for the year, maybe 50% if we got 7-10% P/L. Two good months, and I’d be laughing. Sounds like a lot, but the amounts exposed during the last 6-8 months and some of the swings, well, it’s somewhat deserved and I’ll be more comfortable after a few of those good months to cover any bad month.

I entered some SPX Dec BWBs (2160/2100/2020) @ 2.80 today.

Trade 1 – M

Trade 2 – P

Trade 3 – D

Risk taking and pulling the trigger

Risk taking and Pulling the trigger

Let me preface this with a funny but true story:

In my twenties, I took a big risk, I invested all my net worth and even my future income into a software business idea. So essentially, more than I had. It was a huge risk. It took 16 months to get the software idea from scratch to launch-able. We of course blew past deadlines as is typical, and went over-budget. I had no money left though I had some on its way. I was at a pop machine with a friend and business partner (he’s probably reading this and laughing) but I had one single looney left and I told him, this is my last looney and I’m buying a diet coke with it. I went to put into a pop machine. Guess what? The pop machine stole my very last looney to my name. Sounds super cliche but it’s an actual true but hilarious story. The pop machine ate my last looney. The end of the story is positive, the business worked out fantastically and all is well. But I took a leap and risked it all except one looney which a pop machine stole.

I am part of a chat group (Index Trading Group) which I started back many months ago and has now well out grown me. It is now some 250 people. 250 very smart and ambitious people. It’s grown to a point I never believed possible, I rarely contribute on there though my intentions were good but life, busyness and trading gets in the way as it often does. It’s no excuse. I should contribute more. Anyways, this options community is, in my opinion, immensely changing and shaping the future of retail complex option trading with new brilliant research and ideas. It’s got to be at the forefront of market neutral options trading. I often am even somewhat intimidated and in awe of some of the members abilities to focus and create great back-tested ideas and videos (I think most of those reading this will know who they are). Perhaps, it’s why I rarely contribute, it would take a lot of resource to match the quality they put out. I trade huge accounts which takes up time, I have a business to run and I have a family to take care of. Again, no excuse, so do they. But those become excuses I use to put off doing or coming up with ways to contribute (human nature). Anyways…

Today a topic came up about risk taking and trading for a living. A member asked what it would take to quite your job and trade for a living (the dream eh?). I say that almost facetiously, I trade as if it was for a living probably, and it’s got its perks but it’s also very hard money. I think business can be much easier 🙂 The breakdown from one member was very succinct he had listed out exactly what was required to adequately trade for a living and it was in the ball-park of 5MM which assumed you’d only trade 20% of your net worth and that you had several years put away for reserve. I’d pretty much agree with that except there-in lies the rub. If you used that equation to assess risk taking, you’d probably never make it to 5MM. Whatever gets you to 5MM in net, is likely to have broken that equation. Sometimes, you have to break the usual conservative views on risk taking and make that leap. Now, I don’t know if you should do that with trading per say. If you do do that with trading, you better have done your damn homework and have had a long stretch of success!

In life, and if you want to become successful and rich, you just have to jump and pull that trigger. BUT. You have to give it your all and you have to make sure you have back-ups and fail safes built in. Take the risk but if your fucking taking that risk, if something happens, you don’t sleep if it requires attention, you work your ass off making sure the risk you take works or that you have back-ups and ways to mitigate failure. When I started my business, I put every single cent into it, very irresponsible and would have seemed crazy. It worked out well but I think it was more because of insane persistence, fail-safes and tenacity. Once I made the decision to pursue an idea re software, I did everything I could to make it succeed. It took 7 years before it was profitable, and I worked 14 hrs a day 7 days a week to make it work (in my twenties). I pulled the trigger and being smarter now, I doubt I could ever make the same jump again, it’s just so crazy! But back then, once I had pulled the trigger, it was game on, I had back-ups to make it work and I worked 14 hr days 7 days a week making it work. I gave it my all.

The thing is, trading is so psychological and it’s essentially built on irrationality and the medium/arena (market) is largely unpredictable (some TA’s are screaming right now). I don’t think I’d pull a trigger in trading for a living if I were back in my twenties and about to take a risk.

For instance, on the macro level, trading for a living can largely be successful with all of the points I mentioned above (tenacity, hard work, dedication and backups). So Sure, I agree with that, hard work, tenacity and dedication will eventually lead to success as a trader on a macro level. But it’s not the same as a business..it’s a different beast. It’s a psychological Beast. You make decisions that directly and quickly cost or make you money. Dealing with the repercussions of those decisions whilst in a challenging time (down turn in P/L, stressed about $, needing to make more) etc will wear on you. I’ve made borderline adjustments that have cost me a car. Those adjustments bother me and used to affect my life. If you start second guessing yourself…it will start to affect your well-being. I lost many days of my early trading career life dealing with these frustrations and stress. I wasn’t even trading for a living, it was more of a hobby and the amounts weren’t touching my net worth. I can’t even imagine what it’d be like to trade while requiring it for living. I don’t know if I would wish it on my worst enemy. It can’t be easy. I commend the pro full time retail traders. They are a strong breed. Unfortunately, all of these little unexpected psychological issues of trading are human nature and WILL occur. It’s like running bad in poker, some players never recover, it’s a high speed venture with instant requirements for decisions that can cost you dearly. That will wear you out. This is why the best traders have very strict plans that they adhere to religiously. You cannot have on the fly decisions affecting your well-being or your trading psychology. This leads me to the micro level..

If you get into trading for a living and you run bad, this negativity will seep into your trades and it’s not something you can hit the pavement and make work with tenacity since its so much more complex of a battle (I am mostly talking about the internal battle within yourself at challenging times in trading and with the whole basis of the market being irrational and unpredictable). If a trade doesn’t go your way, and it’s getting desperate, there’s not much you can do and it’ll lead to more risk taking. So the whole internal battle you have psychologically, will tend to burn out or cause failure within someone. You can’t just get motivated late at night as a trader, and make something work instantly. So many times, I’ve thought my way through a problem in business, often times that’s not really possible in trading. That in and of itself, will lead to feeling helpless if you experience a bad run. This helplessness will compound. Then comes along second guessing yourself, and generally putting yourself in a compromised mental position.

With a business, usually, you can solve it with smarts, tenacity, dedication and time. You can, not always, but mostly, make it work! You can work hard enough to get lucky. You can do that on a large macro level with trading in general but not on a micro level which can be devastating to the psychology of the trader. I wouldn’t wish trading for a living on my worst enemy if not properly prepared, well bank-rolled and experienced.

Sep 22 – Rhino M3 Trade Plan

The market hasn’t been friendly the past 2 days but I somewhat mitigated about 70% of the potential move if I had followed normal guidelines. I had hedged some of the trades with calls and reverse harvey’d some of the RUT trades. All in all, it was more neutral with just a bit of upside risk into FOMC. The result, in RUT, we probably went from 5% to about 3% in P/L. In SPX, we went from about 7.5% to about 6%. Not terrible given that we’re at 52 week highs in the RUT. Todays market close was very strong for RUT which hurts the trade a bit since we’re not the right hand side again. Still! We’re profitable and at 52 week highs. Can’t complain, it should set up the next trades well for down or less than 4% up moves 🙂

I was able to remove about half of the SPX Oct position and secure some profits. The SPX monster trade is now up ~60-62k (the max it was up was about 70/75k) despite this large rally post FOMC. The position looks good, has decent theta, though outside the tent, but any pullback would bring some great returns. The upside has not much risk left. I removed the 2175 Call calendars today at 2:30pm as they were at the money. I won’t add any more but I will Reverse Harvey on a pullback. We have that debate on Monday which could bring some small volatility to the market if Hillary bombs. With limited upside risk, I am not in a huge rush to adjust but I’ll keep my eye on the screen and work to RH the position.

Plan: I am looking for a pull back to RH the upper longs and continue to peel off the trade at profit. Ideally, we get some sort of pull-back in the next week.

All of the November positions are now back to even with the big up-move. Expected. Will need to upside manage those trades soon if we continue up. They aren’t at any adjustment point yet but they aren’t far away either.

Before the FOMC, I managed to get filled on several 1240/1200/1150 December BWBs @ an average price of 2.40! They were 87 DTE I think, but still, great pricing. Makes the upside management easier, and it’ll be easier to profit.

I am considering backtesting a more conservative version of the Rhino that I’ll start cheaper at around 88DTE, do a few more units than normal (more leverage), reduce the P/L target and close earlier than 31 DTE. The cheaper price in the BWB should allow for easier upside management, and the cheaper price and length to DTE will make the trade a lot easier to manage. If I can get a 6% P/L target and leverage that up, it’ll make the trade a lot easier and resilient.

Sep 16 – Trade Plan

SPX OCT Rhino MONSTER

P/L: ~60,000-70,000

Getting close to profit target of $120,000. Any good 1.5-2% move down will get it at profit target and I’ll close it up. Good trade. If we get lucky and the move happens a bit later on, the profit can be a lot higher. I’ll be pretty quick to lock up profits as we get into next week since we’ll be approaching the 30 DTE level.

RUT OCT Rhino

P/L: ~22,000

Getting close to the 37,500 profit target. Same thing applies as with the SPX one. Will start locking in profits and removing.

SPX NOV Rhino

Majority of our shorts are at the 2120 strike and we’re up about 7,000. I have to consider rolling the structure down soon. If we go towards 2100 especially.

RUT NOV Rhino

Majority of the shorts are at the 1200 area and any move towards 1190 will require me to roll the structure down @ a profit.

Sep 12 – End of Day

A complete reversal. Looks like my lotto’s are out of play…or maybe not. If the market had fell today, I’d have been forced to close them at whatever profit was there as leaving them on with any significant profit would have been gambling. Now, if we actually had a black swan or big 5-6% move, it’d be significantly more as time is ticking on them. Anyways, lots of potential market moving news out there (Hilary, North Korea, etc). A complete waste of time talking bout them but hey, whatever, it’s kinda fun.

Huge Ramble and verbal diarrhea below. Maybe someone can relate to them.

Today’s reversal actually wasn’t too bad on my P/L as I had bought some hedge calls yesterday towards close that paid off reasonably well on the reversal. Sort of internally thought that this would happen re three feds talking today but thought the down move was too harsh for anything significant (I was wrong). Still, Oct/Nov trades are all perfectly positioned. If we can sustain the up move to no more than another 3% we should be sitting very pretty with nice trades that will make the entire year. It’s possible the year ends up at 50% after the Nov and Oct trades, if we have any normal movement from here till mid Oct. If this market screams up to 2240+ then that won’t be possible and we’ll be treading water as we have been.

I am trying to explain to some friends (when they ask how my trading is going since Feb) why the results have been less then spectacular. It think all of us market neutral BF traders agree, it’s a very difficult market for market neutral trading, it really is. I think John Locke is negative 3-4% for the year on his core Bearish Butterfly, M3, V-Condor and Rock trades combined. It’s just a shitty market for these trades. Why specifically for the Rhino? Well, it’s the fact that the market has moved up significantly in every single cycle since February and this strategy really is a mean-reversion based strategy. It expects normal market action with normal volatility where somewhere in the cycle, the market falls into the tent enough to generate the profit targets in the plan. Of course, some months it won’t and you’ll do break-even or slightly negative but other months you’ll get lucky and do 10%. In general, it will do well in each cycle if the cycle moves 10% or less to the downside and 5% or less to the upside. THat’s a huge 45 day range potential for decent results! The crazy thing is, each cycle since Feb has had the latter requirement violated each time. Since February, the trade has not gone back to the tent long enough to generate the profit targets. It’s moved up 34% in 5 or so months. That’s an average of 6% a month or 8-9% a cycle! So, how could any of our trades end anywhere near the tent to where it generates a significant profit? In the Rhino, if the market moves outside of the tent on an up-move, and it sits 3% or more away from the tent without mean-reversion or a move back, the trade is pretty much dead. That’s if you follow it as per the guidelines and original intent of the Rhino. Of course, you could adjust the upside to generate a return via things like RH (Reverse Harvey’ing the upside) but there is trade offs, and to me, when we’ve had significant up moves, we are at risk of quick moves to the downside..and well..I’ve backtested the trade to death and I like it as it is, I don’t want to deal with downside exposure especially now, I mean, it’s kinda already too late 🙂 I believe that over time we mean revert and overtime volatility will come back into the market. If you turn the right wing weak area of the Rhino into a more income generating area, like RTT traders do, it’ll expose you on the downside significantly. I know some of the RTT traders did much better in this environment by reverse harveying but at the same time, these trades will suffer in a larger down move, in fact, I saw several talk about how they were at limits on Friday. If it fell another 3% on Monday, they’d suffer greatly. I prefer to keep managing the Rhino the way I manage it. Eventually it’ll pay off.

I’ve backtested the Rhino to death, and if you go back to 2007, it does extremely well, it’s extremely resilient and it generates an average of 5% a month. It struggles in run-away up markets but little else. No matter how you slice it, if you backtest the last 5-6 months, you’ll get similar crappy results UNLESS you were very liberal on your upside adjustments and didn’t follow the original guidelines (IE RHing the trade). So, when I go through this period with live trades, and I am frustrated with the break-even results (which is only really the last 5 months) and then I backtest and get the same type of results, while having had 70+ months backtested with fantastic results, well, that tells me it’s just the current market type. The trade will work over time but it struggles in times like this..I mean 34% UP in five months, how could I expect any better in the trade result. In fact, its so extreme, shouldn’t I expect to be quite negative during that period?

So the point of all this unedited jabbering, well it’s meant as a cathartic check for myself to remain patient. The next year will not be the same as this year, and if it is, well fuckn’ hell, I’ll just endure it. But I believe that the market goes through cycles and all cycles end. The point is, I have a trade plan, I am going to follow the trade plan and I will continue to trade the plan for years to come. I am confident in the trade. This applies to the Rhino trade, I am actively looking at other trades to compliment.

Here is a few of the trades I have on

1. The Monster SPX Rhino

This one is quite healthy. It’s got a P/L of about 34k right now. It hit 53k yesterday. If in 20 days we are sitting anywhere between the 2034-2142 area, it’ll be up between 130k-410k If it’s at 2070 area, it’d be up 410k! That would put my account up almost 50% for the year. Not a bad result for one winning trade in 4-5 months. See, it’s about waiting for some mean reversion and for some luck in having the trade end within the tent and this tent is very large..2040-2140 would generate a hefty profit. If the market keeps moving up and we get to the 2230 area or above, yeah I mean, it’ll do slightly positive (15-30k) and that’s it…and that is exactly what’s been happening the last 5 months. You just can’t win too much on relentless up moves.

Here’s my Nov RUT Rhino

You can see here..we’re about 2% out side the tent and well, we have no real profit potential if we go another 1% out. Of course, I’ll add some call BWBs to help hedge it but it’s likely we’ll just hit break-even if we sit out here and don’t move back in the tent. If you have 4-5 months like that, you have to ask yourself, what are the odds that the market moves up and away from tent and does not enter back into the tent enough to generate the profit target? It’s actually quite rare, it’s just a symptom of an extremely bullish market like this has been and some bad luck with timing. The last 2 down moves worth any salt since Mar lasted 2-3 days and were in such a time where we couldn’t yet close the trade.

Sep 9 – End of Day

Ah what a great day 🙂 It’s nice to be cheering and enjoying a beautiful market fall and even praying for a 3-5% gap down on Monday rather than being stressed out and at adjustment limits with collapsing P/L like I used to be in the modified iron condors days. Obviously, No disrespect or gloating intended. I’ve endured two hard corrections in my life where I wasn’t properly prepared, so I am allowed to say that. So no disrespect or gloating intended re anyone reading this that is long the market. I’ve earned it!

Like I mentioned a few times, I have some Sept Lottos on (specifically 100s of 1050/1100/1140s and 1060/1110/1150s from the Sept campaign that were worthless a few days ago. I had hedged them off the last 2 weeks with call BWBs etc that were all removed. It was cheaper to leave them then to pay commissions closing them. Of course we’re pretty far from 1150 or 1140 but if we got another 7% down before Thursday expiry, they could stand to make a LOT of money. I’ll definitely close most if we get an equivalent -3.5% move on Monday as we had today (it’ll make the Sept profitable) so its probably not actually likely that I’d hit the real big profits as they could, unless we have a mega gap down on Monday. Either way, neat.

All my other trades are doing great. The down move helped a lot. I wish I was a bit quicker removing the remaining upside hedges but it is what it is. I figured we may get back up to 2200 with SPX and 1265 area with RUT before a fall and I didn’t want to expose myself to a runaway up move. Balance. The same day i believed we topped out, I had bought some call BWBs for October. Bad timing but proper risk management. I only use my technical analysis for small things and finer adjustments within my overall parameters.

Ironically, I might actually have to roll down and adjust my Nov trades if we gap down on Monday, which is kinda funny given how much room there was just yesterday. I don’t remember the last time I did downside adjustments, not even Brexit brought me to that. They’ll all be profitable, so it’s welcomed.

Here are my Nov RUT trades which I don’t think I posted. The short strike is at 1200. So as we approach it, I’ll need to roll it down. I may also condorize it or add some call BWBs to help with an upside bounce. I won’t mess about with adjustments if we do gap below 1200 and touch 1190, I’ll be fairly quick to roll down the entire structure. I’ll give it 10 or so points since we’re far away from expiration but not more. If it gapped down the next day and you were at 1190, it’d be on the very slippery left side slope.

Sep 8 – Rhino Trade Update

I added 5 x 1230/1280/1310 call BWBs to each of the Oct RUT RHINO trades @ 20.85

I have been toying with adding some 1170/1220/1260 BWBs in @ 4.6 if we have any move up to 1260/1265 area to beef up the sea of death area and for a play on an expected pull back.

Oil is rallying huge today! Nearly 5%. Bonds are taking a hit (TLT down 1.6%).

Oh and I added back 1 futures hedge per trade on the pull back to 1256 TF

Sep 8 – Trade Plan

Yesterday I had closed off some of my futures hedges at my pre-determined level of RUT @ 1260. So far it seems like a decent close. I don’t see us going much above 1260/1265 area as the upper trend line sits right around 1260 (but is rising hence the 1265/1270 possibility).

SPX Oct-D (Rhino)

No adjustments here.

RUT Oct-D (Rhino)

I have to address the upside risks here. I am going to look at some adjustments today at 1pm.

SPX Oct-M (Rhino)

RUT Oct-M (Rhino)

No upside adjustments required.

I have to address the upside risks here. I am going to look at some adjustments today at 1pm.

SPX Monster Oct-P (Rhino)

The monster trade. This one is doing well. I have a solid 8% to the downside before any issues and I’ve got that hedged off on other trades until at least Sept 15. No adjustments needed here.