Apr 14 – Trade Plan

I didn’t end up selling calls a few days back as my deltas were just a bit too high for my liking. We’re quite balanced on the MICs so we’ll just leave them as is. Its been an easy year for MICs so far.

I find myself looking at the market and technicals far less these days. I set my alerts and follow them relgiously and since then I haven’t really wasted nearly as much time. It’s as though I don’t even care about normal market movements. I don’t do discretionary adjustments unless its for a few units and affects little. I don’t ever get in a situation of “hoping” the market moves in some direction.

I always considered the MIC strategy as being somewhat of a glorified insurance salesmen. You’re literally selling risk while hedging it. Extracting premium out of the market.  I really enjoy time decay based strategies. I’ve been doing some calendars and one day when I have more time I’ll start backtesting 9 day iron condors. Over the break I spent about 15 hours backtesting the 4 day Iron condor that Sheridan had mentioned but I just couldn’t get it to work well enough to justify.

 

Apr 11- Weekend post

Spy closed at 210 with RSI at 90+ which is usually a point where we see a pullback but markets tend to like extremes.  I expect a pull back next week after a bit more up.  I’ll probably sell two units of call put spreads to complete the put credit spreads I sold a few days ago.

In the last 6 months my account is up significantly.  Had it not been for the single month of October. I’d be rocking around 60 percent.  I used to be a professional gambler and made a lot of money by exploiting POSEV situations.  My two biggest losses in trading had to do with my mindset of exploiting odds in a POSEV situation but with no regard to risk of ruin or how a large loss would affect my trading psychology. Trading is not about exploiting POSEV situations. It’s not professional gambling.  Of course with smaller amounts it’s ok but risking 10-20 percent of your stake in a situation that you calculate as POSEV is an inappropriate move.  It’s about risk management and staying psychologically fit to Stay in the game. Both situations were POSEV but the amount risked was ridiculous.  I’ve learned to manage trades by plan and with variance in mind and since then I’ve kept myself out of trouble.  The last six months have been a testament to following a disciplined plan.  I am very happy with the results 

Apr 10 – Trade Plan

MIC Update:

I only got in about 22 units this time around for RUT and about 8 for SPX. I wanted to do a bit more so I added some yesterday right at close.  My ideal # would be in and around 40.  It’s for May expiry which is May 14th so we’re at about the limit for entering  a new trade for May. After today, the only trade I’d be entering is for June.  I don’t like to go 35 days or less when entering a monthly style MIC.  The ideal is around 45-50 days. We’re already profitable on both the SPX/RUT MICs for May at about something like 1-2%.

Yesterday I did add 2 units of put credit spreads to my RUT MIC to reduce the long delta I had. I don’t normally do this but I felt it was a good way to reduce delta given we have 35 days and all indicators I use suggest we have more upside to go.   All of our deltas are now zero (SPX and RUT) and our time decay (theta) is nice and high.  Burn baby burn.

Protector update:

I pretty much did this update yesterday, we’re sitting nicely with the protector. If I ever setup a fund, it’d be entirely around the protector strategy. It’s consistent and its conservative. To me, after my years and years of trial and error/research this is as close to “holy grail” as you can get.

Being back in Malta is nice, there’s some positives and now that we know we’re leaving, we’re enjoying it all the more.  It’s truly a gem in the mediterranean. It’s got so much to see and do. Highly recommend it as a place to visit.

Apr 9 – Back from vacation

Just came back from a 2.5 week vacation in Cayman and Toronto so posting has been unintentionally light.

The account is at all time highs. Things are going well.

The MIC for March did 3.86% which I was happy about given the conditions. I probably was a bit overly cautious in the management of the trade. But that’s OK. I gather I could have eeked out about 5% with less conservative adjustments. But hey, 3.86% in a month is nothing to sneeze at. I usually leverage this about 2.5-3x

The protector is doing well considering the market is up what 0.75% since the start of the year. The hedge is down about .68% and the equities are up about 2.9%. The overall result about 2.22% up.  So not only are we completely hedged, but we’re up 2.22% vs SPY 0.75%.  I leverage this usually 6-7x.

We flew out of Malta and arrived in London for an overnight at the hotel. We usually do this because it’s easier with kids, we break up the trip to make it more manageable. On the way there, our kids acted like someone just released from an insane asylum, it was super bizarre. They acted like they haven’t already been on 100+ flights and that it was their first time. It was maddening. I think they were just excited to get to Cayman and see their friends.  The following day, we got on the long haul in business class (using our points I acquire). I look forward to the flight about as much as the trip, I love BA business class and the service.  The arrangement is pretty awesome, the kids have two seats in the middle (next to each other) and we’re on each side, it’s essentially a pod that contains all their noise and that they can move around in. They slept about half the flight while Ash and I enjoyed the free champagne, wine and food. The next day we stayed a night in Toronto and departed early in the AM on Aircanada to Cayman. Pre-market that day was quite intense, I had sold some IWM to hedge our RUT IC which proved to be an expense and the ONE adjustment I didn’t love doing. The delta would have been a bit uncomfortable and I figured it was the best move. Of course, the market rebounded very swiftly.

Cayman was awesome. Saw all of our friends, over-indulged, and got a bit fatter. Afterwards, our 5 day sin Canada were the same. Time to diet and exercise like never before.

 

 

Mar 30 – Trade Plan

Markets bounced more than most expected reaching around 208.5 today before settling around 207.93 at close and after hours. I rolled the debit spread up on the MIC a bit (selling the 1220 puts and buying the 1190s). We’ve had a bit of whipsaw happening lately and we’ve had to adjust.  A bit annoying but we’re still probably going to end up around 4% with a most likely worst case of about 2.5-3%.

Our May MIC is doing fine, the volatility collapse helped a lot. I entered most of the trade on a big 2.5% down day. The calls are getting a bit pressured but we’ve got another 5-10 points before having to adjust.

The Alpha protector is doing great!  Especially on up days like these.

Mar 27 -Trade Plan

Haven’t posted in a while. Been busy with the vacation.

This week was pretty interesting. The market fell quite a bit, just look at that daily candle.  We’ve ended the week at the same level. Chart taken from Cobra.

Screen Shot 2015-03-25 at 4.27.53 PM

 

The protector portfolio is up about 1.5-2% while the market is at 0%. This is because of the alpha picks used.  It’s a long hedged portfolio so when the market falls, it falls at about half the rate when we’re so close to the long put with a delta of 50%. All in all, performing as expected if not better.

 

The Apr MIC is up about 3%, pretty good result considering it went down to 1207 back up to 1267 and then back down to 1225.

We used the big down day as an opportunity to enter the May MIC.

All in all, despite the market now being neutral for the year, we’re doing well.

 

IMG_2508 IMG_2519

Mar 20 – trade plan 

I write this post from 38k feet above the earth in a plane enroute to cayman.  First time I’ve had a flight with Internet access, it’s surprisingly quick.

The last few days have been quite good.  The market rose a significant amount after dovish remarks by the fed.  My portfolio is at all time highs for the year.  

We had to adjust the mic a bit on the rise and its up around 2-3%.  Was very diligent with adjustments and I am pleased about that.  

   

   

   

   

Mar 17 – Trade Plan

Both the momentum and SPY/TLT trades are now closed for good. We’re left just with protector alpha and the modified iron condors.

I closed the SPY/TLT pair trade for -14.4% for February and +10% for March. Those aren’t terrible results for the amount of volatility present in TLT and SPY during those months. Not to mention that SPY/TLT both fell for a while there in late Feb/early March. As well, TLT was up 11% in January and fell the same in February, that’s a lot of volatility for treasuries. It’ll be the last official pair trade for a while.

The momentum portion is also now closed at 0.25% profit. I don’t leverage this and its not attractive for me at this time. I like to use leverage with low-volatility strategies that have low max draw downs. Owning any equity unprotected is just too much risk for me 🙂

This months MIC is up 2.4% so far and I typically leverage it about 3x.  The previous month I did 5.7%.  I took off 14 1180/1200 debit spreads yesterday.

The protector Alpha is up about 1.4% for the year including the hedge.  Spy is up about 1%.  We’re outperforming the broad market AND we’re 100% hedged. Good result indeed.  My expectation is that this will chug along and end up 10-15% for 2015. I leverage this at 7x usually so it’s up about 10% for me on the year.

On that note, what do I expect going forward?

I expect to do about 3.3% a month on the MIC and an average of about 10-15% a year on the Alpha protector. I leverage the MIC about 3x and I leverage the protector about 7x.  So with leverage I expect about 10% a month on the MIC and about 7.5% a month on the protector. This is the return on the actual equity I have invested. My position and take on leverage is this: If I’d normally invest 250k in some strategy but I can do it with leverage and have only 50k tied up, then why would I tie up 250k?  First, I determine my max draw down that I’d be comfortable with and then I put the least amount of money I need to work to achieve this level of risk/volatility.

As an example:

Let’s consider the protector. Let’s say I am comfortable with a 100k draw down and I figure that this is the MDD on 1MM of hedged equity.  I first must accept that I will likely have a 100K draw down at some point in time and be comfortable with that. Next, because I have portfolio margin, I figure out how much cash I need to put up to achieve that goal and I put the least amount down as possible which, for this example, is roughly 150k at 7x leverage.  Now I have 1MM worth of exposure at 150k and I am comfortable with the likelihood of a 100k draw down. It’s a concept that Scot bilington built into his optimum fund at Covenant capital. That’s a 66% draw down on original equity!  That sounds crazy but it isn’t IF you’ve put down 7x less than you normally would have.

With the protector, I am comfortable with a max draw down and while I don’t suggest other people use this amount of leverage, it can be quite useful when handled with absolute care. I do it because I understand the draw downs and the risk and I can afford and stomach the swings.  When you leverage the protector at 7x, you can expect 25%+ draw downs mark-to-market. With the MIC, if you set a 7% max loss, you’d have a 21% draw down.

As for the travels:

Tomorrow we hit London for a night, followed by Toronto for a night, then the final destination – Grand Cayman!

 

~P

 

 

Mar 16 – Trade Plan

Futures are up a boat load.  We’ll likely have to adjust the MIC a bit today. This week is a big week with the FOMC meeting on Wednesday and it being triple witching for option expiry (quarterly expiry). PastStat posted that weeks like this are up 22 out of 26 timers.  So I guess bias is on the upside this week.

We’ll likely remove 18 debit spreads (1180/1200) and might move up the 1190 to 1200. We’ll see how today goes. The trade should be up around 2% today.

We have lots of rebalancing to do today for the Alpha. Alpha should be up nicely as well today.

Weekend Post

Good weekend reading:

http://fat-pitch.blogspot.com/2015/03/weekly-market-summary_14.html

Upcoming travel:

Last year we moved to Malta from Grand Cayman thinking the Med life may be more enriching for our young family but meh, Cayman crushes, it’s just such an easy relaxed life. So we’ve decided to move back. So we’ll travel in the summers and live in Cayman the rest of the time. I miss waking up, putting on my flip-flops, grabbing an ice-coffee and starting the day at Del Sol. I literally never wear pants in Cayman, just shorts. It’s the life. Pants are for chumps. Way to restrictive 🙂

We’re building a house there which I am excited about. Can’t wait for it to be finished.

06 Brick Wall at Garden

 

To prepare for the move and to get things moving on the building front, we’re taking a vacation to Cayman next week for 11 days then Toronto for about 3 days.  We are so looking forward to that. It’s home.