Tag: weirdor

There is three reasons why the market is likely to pull back.

1)  VIX  opened and closed above its Bollinger band. From Cobra: 81% chance of market revisiting the Apr 6 lows

2) The RSI made new lows and hasn’t show positive divergence. Down momentum is strong

3) The last down leg exceeded the 100% measured move which usually means another leg is likely.

What’s my plan? I’ll probably adjust slightly on any big bounce to make sure my deltas are zero to slightly positive.

 

 

 

Yesterday was a solid down day and I used it as an opportunity to enter in more units of June MIC. I’ve got 40 units total on right now with entries all over the place.

The market has had 25+ Fugly days but nothing thats really carrying on much past a day. It’s 1-2% up and 1-2% down.  Trendless within a larger bullish trend. It’ll resolve one way or another.

 

The thing is, you rarely have triple + tops and the more we consolidate here the more likely we bust right through that resistance @2120.  The more times it knocks the more likely it’ll get through. The season is bad, the indicators suggest more likely down than up but we either have to move down soon or we’re likely to clear up and create new all time highs. I think this will resolve in the next few days especially around Fridays NFP number.

 

 

 

Wow, what a day. Forgot what one of those were like.  Had to be alert and paying attention for the first two hours as RUT proceeded to fall about 30 points and stretching its daily Bollinger band the most it has in 18 years. Just a few days ago Rut hit 1274 and quickly fell to touch 1216. That’s a big big fall to happen right at the end of the May trade and as well at the start of the June trade. Difficult and stressful but opportunity arises from the debit spreads (we typically make our 7-8% when we’re in the window of the jeep (the window gets bigger with debit spreads). After the first two market hours, I was out having sushi and sake most of the trading day and unfortunately was on call with mr. market.

Overall, I am happy with how the adjustments went but had some difficulties getting fills and things moved quick. I had to work for my money yesterday.  Obviously could have done way better in fills and ideally as it hit 1234-1235 I could have gotten in my debit spreads but I couldn’t get decent fills and it fell quickly to about 1229-1230 and I patiently waited to get fills on 20 point wide debit spreads for both the May and June trade. When it rebounded to 1231-1232 I got filled at meh prices but at least I didn’t pay for those when it was at 1228 or even 1216 later in the day. It’s part of the game. Quick falls = premium prices paid for adjustments. They are necessary though.  I perhaps should have bought back puts on the put credit spread instead. Either way our delta hit about 33 so it wasn’t too bad.  Further in the day, I got another alert when it hit 1225 and logged on my phone to see it fall all the way to 1220 (and touched 1216). I had to do a smallish adjustment around there which I am sure I over paid for but, again, the adjustment was not on the low of the day, so I can’t really complain. It could have been worse.  The call spreads are all removed now for our RUT May trade. Risk is only to the downside and as long as there are no big gap downs, it’ll be relatively painless to manage. Time decay is large right now so we should reach 6% by Monday and maybe even 7% by end of trade.  Time will tell. Consolidation in the market would do us wonders right now! The trade is sitting at just below 5% right now (we had been around 5.5%).  Yesterdays fall does give us more potential in the trade, with only 14 days left, and the risk being on the downside, we can add puts/debit spreads on a big fall and benefit from the big time decay if it bounces or stays neutral. The trade for May now has more potential than before but we’ve taken a little hit yesterday as volatility increases the prices on what’s left.

The June RUT trade is down about 2% as expected, we just put it on and the volatility increase raises the prices on all the legs. As time goes on the volatility (which is directly linked to extrinsic value) will start to deflate. Completely normal. As mentioned, it gives the trade a bit more potential.

The SPX trade is neutral. It did well. I put on the bottom legs on a big drop a few days ago so it really wasn’t affected.

 

 

 

I was analyzing and calculating results this morning and chatted with a few people about the journey and the results to date and really just about trading and emotion.  I found that through my introduction to option trading till where I was now, the biggest battle I had was with myself. I bet people here that a lot in this world but to it’s important to really break down what that means.

Caveat: The below is more in the context of managing a month long trade and not anything to do with technical trading or the like. It’s about deviating from a plan and using discretion and “outside the plan” decision making.

Trading does really attract some smart people. Smart people like to gather and collate as much information as possible in the activity they’re engaged in.  Trading and investing is quite unique in that obtaining as much data or more than the next guy won’t necessarily generate a winning trade. It may give you slightly better odds, but the market moves in such a way as to not be highly predictable. Of course, you might have slightly higher odds but we all tend to over estimate the value of our information sources and end up surprised when things turn against us.  In almost anything else you put your mind to, having as much information and being able to process and collate it will usually result in getting better and better at the activity. Usually more information significantly increases your success rate, but in trading it really doesn’t (in this context).  There is so much information sources/types out there that people will usually have a tendency to over-educate themselves and to gather and review a lot of complicated information be it macro economical or technical or what have you and they try to collate the data into some useable decision.  A lot of times, these decisions end up being wrong and there-in comes emotion. Nobody wants to make a discretionary decision outside of their system and have it be wrong.  The normal tendency is to try and win it back or to make it right or it might just generate a lot of stress and burn-out. I can say that I’ve never tried to make it right or win it back but I have generated a shit-ton of stress. Stress that wouldn’t exist if I followed a pre-determined plan.  You end up looking and “hoping” that the market moves in the way of your discretionary decision. MOST importantly, people will look for information solely to justify the behaviour or action. Let me tell you, in trading, you’ll easily find suitable information to justify ANY action you want to take. That is a dangerous thing.

Discretionary adjustments bring about stress and emotion and those two things can lead to significant mistakes and over emphasis and over valuing  information to justify further mistakes. That’s what it boils down to.

You avoid this by creating a plan, following it religiously and by having proper alerts setup to avoid looking at the market on a continuous basis.

My results for the MIC since May are:

May: 5.69%

Jun: -2.65%

Jul: 1.01%

Aug: 7.24%

Sep: 4.8%

Oct: 0.78%

Nov: -9.7%

Dec: 2.01%

Mar: 3.96%

Apr (still in): 4%

Average without Nov: 2.99%

In the November trade I had made some discretionary but probably significantly POSEV adjustments that cost me a large month and several lost nights of sleep and un-needed stress.  Had I managed the trade according to plan, I’d actually have gotten out with a profit. Why was I trying to beat the trade?  Well, I thought I had collated enough information to justify deviating from the plan. I mean, seriously, I still believe it was hugely POSEV but, hey, both times I thought that and went against proper risk management, I’ve gotten burned bad!  It doesn’t matter if it was POSEV it was just too large a risk to take! What did I do? Well, instead of removing call spreads as my delta increased, I rolled them forward and increased the units. Why? Well, I had calculated the odds of the market going from 1820 to 2080 (as actually happened!) as quite negligible, especially in the small time frame of the trade usually after a fast down like that there is another down leg (opposite of a bounce). Every indicator was flashing insane over-bought. The position I took gave me a huge up range (apparently not enough).  I found probably 30 sources of information that would have attested to 2080 being <1% chance. It was unheard of, I think the market moved like 200 points in a matter of 7-9 trading days. Suffice to say,  the market kept going and went hard up. I had rolled/added around 130 points in at a point where it should have taken a breather.  That brought my largest loss and an un-needed one and it was because I deviated from a plan and tried to act on information as if it was a sure thing. Information will give you some odds but it won’t be enough to justify going outside of your risk plan. What was the other one? Well, that was when I first started trading and is too embarrassing to even mention (had to do with AAPL credit spreads and the infamous Andy Zaky)

You notice how after Dec I took two months off? Why? That was stress about the way November went.

 

 

 

 

 

 

 

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.

 

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.