Tag: STT+BSH

PC2 – This week

I’m in London making my way back home to Cayman. I don’t think I’ll be traveling for at least a year in any major way (more than a week). During the travels, I had a lot of downtime due to newborn naps etc and during that time I’ve been backtesting PC2 and other things like the variants of T5. Probably put in 200-300 hours total of backtesting. Lots of dead-ends but came up with a solid plan for the rest of the year. It was kind of a necessary evil.

Going to start full deployment into the PC2 this week for all my accounts. I am content with the backtesting, the risks and well the no, literally 0, recorded losses 🙂 I’ll be adding one long put at 12% to help with margin and act as a real hedge on a down move. I’ll sell enough NPs to cover that and the black swan hedges. I have to add in another portion of backtesting as I want to switch how I manage it on the downside (might do bearish STTs). But I’ll do that next week and switch when satisfied.

Slow ass year but I hope the next 3-4 months with the combo boost up the returns and gives me a good end to the year and a 2018 that does 5% a month plus. I’ll be doing opportunistic T5s at a very small amount to boost some of the PC2 returns. As I get further down the rabbit hole, the amount of return I reasonably think I can return on large accounts goes further down, there’s just no free-lunch w/out risk and I don’t really like risk anymore 🙂 Non-compounded I am guessing it’s closer to 45-50% a year for the core PC2 trade after slippage and all that. Compound that and it’s eventually going to crush anyways. Three years at 45-50% and you’re at 225% or 75% annually ish. The T5 should add in a lot of boost and maybe we can get up to 75% non-compounded, who knows. We’ll see!

Had a really rough mid-Aug with starting the T5 trade at the worst possible time (before the NK issues) and back month vol sky rocketed. I had a max draw down of 3k a unit (and I had lots of units on) but I’ve recovered nearly all of it since. Back to all time highs but that’s been stagnant for the last 6 months.

I played in the Barcelona tournament, I did get to add a Spanish flag to my Hendonmob profile by getting 102nd out of 782 in the 2k NL tournament. I exited that one with AK vs 66 and the board was AK6xx. Too bad, had I got that one, I’d have had a shot at the final 20 and a much bigger cash. In Bahamas last year I had AA vs AK and the guy flopped KKT. That was a big one, the hand itself was worth 40k in cash no doubts re payout ladder. Ah Poker…

Aug 8 Trade and Travel Update

I am on my very last 2 day leg with my family in Milan. On Aug 10, I’ll drive up to Munich to meet some friends and do a beer tour around Germany and probably Pilsen (Czech) and maybe Krakow, Poland. On the 19th, I’ll be in Barcelona to play a big poker tournament and then I’ll be heading home to resume normal life. I think this will be the last EU tour for a little while. We’re building a house in Canada next year and I think we’ll use that as our summer base and slow down the EU tours as I think I’ve seen most of it now. It’s not as exciting as it first was and it’s been more of a drain than a rejuvenation. As my account grows, I need to fully concentrate on trading and take only brief breaks on weekends etc.

As for the trades, well, the market is in a historic area right now. The DOW has made 9 all time highs in a row and the VIX (and thus option premium) is at all time lows. It’s a bad time (the worst) to be an option premium seller. It’s the worst time for strategies I used and the plan I had 🙂

I saw this graph of VIX futures and it really sings a song.

Anyways, I know a lot of people are being challenged right now. It’s been a rough 20 months for trading these types of strategies. Slow. I started trading the Rhino (which really likes any market other than a 5% up market in a 45 day period) and as soon as I initiated that trade at full volume, the market had like 15 months where 9 of them (RUT) went up 5% or more 🙂 I have terrible timing. I think the RUT moved up 50%+ in the last 15-20 months. The SPX went from 1828 to 2475 in what 16 months? Incredible move. So I had low’ish returns for that trade over the course of 2016 (I was positive just meh, I think 20%-25% overall). Then 2017 came along, and I had started the STT full on but still had Rhinos on from previous. The rhinos got decimated in the environment and is still affecting my overall return for 2017. This environment for the STT can still be done well I just wasn’t able to kill it this summer. As to do well, you really had to be perfect in timing for paying off the BSHs and for initiating the STT. It took a certain plan and without knowing how the market would have gone, it would be hard to do well in that environment sans Combo trades (the combos would have crushed). The vol has been so so so low that I’ve been dragging heels on initiating new STTs. I mean, you’re a net seller of vol and vol is at historic lows, you haven’t gotten a worse price on this ever. So I wasn’t excited about initiating new trades. I know it can be done if you arrange a + UEL and if you are very prudent at paying off those BSHs but that’s not easy. On big up moves, I’d initiate BSH and RC (RC pays off about half of the BSH) and I’d wait for some vol to enter in STTs. That vol never came (ever!, it’s so damn crazy how low the vol is..we haven’t had 0.3% daily moves in record times) and I was stuck putting on STTs in low vol(Crappy prices) and when my BSH/RC combo was down. Still it profited but just nothing much at all. Typically, the plan was this: Put on RC/BSH as the market has a big up day, wait for down day and enter an STT. In ANY normal market, or any market that’s not this market, you’d have that opportunity. Down days are fairly common…just not this year. That all said, poor (slightly profitable) results because of the management/plan I chose for the year. That’s got me a bit bummed out but at the same time I haven’t been more excited for what is coming in my trading career.

The combos that we are working in the group and the testing that we’ve done suggest very very consistent results. I’m showing a result of 8.75% on margin in 45 DIT. Thats 5.833% per month on margin used. We use only about 65% of balance, so total balance return would be 3.8%. Not that exciting when looked at as a single component. However, If we combine this with a T5 (TTT555) trade the margin reduces significantly. My goal is to get it to 5% a month on whole account for the STT combo alone. The T5 trade has gone from 1200 to 20k in 2.5 years in backtesting. That thing returns 100% 70% of the time within 10 days and loses equivalent 30% of time. You obviously can’t do too much of these as you’d wipe yourself out psychologically (and 30% of your balance) if you had 3 losing months in a row but the boost and the margin reduction makes it very attractive. My goal is to have the combo, the BSH factory and the T5 trade working together to provide a total account return of 100%. That’s exciting but it’ll be a lot of work, a lot of organisation and diligence in process. Further to that, we’ve got a T5 timer that helps immensely with entries and exits. Unfortunately, I went about 40 units in for the T5 before the timer exists and I entered at a shitty time, it’s down at them moment but the risk profile looks great. Like I said, I have the worst timing for everything and I have to create a life and trading plan that negates my awful cursed timing 🙂

I was asked to do a presentation on the PC2 trade but I am on my last two days with the family and I just can’t sacrifice the time w/ them without having a very angry wife so I am hoping I can just do it early September instead.

Aug 3 – Trade update and plan for the year

I’ve just arrived to Arona, the final leg of the trip with my family. The last 2 road trips, we use this as a rest and catch-up stop (so I’ll be backtesting and working like mad). There’s not much else to do but that 🙂

I’ve had a very slow summer re P/L as the market has been the lowest vol possible and I am a net seller of premium and premium hasn’t been cheaper 🙂 I’ve been sidelined a lot waiting for high vol entries for the STT and it’s never come. The trades on entry do prefer a higher vol (STT) and while the BSHs love a low vol entry, I’ve been using RCs to pay for them but it’s not keeping up on the pay-off. I try to have a positive UEL on the STT at initiation to compensate but I haven’t put on enough STTs! So I have too many BSHs to STTs right now as I am sure most of us do. You put these things on in low vol and get them paid for so that when you get your higher vol entry for an STT, you’re nice and hedged. I wait for two days of vol or down days to get into additional PCS to help pay for them OR I set the STT at higher UEL (basically same thing as adding PCS right) but we just haven’t had that. It’s incredible really. Frustrating market. So in essence, the market has been pretty much the worst for the trades…at least the worst ‘now’ seems to be just slow profit. On Jul 27th, we had a single large vix spike and down day and the balances jumped super high, I liked that..but it lasted a few hours lol. I am sure vol is coming soon..just waiting it out. My Dec trades have a negative UEL right now and I am waiting for one larger down day to get that fixed..maybe I should just do it soon..vol is so cheap though, I’d be getting paid crap 🙂 The trials and tribulations of decision making. The combo trade I am discussing below should fix all of this for me.

    Combo Trade

I’ve been developing a combo trade that can be put in on ANY market type and will profit an average of 8.5% on margin per 45 day period (and I haven’t seen a loss in 30 months of backtesting). I had previously posted returns for one version of it on this blog. I’ve tweaked it a bit and and am finishing it up and will post those results as well. I think the mastermind group is dedicating 1.5 hours next week to investigating and talking about the combo trades. I am very hopeful that this is the base trade going forward, it’s not had a loss yet in backtesting and survives Aug 24 w/ large profit.

I’d probably slap them on via the IB desk as one large order. It’s completely hedged in a black swan and can be scaled high. The average draw down is ~$700 per unit(very rare) and the profit target is $350.

I’ve been testing this combo since May in various forms and I had abandoned it when I incorrectly calculated the margin in May. Stupid mistake. Had I not, I’d have had them on for the summer most likely and they’d have reached profit target. Instead, I was doing STTs, BSHs and RCs separately. I’ve done poorly paying off the BSHs via the RCs due to the environment and I’ve got caught with the STTs a bit with negative UEL issues waiting for a down day. Frustrated but I have to wipe the slate clean and start fresh for the year though and get these combos and 555s going and aim to close off the year with good profit.

    Returns

As mentioned, it does about 8.75% on margin per 45 day period. So its a 6% a month trade but we always have 35% of our balance available so it’s more or less like a 4.5% return per month nen-compounded. That said, I am mixing in 10% of the account with the TTT(555) trade which reduces margin drastically thus boosting that return on margin and also provides really good returns in and of itself. The plan is to go live with the PC2 and TTT(555) trade soon and start bringing in the returns that’s been lacking this year so far as this exploration and trial for finding the perfect trade starts coming to an end ‘ish.

    TTT(555)

The TTT(555) trade was developed by Ron (Trading Dominion) and was a take on a previous trade that took advantage of skew dynamics across expirations. Essentially selling the part of the curve that at it’s highest and buying the part of the curve at it’s lowest across expirations. The margin requirement is the minimum and if you have other trades like the STT on, it would actually reduce overall margin heavily. The average days in trade is 10 and the profit is typically 100% of margin in 10 days (about 67% of the time) and the other 33% of the time you lose similar. The equity curve from 2015-to date was 1k turning into 22k. Incredible returns. For more information, join the mastermind group! If it isn’t obvious, I am just a member, I don’t make anything from the recommendation except hopefully leveraging the ideas you add to the group 🙂 Ron only charges I think $30 a month to keep the lights on for the group (site, organising the mastermind sessions etc).

Here’s the direct link to extra details about the course dealing with the Space Trip Trade, Foundations, and the Black Swan Hedge. Once you get through that, join the mastermind and that’s were we’re discussing all these trades. Invaluable.

https://academy.tradingdominion.com/pmtt/

Results from PC3

Here was the backtest results for the PC3 original adaption which sold a static amount/value of NPs at a delta regardless of actual cost of BSH. It of course did well in up years (and handled Aug 24 well) but during Sep 2014 it did poorly (The only negative month). Adjusting this to just enough NPs to cover cost of BSH was also backtested but I don’t have the results on this computer. It did better during markets like 2014 Sep/Oct.

Just look at those results.

I managed the STT separately once launched. I’d do the standard adjustments which are – rolling if close to structure, adding ICs to flatten deltas in down moves, adding PDS alone, or adding in PCS (harvesting as well) on big up moves against profit bubble.

Jul 21 STT + BSH Update

Since April/May, I was working on combos (known in the group as PC2 and PC3 (Patricks Combo) where the 2 represents 2 BSH and the 3 represents 3 BSH. The results from those backtests are mind bogglingly good re consistency and no-loss. Due to a silly assumption/mistake, I miscalculated the margin requirements on them and had assumed it much higher than it actually was. So instead of a 4 maybe 5% return on 65% of the account where 35% is dormant, it’s actually more like 9-10% on the 65% within 40 days in the trade. Due to this false assumption, I had put them on the back burner and went down various other rabbit holes re variations of the GA/VM trades, TTT trades and LTE STTs. I am excitedly re-examing the combos and after further testing I will put them live as the base trade for my accounts. I probably have 1-2 more weeks of testing left.

The reason I bring this up is that I am underwhelmed by the live results since January. The STTs are doing great, they have been since January. The BSHs were poorly paid off up until April and I am down on a big set of them right now. Further, I had big losses in the old Rhinos till March/April. Lately I’ve been having a really tough time paying off the other BSH funding due to the constant grind up and poor timing of “pay off” strategies after the RCs are removed. I always have 1:1 RC to BSh but that only covers half the cost. Suffice to say, its extremely slow profit lately. The trades all still like SOME volatility and some down moves and we’ve not gone down more than 2.8% this year. I got a brief taste of big profits a month or so ago on that big down day but since then its slow and grinddy and underwhelming. I think a lot of people are experiencing the same thing with STT+BSH combos. Just slow, profitable, but slow. It’s not like this with the combo trades and hence why I am very relieved that I can reinvestigate and start ramping it up. The backtest results for the last 3 years were incredible (I showed some of my friends back about 3 months ago).

All that said, I am in a mixed mood, I am meh on the slow results but I am looking forward to combo trades that work in all environments and that will cut out the issues I have with the BSH performing underwhelming to the STT(which doesn’t quite producing good returns). Along with that, I am slowly moving towards the BSH factory. The goal is to end the summer with a complete BSH factory that not only pays for itself but produces income. This would leave with with three things BSH Factory + Combo Trades + STT LTE where each one is producing income and requiring less opportunity/timing. I guess patience. But it seems like a lot of that lately.

We left Stockholm yesterday and have arrived in Gdansk. I’ve got 5 days here then we hit Poznan and Berlin.

Jul 19 – Trading Plan STT + BSH

A confluence of resistance is at ES 2475 (Yearly and weekly resistance pivots) and there’s a 77% chance of a new high according to Cobra so I gather that’s the target. Typically once it touches the yearly pivot it’ll move go down to the yearly support. IMO it’s not the time to add long positions. We have the confluence of resistance and we always have big pullbacks in Aug,Sept or October of 5-10%. W/ Vix at 9.8, it doesn’t feel like risk is being priced properly. I have only about 25% of margin used right now as I removed lots of Sept PCS and with the VIX at 9.8 I just can’t justify getting into new STT positions just yet. It doesn’t makes sense from a margin perspective either. If the market doesn’t move down at all, it could be a slow summer of returns for me. I’ll be looking at adding more GA trades and maybe some mechanical combos of the STT trades. And like I said, on any decent pullback, I’ll add some STTs so I can get the account maximised. I’ll also be entering in new BSHs w/ RCs until I can get this factory fully formed.

We leave tomorrow for Gdansk and we’ll start making our way by car towards Arona, Italy, we’ll stop in Poznan, Berlin, Bamberg and likely somewhere in the Alps before reaching Italy. We will spend 7 days in the B&B and another 4 days somwerhe else and the family trip will be over. I then meet friends from Aug 11-20 for a small guys trip and on Aug 20 I play 7 or so poker tournaments in Barcelona and call it a summer!

Jul 14 – STT and BSH update

During the last few days, I took off a lot of my PCS for my Sept trades (2100/2000s 2125/2175s) and need to get on some PCS higher up (smaller quantity). I was hoping for a small pullback but I kinda have to get some on or else my theta and delta will be hurting. I was going to give it over the weekend (Monday) max but I am a bit uncomfortable with that. This market is at 9.9 VIX and doesn’t seem like it wants to stop going up, however, it’s at/testing ATH and usually some pull back should occur..when I am conflicted I usually do half the units now and half later..maybe that’s what I’ll do.

December and october trades are all doing well. Oddly, BSHs are expensive right now (the way OTM options are holding their values) despite VIX being low. As well, I am trying to complete my BSH factory by buying some puts but they are holding their value too.

I also removed my first round of VM (Golden Arches) trade for a profit (480 a unit). The second round went negative pretty quickly but are starting to recover now.

Jul 13 – Trading the STT and BSH

I am solely in STT and BSh trades at the moment. They are not as exciting as the older Rhino trades because they kinda just make money there isn’t much variance per say. The one cool thing I guess is that I am doing it in quite the volume. I think I’ve got about 600 units on right now total. That’s something interesting I guess.

I had a contact at IB for putting on orders via the floor but to be honest, I just haven’t used it much lately, I found I was getting fills easily enough myself at various times. I tend to scale in to each trade over a few days. One time I got quotes from them and I was getting better fills w/ units below 50 then they could get me so I just haven’t used as much as I would. That said, when I get bigger in size, I think I either need employees or I’ll need to use the floor 🙂

I got into a bunch of longer term Dec STTs most recently and I have a lower profit target on those (they take up a lot less margin) and are even more benign. I’ll probably start doing this, 150-180 DTE w/ 2x less margin requirement but I’ll aim for a 350 profit target per unit.

I’ve finally started the BSH factory but I’ve only managed to get on 50 units of that so far. It’s profitable as I sold the 50 units worth of puts at the very bottom of the last months range. Eventually, I’ll have to put on 500 units worth. That’ll be tedious and we kinda need more than one down day.

As for how the year has gone so far, it’s been slow re P/L OVERALL but exciting for P/L of the STTs alone—>Very exciting. The STTs did fantastic but the P/L from those were countered by losses in the first sets of BSHs which weren’t fully financed and bigly (no trump pun intended) affected by the losses on the old 2016 Rhino’s I had on until April of this year. I don’t trade them anymore. I just trade STTs and BSH.

Let me get into more details, I started the year off by trading some units of STT and BSh from January 5th when the course was released but not in size until April. All the STT trades did great and were profitable and still are into this month. Almost makes me giddy how good they do. However, the profits from Jan-April/May were offset by the losses of the remaining Rhino’s I had on that were started in Late 2016. They did terribly, by April, we were finally finished w/ those damn Rhinos and they had a larger loss due to the insane Trump up-move. Difficult market to manage the Rhinos. In one account, they lost about 88k while the STTs did about 130k (for the first ew months of 2017). Included in this were the poor performance of my BSH hedges and the financing. I quickly learned from waiting too long to get financing on and the community developed better ways of paying for them (RCs put on the same time) or BSH factories. I use RCs now but am working on the BSH factory. Ideally I just have BSH factories and the STTs. All that said, the last 6 months we’ve got very profitable STTs that were hit by older Rhino legacy trades and by poor financing of BSHs in early part of the year. The future is bright as we perfect the management of the BSH and STTs. I love how the STTs have done so far and I wish I hadn’t had the Rhino losses from last year nor the poor financing early on. Ah well, things are building up quickly re P/L now.

Aug and Sep STT

These are 1 instance of my Aug and Sep STT (I have 4 others in sub accounts).

The Aug is actually not down 36k (well it is from Monday) but it had built up a lot of profit. I was on a different computer and for some reason the trade log didn’t transfer. I just started a new instance on ONE when I got back home. It’s down now because of the big vol pop and I expect it to do very well when things subside and as the trade moves onwards into the 70-80 day period. I’ve got on something like 70 units in Sep and 110 units in Aug on this one account. This does not show the black swan hedges.

STT Trades and the recent move

I was away for a week playing a poker tournament in Montreal. Got to 2nd day but lost 9 hands in a row for the exit. Final hand was a 2-outer. Villain had 88 and snagged an 8 on the river. C’est La Vie as they say in Quebec (and France). Then I was running around finalizing things for the house project I have going. Busy busy with lots of catch up.

Yesterday was a nice 2.6 STD move. For anyone trading STTs, you’d probably have noticed your balance drop, this is normal, the volatility will cause this to happen but with time and a slow down in the move, you’ll see it all fly back plus some (as I assume you’d be in your profit tent). if you backtest extensively, you’ll see this on every large down day move. The vol of the insurance you sold (the PCS) will rise quite a bit while the debit spread you have for protection won’t be that affected by volatility as you bought and sold closer (the vol of each leg offsets each other being closer to the money and closer to each other). Once the move subsides, they’ll keep their value better than the PCS which (probably still 200 points away from ATM) will drop in value quickly thus giving you your P/L boost. I’ve noticed a lot of my trades hit profit target days or a week after a larger down move.

Interesting enough, usually after a day like that, my margin will shrink quite a bit but today I woke up and my margin went from 25% available to 50%. Neat. With any other ATM trade usually I’d wake up with less margin available.

more to come..!