May 14 (Update 2) – STT, Long term base portfolio and travel plans

Yesterday at about 2803 I was able to sell puts for my factory and in one single day I am now able to form a BSH for profit (free + some). I got 30 units (90 short puts) on within 8 hours. Epic.

I also started the equities portion of my long term portfolio as my base (I did a combo from allocate smartly that has a historical of 10.4% annual with a max draw down of about 6.1%). Good base portfolio. Today I got the treasuries/bonds portion on 🙂 good timing. I will now let that run itself without messing about. I had it on at 2940 area but didn’t like the timing re the heavy portion in SPY so I closed it at the highs 2949 and now just re-opened. It was more like a mulligan, my plan isn’t to mess about with it and I won’t from here on in.

YTD is now 15% (3.35% a month) and that’s on actual total equity. Nice!

I am going away for my next portion of the summer/spring vacations. I’ll be starting in Montreal for the party millions event and I’ll make my way to Ottawa to meet with my programmers in development office and then take in the Iliza show (for my wife). After that it’s on to Toronto to check out the start of my new house build there and then make my way to Moab for a glamping style wedding and after that…. Vegas for the WSOP!

In preparation, I’ve closed off most of my older STTs, cleaned up the account and prepped ONE. I have on some Aug, Sep and Oct with margin available for another 100 or so units if we get another vol spike/decline. The Aug is acting as a hedge to Sep and Oct but also has the most theta of all three months. October is now profitable (+11k) as predicted it would be by end of week.

May 14, 2019 – Trade Plan (STT BWB + BSH)

I ended up closing out my Jul 18 and Jul 31 STT remnants at a pretty awesome profit. I am left with August, September and October. The Aug and Jul ended up acting as moderate hedges to the Oct/Sept expiration which actually put my balance higher through the modest volatility events last week and put it right positive in the past two days. I am on target for a 20-22% H1 2019 and will end June at around 17%-18%. Exactly as predicted and planned.

That’s the beauty of running these in expiration campaign style. The older ones protect the newer ones and everything just meshes together perfectly. The older ones will hedge the 3-8% drops as you fall right into their built up profit zones and anything greater than 8-10% will be likely covered by the BSH OR you’ll have time to roll (if it was a slow grind) either way you’re good and only dealing with modest drops in P/L. Feels like a beautiful well oiled machine now.

I am not straying or considering much else in terms of trade types for the main portfolio. I want a clean year of just STT+BSH and I want to be a master of just one main trade type. I doubt I’ll deviate much other than finding more efficient ways to adjust.

All in all a good year so far.

May 8 – Trade Plan STT+BSH

Interesting few days. The VIX spiked 40% yesterday on a 2% down day. The relatively binary event on Friday is causing some funky skew which is affecting existing trades and makes new ones attractive to put on.

I slammed on trades through the last few days with the lowest amount being yesterday (the best time of entry) and now I only have a bit of dry powder now and definitely not as much as I wanted. My P/L gain from April to May was fairly slow which makes me wonder if I should be less always on and more selective and patient so I have more dry powder. The problem with that approach is that your yearly returns can be more variant. If we have low vol years, they’ll suffer. It’s also difficult to know just when to put them on. I’d probably wait for a force index trigger. If we got 4 force index triggers a year and those trades made an average of 10-12% on PC with a much lower than average MDD then it would make some sense to look at this.

Here was an interesting article re yesterday:

https://www.zerohedge.com/news/2019-05-08/vvixtermination-what-was-behind-yesterdays-historic-volatility-move

If I got on several units yesterday, I’d be very happy with the entry. The P/L today would already be quite high and they’d be resilient AF due to being put on in an already skew/vol rich environment and you’d have less BSH costs. Tough to figure out. I will look at the number of times force index triggered (to see if it’s a reasonable number per year on average) and then backtest all those dates as entries and see just what the returns are and annualize them. Basically what I am saying, is if we start entering lower vix environments like we had in April, I wonder if I should be mostly dry powder, rather than continuously raising UEl etc I should just take lower P/L targets and go mostly cash waiting for an opportunity. Now I’ve entered into an environment where having some more dry powder would be fantastic. I can accept risks for starting 20 VIX STTs if VIX goes to 30. I am cool with that because the effects are less pronounced than when you go from a very low vix environment and you get double whammied with skew and vix changes. The effects of the first 10 VIX points is a lot more pronounced on new STTs than going from 21-31.

My newest October ones put on throughout this event are down about $500 a unit. Normal. Time is always on its side. As time goes on, the profit hump builds up and the trades gets naturally more delta negative and less and less vega negative. This means vol effects it less and less as it goes on while we’re getting natural protection from the negative deltas increasing each day. So give it another 12 calendar days and it’ll be profitable all things equal (including current vega and skew conditions). You’ll see that the most exposed time of any STT trade is the initial week or two from initiation. Once time goes on, you’ll get less and less affected by things. For instance, My Aug/Jul31 are not affected, in fact, I harvested them last week when Vol was low and they’re unaffected short a bit of a drop in the overall T+0 but with any relief they’ll be closer to the profit tent and that’s when you get the big pops in P/L. You’ll notice that the most profitable times are when we have a larger fall followed by a cessation and subsequent vol relief. Why? because you’re sitting right in that sweet spot.

Anyways,

A tally of the main account:

32.5 Jul 31 units w/ a very long runway and harvested lower puts –No significant risks or vega (but taking up margin!)
150 Aug units w/ a very long runway and harvested lower puts –No significant risks or vega (but taking up margin!)
42.5 Sep units that were affected by the drop (dropped to break even PL with loads of theta)
60 Oct units that were significantly affected by the drop (dropped to -500 a unit)

May 6 2019 – Trade review (STT+BSH)

Nice little vol pop there. When I saw the tweet yesterday I knew to expect a very rocky futures open and when it got to about -2% I almost thought we could have a repeat of Aug 24 with a -5% open only because of the swiftness of the fall and the potential reaction when Europe opened. Alas, we swiftly found footing and the market rebounded and sits currently at 2920.

Funny enough, I had a portfolio on for my base via AllocateSmartly but didn’t love my entries and sold all of it Friday along with all my other longs. Good timing 🙂 I also harvested all my older STT and BSH last week and removed a ton of risk. I mean I have 600 net long puts in May 31 expiration and my Aug/Sep STTs were harvested. I wasn’t breaking a sweat last night even if we did open 5% down. Even today, I am neutral delta without a single adjustment.

Today, I am using the bounce and increased volatility to add some bearish toned STT. The bounce gives me better delta and the increased vol allows me to have a longer upside runway. Pretty much all I’ll be doing today.

My newest Oct STTs are taking a bit of heat, down about 300 a shot x 40. They were quite positive upper expiration line and roughly +50 delta but I have -delta older ones and I am adding some bearish toned ones now. Within a week or two they’ll be positive if all things remain equal. As time goes on, the trades get more and more -ve delta.

I gather I’ll get the account up to about 20% for end of June for the year. Which is roughly the target. I am hoping for 25% but we’ll see how this plays out. If we have more downside, then I gather I can get even more as we enter the tents of matured trades but if we runaway upwards, it’ll just be the standard lower profit. My goal is to consistently hit a yearly 50% with STT+BSH on total account value w/ compounding and opportunistic over-leveraging on significant down moves up to 1.2x. I won’t be deviating strategies or diverting any funds away to other trades. This is a year long real money test of real market conditions and actual trade results for the STT+BSH combo.

I’ve been researching T5 a lot lately but it’ll be far separated from my main account. There’s a lot of opportunity with that trade and its juicy AF but it’s more fitting of my older previous life as a professional gambler. You have to look at it like a weighted coin flip in your favor but with regular total losses. I have to analyze Kelly criteria and risk of ruin as well as all the trade mechanics and market environment entry type stuff. Big project. Re what I mean : if you have a 55/45 edge in a coin flip, and you have 50k total, how much do you bet per hand to eliminate risk of total ruin so that you can infinitely take advantage of that significant edge? Is it 5k a flip? 2k? etc. You have to analyze this differently then something where you put all your equity in every trade and try to eliminate max draw down. Rather you accept the 100% win or loss and determine the edge and calculate the bet size. Should be interesting.

May 1 2019 (STT BWB+ BSH trades)

Just got back from my 3 week west coast trip. We made our way from San Diego up to Portland. It was the first trip since I started trading that I didn’t have stress or issues in the market. A true testament to the new strategy. I could do everything simply from my phone and I barely had to load up ONE. It was beautiful. Refreshing. Man what a nice feeling!

My trading tasks would basically entail looking at market 3x a day and either add new Bubs fresh, raise the UEL or harvest the lower longs. I knew based on my summaries before I left that I needed to slowly raise my UEL on existing trades (Aug and Sep). So I knew ahead of time I’d add a pos UEL bwb in those expirations by a specific amount. When we had a red day, I’d get ‘er on. We did and that was that. I also wanted to get on more new ones which I was able to do finally today. I also harvested my lower longs as they decayed and that removed risk. So yeah, essentially, it was a breeze. I just put on some BWBs whenever we had some red days or vol pop and I harvested the lower puts up and that was it. Stress free. Due to some skew issues the vol collapse didn’t net much in terms of P/L but it’ll come soon.

Today I am putting on some Oct BWB trades now that we’re -0.80% after the fed. I got on some BSHs earlier, now I am putting on the corresponding BWBs with this nice little vol pop of 9%. I just put on 40 units. Might get another 10 on if I can. PC is about 200k per 10. Good to go. About at 1.1x PC and not much left to do for another 2-3 weeks 🙂

Apr 4 Trade Plan

Yesterday during that little fall to 2869 and the subsequent small vix spike of about 4%, I got on some upside adjustments (bullish BWBs) to get my negative deltas down. I should be good for another 2-3 weeks re adjustments for the upside 🙂 Everything is pretty much balanced and neutral. I have good modeled theta for the month. 30 days should result in a 5-6% increase in profit. I am pretty much fully capitalized with my PC matching my balance. Good timing for the upcoming trip. As time goes further, I’ll look to harvest and I’ll also add 10-20% more STTs if we get a big spike in VIX. Else, it’s just collecting theta time.

Apr 2 2019 Trade Update (STTBWB+BSH and BSH Factory)

Been a while,

Figured I’d post an update on my results from the last year based on my total account value, so actual returns as well as what I expect going forward. My account has gotten larger and thus the complexity of what I do and how it’s managed has gotten more difficult in regards to flexibility of strategies etc. All I do now is manage portfolio sized STTBWB+BSH and BSH factory. This is probably all I’ll do in complex options for the foreseeable future.

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My YTD is 11.96% or more specifically Q1 (Jan 1 to Mar 29)

My 9 month return is 29.27%

My 6 month result is 17.5% (this includes a mess of things that didn’t do so well in Oct/Nov/Dec and are resultant from trades I no longer trade–>HS3, Rhino etc). If you remove these, it’s much closer to 25%-27% for the base portfolio trade mentioned above. IE right on target.

My 1-year is 40.96% Mar 31-Mar 31 which does include a portion of amped up Feb 2018 recovery.
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My expectations going forward are a yearly CAGR of about 40% for the main portfolio trade combined with some base trade returns of about 10% giving a total expected of 50% return on total capital. My actual for YTD extrapolated is suggesting 48% which fits right in line. I have no more catastrophic risk in Black swans and events. Everything is boring, simple in its management and I guess that’s the way it should be.

I’ll be looking for higher vol days for more entries and removing risk by harvesting but other than that. Easy days.

Jan 29, 2019 – Update

Haven’t posted for a while mostly because I find it hard to post things that are intellectual property sensitive and now its even harder since I’ve gone back completely to the original course trades with slight tweaks. A 360 with nuance. How do I present interesting things when I can’t post the trade 🙂 But I am going to keep trying and hopefully try to post every few days…maybe more on my mindset, thoughts, challenges of managing larger account sizes etc. Whatever comes to my mind.

So first and fore most, My last post from like late Nov was emotive and when I just re-read it I realized just how confusing and unrepresentative it was of almost everything. Horrible. I wrote it and then kinda forgot about it and obviously didn’t proof-read it. So I finally edited it. I’ll explain more and why I did so below. I’ll start with the market and get into the events and where I am now:

We’ve just gone through a 20.5% fall in the SPX and it started in late September and was a culmination of two specific time periods (October and December). Both periods fell quite hard often following square sine wave type patterns (short abrupt moves down) then a pause and then a small bounce and more short abrupt down moves. And what was very unusual about it was that it didn’t have the same volatility spike you’d normally see. Nor did the actual volatility get reflected in the vol index or options pricing. The volatility in the market was not being priced according to actual volatility. Perhaps it was the complete annihilation of specific vol products in Feb that helped create this old relationship for the last 4-5 years (and subsequently all of our backtesting data) or perhaps its a new market pressure present. Who knows. The point is, we had a big big down move in 3 months and we didn’t have a vol spike that some rely on in specific vol type hedging. This created problems for people that created vol hedges based on data that we’ve only had really (intra-day) since 2011. Some created a ratio type hedge we called a KPBR. In backtesting, the thing pretty much was free. Paying for itself. No drag on income trades. Sounded good. But a few of us pointed out that the sea of death can be a big problem in specific market environments. I was initially excited but when I tested it, thought about and realized what could potentially happen, I insta-closed out the units I had on and fully relied on traditional BSH types.

Here’s what I said in the group as a polarized and probably rude comment re the KPBR

“I don’t want to be sitting up one night during the 4th day of a big down move/event and wondering if the market crashes tomorrow will the KPBR trigger or will it draw down further and I doubt I’d be thinking “Hey, my account is down 30% but at least my hedge was free” :)”

The thing with that hedge and even with the HS3, is that a slow large grind down will result in a very large draw down in the trade itself. These trades are just too exotic for me. So I am back to the basics (original PMTT BSH and BSH factories etc) I get that over time you probably will have the same cost (like over 5 years the KPBR may actually break even) but that doesn’t matter and here’s why: We are humans we have to cater to our human factors, our psychology if you will. How each trade and the management of our portfolio will feel and how it will affect everything from our ambition, motivation, sleep and our responses to trading our plan etc. If we are utilizing such a structure like the KPBR as a hedge to our OTM trades and we have an environment that temporarily draws down our STT by say a super standard 600-700 a unit (totally can happen in a heavy skew change due to a larger down move where way otm doesn’t quite spike) and our KPBR also draws down 600-700+ (I actually saw it go double that!) then you’re sitting at a draw down that could affect your trading mentality. You’re now sitting there at night, wondering if there is another big down move in the AM, will your KPBR trigger to provide some protection? what if it doesn’t? what if it draws down even further and more vix hurts my STT? All those doubts will cause you to probably make mistakes, burn out, lose sleep, or lose some humanity itself. I don’t want to be sitting up at night wondering if in the morning if my account will be down 30% but hey I got those KPBRs for free!

Most of you reading the blog know the STT inside and out, we know how much it’ll draw down in vol events, we know how to adjust it, we know it’s really docile and works well as a trade. Especially opportunistically. Having a 600-700 vol draw down won’t even make my heart rate increase 1 beat nor would I lose an ounce of sleep. Because I know it and I know how it will progress forward. The problem with the STT is a black swan, you need protection. That’s it really, just a black swan. Hence, why we need black swan protection. An STT alone w/out BSH protection can handle the 20% decline we saw in Oct-Dec because it wasn’t a shock event/swan. But imagine that you have the STT on and you have that 600-700 drawdown that you usually are not concerned with but you also have this 1k draw down in your hedge. Then things get really funky upstairs (in your mind). It starts to affect you in a variety of ways. Hence the need for protection that you understand.

So yeah, here we are now, Jan 29th, the market has fallen 20%+ and rebounded about 13% in a super V recovery. I’ve moved to trading a BSH factory (two versions: Income and hedge/lotto), an OTM Jeep type trade using the STT engine as per the course (not an ATM jeep ala the weirdor!), some rhinos and a base of standard equity type stuff (logical-invest), some earnings plays and that’s about it. Nice and simple.

I concluded that I will heavy trade STT opportunistically by itself (no BSH) when VIX is above 22 and especially if we have an MDD type day but I won’t trade them much in very low vix environments and instead I’ll do a version of the course JEEP trade probably with some directional bias (signals).

I was profitable through the Oct/Dec events and the STT put on in Oct event was insanely easy to manage through Dec. I loved that.

Back in action after MTL (BSH, Rhino and Current status of trades)

I am now back at my desk after an eventful 13 days in Montreal. The trip did not work out as planned. Ash and our toddler got super sick and I had to deal with the market for the first 4 business days of the trip. EDF was on me like white on rice and forced me to capitulate a large portion of my account at a pretty crappy time. I went from 290 or so units to 77 units and from the 77 I had to get down to 40. So almost a 85% reduction in risk. Insane. That cost profit and added a very unneeded layer of stress. EDF is a small portion of my overall account which is good. My main IB account is actually profitable through the event as of today but it did have some draw down during some of those crazy days. Wildly, I have the most theta combined that I’ve ever had. If we end up anywhere in the 2550-2850 range within 30 days I gain something like 400k which would end the year reasonably especially after EDF and the Feb event. Overall, I’m like break-even from Oct 3 onwards because of the EDF issues but have loads of premium. Just have to get through these mid-terms unscathed.

Rhino pricing has been insanely good around $1 to $1.30 area (means very low upside risks and much easier to manage). So I’ve been putting those on quite a bit. I also formed a few BSh factories today as pricing on the longs finally fell enough. I’ll probably be doing a lot of BSH factory (two versions) and Rhino type trades while the pricing is good.

    Poker

I busted my last tournament in a gross way which almost had me want to retire. I had 66 on 6T2 flop. Got a guy with Aces all in. Ace hit on the river.. (2 outs) and I busted…horrific. Getting sick of these 5%’ers hitting on me when it counts.

There’s another really nice tournament in my backyard (Bahamas) Party Poker Millions Caribbean. It’s only a 1 hour flight and I get free biz class upgrades, so I can fly in style. I was kinda considering hopping over on Friday night until Monday but I dunno if I will. Disillusioned a bit 🙂

Oct 16 – Update (#2)

Nice pop there. Pretty much bringing account back to normal now. Through the event I did have some vol related draw downs, nothing that stressed me out or anything but I didn’t love how I entered the event re trades/hedges and sizing which is prompting me to create a much more concise trading plan which I am really excited about. I feel really good about how things went and where they will go from here. I am basically shaking off some pests and revising some of the plan to be even more robust. Right now, I am developing a concise and mandatory trade plan that’ll be printed and bound and at my desk. As I mentioned before, I am taking my optimistic honey badger mentality and focusing it on entirely on risk management instead of out-sized returns and I am super relieved and kinda super excited about it. I am going at it hard. It’ll be epic to create any sort of trade plan that can handle large money that does 30-40% returns but doesn’t flinch in events. Ideally, it’s going to be a lotto as well. That’s an amazing feat. Thanks to the PMTT Group. Once developed, I’ll probably be looking forward to the next crash event 🙂

This plan, it’ll have all sorts of idiosyncratic rules and requirements that I am going to force myself to follow. It’ll also contain journals of my thoughts related to how I felt during crashes, what I did, tools etc. I’m accepting the returns that I calculated (more modest) and I am putting risk at the first priority. Take care of risk and the returns will come (compounded or otherwise). That’s the key I think.

Update on account and management:

ES:

By EOD, I have removed most of my PCS that I had on for the HS3s and am sitting at about even on an account level for the EDF/ES account from start of crash till now, all said. Not bad. I closed off all the Dec including the ATM PCS today (maybe a bit premature as I closed them around 2795 rather than the 2815 its trading at now).

Jan HS3s are locked and loaded in a really nice zone for quick profits in the next 14 days. Could add 40k in profit by end of Oct.

The Mar HS3 is down about 59k while the hedge is locked in at 30k profit so the combo is still down 29k total. Could recover quickly but EDf did force me to liquidate and lock in some loses last week. Not bad still. I also had initiated a 100 wide PDS at 2775 last week which hurts the UEL (upper expiration line) a bit.

The BSh factory is now profitable. I will use the next few days to start forming the BSHs and should be ready to rock soon as a hedge.

SPX

March CC campaign is at even now (wow!) and I have some bearish STT covering it which are down about 6k. So all in all about -6k to 10k on the whole thing.

Jan CC campaign is doing fantastic. It’s got so much theta that it could swiftly make a lot of cash in the next 14 days

Dec CC campaign. About even now (from pre-crash—but was at target anyways before) but has no real juice or risk. Will slowly turn into a hedge.

BSH Factory. Is profitable now. I was a bit too aggro on the short puts so I might use the opportunity to start forming on any signs of a down turn. Not really worried as it’s december shorts and they are deteriorating quickly.

X4: Removed for loss of 15k

Rhino: About even.

KH recovering some of the draw down.

All in all, I am about about 1.5-2% on the account and a week sets that even in theta and a month should be aces in profit.

If I get a few weeks to a month to rejig my plans, form factories and work on sizing then any further vol should be easily deflected if not profitable from here on in.