Trade Compositions for 2021

So far through 2021,

For the income portion: I’ve been doing equal parts HS3EZ, 488 and 484 along with an ATM campaign leaning bearish. This helps provide a lot of diversification.

For the convexity portion: I’ve been doing BSH factory + opportunistic entries of additional black swan insurance (haven’t had to since Feb).

I’ve just started using a base LTI as well

Pretty boring, pretty simple. I’ve found now that I rarely care or even look at what the market is doing. I just enter and add adjustments when required. The first quarter was great and so far April is pretty stagnant but with a lot of potential and I’ve got a solid formed campaign both for the income and convexity portions as well as live LTI. Looking good into finishing Q2. That 48x theta has to come in sometime.

That’s pretty much the summation of how I’ve been running trades through the year. Very boring weekly entries of 48x and HS3EZ plus the management of the convex black swan portfolio. Systematic with intent and with little regard to timing of markets re entries and adjustments. It works.

The intent is to continue to investigate variants and other trades that provide some diversification to the portfolio but I haven’t had anything really pop out. I’ve got some interest in the 0DTE and looking at it from a professional gambling standpoint re edges and trade sizing but I just haven’t had the ability to jump in yet. Probably a summer thing. I will probably finish up a 486 backtest to add to the research. That’s probably all that’s on my radar.

I can’t go into the individual trade compositions because of community privacy etc but you can get more information at the mastermind group, Ron Bertino runs a few awesome well constructed courses there and the community you can become part of is a private one where we share info and strategies and as such we’re mandated to keep specific details private as it’s not fair to others in the group.

Meta Portfolio Compositions and back in the grind!

Made my way to our new temporary home for the winter and spring. The place will be our forever home in Canada and act as our main base. We still are trying to figure out if we’re going to make our way to LA for the kids education but we’re getting tired after this last build and move so who knows. That said, I miss how easy things were in Cayman, it was like a free-for-all in terms of pretty much anything/everything re being able to just live life. I am met with blocks on everything here in Canada. Everyone seems to want to create problems. It’s bizarre. They won’t even accept my international license or cayman license and want me to start off with a learners permit, they’re having a fucking laugh. I’ll just continue to use my Cayman license, just means I can’t register my cars until I can find some Canadian insurance company that would insure me without a CAD license. I also find myself talking on the phone to customer support for hours a day for a variety of things as well. Real life sucks apparently lol.

We’re here until at least the summer and though we’re 90% going to LA, there’s a small chance we’ll fall in love with this property and stay here. Though, man, I just don’t know if I can “regular” life it here like I said above. It’s probably irrational but there’s a lot of weird feelings about raising the kids here and I mean, its fucking’ cold. Though, having the plane now gives me some pretty cool options to escape and the hangar is literally 12 min from my house. I can fly to Myrtle beach in like 3.2 hours for instance. The property is 100 acres located just 25 min from Toronto international. So the location is perfect and close to the international airport and acts as a great base to our families (we’re both from area originally and our families are here). That was the intent…have a second home near our families but it became much much more than that as the project developed and the budget increased…..

One of my best friends designed and built it same as he did for Cayman so it’s been a fun challenging project and his tenacity for efficiency, his skills and his ability to keep the project a value creation device has allowed for a valuation much higher than what was put in. So I am super happy and both projects have provided me with value. He’s been actively helping me manage investments so it might be his pièce de ré·sis·tance or swan song as he moves more towards trading. Or perhaps he continues on but treats it like a hobby or it’s a bit of both. Who knows. Here’s a few cool pictures of the property (which isn’t 100% complete yet but liveable). It’s got a VR/Sim room which will be decked out with a star wall, RGB lights, and 4 setups (our family are PC gamers…no XBOX whatever or PS whatever allowed in here!). We have a sweet swimmable hot-tub on the second deck, an infra-red sauna, several cool fireplaces, a speak-easy etc. It turned into a true chalet like experience. Our furniture hasn’t yet arrived but I think it’ll be here in 1.5 weeks. We’re making due with what we have, it’s exciting because so much is not done and we’ve got limited furniture so it’ll only get better. Fun and frustrating at the same time I guess.

Probably the only space that’s 95% completed. The entry.

The outdoor ceiling is not complete yet but it’s coming!
Void of furniture but what a view!

It’s coming…
Missing the furniture but it works!

We landed in CNC3 a few weeks ago and hangared the plane. I still need some more hours but the weather has been shit and instructor availability as well. Things happened slower then I hoped. I really wanted to come back licensed fully.

The entire break I’ve been concentrating on meta portfolio construction as a means to reduce drawdown and increase geometric returns. I’ve come up with using 3-4 OTM style trades that we talk about in the PMTT Group as a base income producer and with my own spins and each are composed of 4 different types of BSH. These are put on in campaign style with the average being about 10 weeks of campaign. This gives time diversification. So we’re now diversified in entry timing, OTM income production and BSH provision. On top of this, I combine 2 black swan type campaigns that provide additional protection over all. Then I have an aggressive harvesting style that really translates into back ratios at a variety of strikes on older maturing trades. So basically, 10 different time entries, 4 different strategies, 4 different BSH styles, a bonus 2 hedge type factories and harvesting. About as tight as you can get.

  1. 4 Types of Out-of-the-money income strategies put on across 10 weeks giving time, strike(skew) diversification
  2. 4 Types of BSH protection put on across 10 weeks giving time, strike (skew) diversification
  3. 2 bonus types of BSH factories/hedges put on in campaign style across 4-6 weeks giving skew and time diversification and 2 additional fail safe swan protections
  4. Harvesting aggressively all structures that are matured

You’re left with creating less draw down and increasing compounding returns which is equally important to the trade strategy itself. It add complexity sure, but I mean, this is all I really do now and it’s systematic. That’s a preferred method for me.

I’m finalising all the time series for each of the campaigns from 2014+ and I’ve noted that there is adequate response differences to a variety of environments and together they provide a smoothing of return. In my mind and as I mature as a trader and as I have started getting consistent results, I’m convinced that the key to success at trading for a living comes with diversification both in time and in strategy. You take 6 known alpha producers and you do 1/6th each. It helps with human factors, as you’re much more likely to follow the system/rules if it’s just some annoying small part of the portfolio not the entire thing. The options market has a funny way of causing you to draw down from the tops.. You’ll be sitting at 80% profit target and one day you’ll draw down to 50% for no reason (market hasn’t moved) and you’re becoming price fixated and often times it does preclude a vol event and from there you’re just waiting for that old 80% to come back because you think you can rely on time. It’s a fools errand not to follow the systems and rules. You’re much more likely to do what you need to do if it’s just a 1/6-1/8th portion of your portfolio.

As mentioned before, the last 6 months have been pretty much straight opportunistic ebb-flow ATM style trades taking advantage of the environment. I’ve just started implementing a systematic portfolio based on the above post and from there that’s all I’ll pretty much do.

I am back at my desk for 8 months so I hope to blog more and post interesting things the best I can.

Oct 10 Trade update (STT-488,STT-484 and BSH Factory)

On the 8th of Oct, the market fell pretty hard into close and the skew/vol were favourable to enter a 488 STT, so I did. I allocated about 25% of the planned capital as the conditions weren’t quite good enough for a 50% or full entry. I was able to cash out at 40% profit target the next day. I did. Why did I only do 25%? There’s probably 25 entries since 2014 where I’d go 100%, however that said, I have to re-evaluate my criteria as it was implemented for the 484 which is a slightly different trade. I may lessen the requirements for the 488 by a fear spike and VIX 18+ for at least a 25% allocation. (VIX is really a very crude way to measure the entries, I just say it because everyone knows it and what it represents re market conditions..but in reality I’d be looking at a whole slew of things to determine entries). If VIX is above 27 and we have a capitulation day, I’d probably switch to 484s unprotected but everything below that I think a 488 might be the answer. I still have to confirm backtest everything and how the exact opportunistic entry system will work but for now it’s a start.

As mentioned a few times, right now my portfolio consists of a blend of a TAA base, some bond rotation (low vol–municipalities, senior loans etc etc), a strategic LTI portfolio, some sectors rotation and a cute factors system. The above represent a 0.75:1 on capital. Then on top of that, I have an active BSH factory for income and lotto. The BSH factory method I use now produces 18-20% a year but will return incredibly during an Aug 2015 (161%) or Feb 2018 event (62%). This is a producer in large events (crashes). On top of that I have 15% allocation to at-the-money (ATM) options trades such as the Rhino and bearish butterfly. If we have any large vol events (opportunity) I’ll enter 488s and 484s. This is my portfolio.

I closed out most remaining options trades except the allocation I have to ATM Rhinos. I have a bit of January left and that’s it. I will work to close those as the next week or two go by. Mostly in cash in terms of options allocations. I am forming a new BSH factory to try and up it’s size relative to my account, it was a bit lower. Not a whole lot else to report on re trades.

Current portfolio Risk Graph

This is my current positioning of my entire SPX STT options portfolio sans the BSH of course. This is Dec/Jan mixed together. It’s profitable now since inception and I’ll be working this trade through Sept and closing before my 40th birthday/20th Anniversary trip to Necker (ridiculous I know) but YOLO?

Will be managing it diligently and removing risk and locking in profit. When I get back it’ll just be opportunistic STTs from there on in.