Dec 3 2019 – Trade Updates

The last two months have been quiet for me. The low vol run up meant that I had no STT trades on and I was left with just the LTI/Tactical asset portfolio along with a few ATM trades. Still at about 30% for the year and any big down move that causes a VIX 22/23 move along with some evidence of capitulation/forced selling/margin call will allow me to enter a nice STT that could catapult the return to 35-40% for year end. We’ll see if it happens.

Today’s down move got me perked up and I am keenly watching for entry opportunities. If it doesn’t come, it is what it is. We’ll keep waiting. In the meantime, I did enter some ATM trades today using the vol to get decent prices. It’ll give the portfolio some potential for a decent year end. I’d love 35% but with these opportunistic trades, profit will come in bunches. My backtest shows that 2018 would have been a 100% year if I was entering with the same parameters I have now. Today, we hit 18 vix and I was hoping for an EOD type sell off and a further weak open to eye up some opp. 484stt with elevated >22 VIX but alas we bounced into close.

The idea going forward is to do the TAA blends, some ATM blends and opportunistic STTs (I might only get 1-2 a year but they’ll boost the TAA+ATM for a solid 40% average return over time). I can post all the ATM stuff I do without regard to the IP restrictions of the group so maybe I’ll start just posting my daily updates of the ATM trades so there’s more content and commentary here. I’ve halved the PC for risk purposes but it boosts the LTI returns while we wait for STT opps. I much prefer to be patient and wait for great entries than to deal with extended down moves and vol increases with OTM type trades.

I had a busy few months traveling, which I guess was good timing with what was a “never go down” market until now. I hit up LA with my family to look at schools for my kids, then met my guy friends there and departed my family and had a guys trip that extended from LA to Denver and Miami. Good time but when combined with my last trips in September, my liver needs a good cleanse.

Oct 3 – STT and TAA Trade Updates

The account just hit 30% for the year which puts me at about 10% a quarter. Happy about that. I was hoping for a better (greedy) end to the trades but the market movements prevented that. The market stayed in the upper range and started to tap on 3020 which forced me to start balancing the upside risks and after about 10 days I just decided to lock in profit and remove significant portions of the trade. If I had done nothing, this sharp little 160 point drop would have netted much more. Just this afternoon on that very sharp rebound my account hit all time highs so I took half off and removed a lot of my risk. The sharp little flash crash today from 2892 to 2857 had actually knocked the P/L by almost 4% but now its fully recovered and well profitable (and most of the risk is closed).

As mentioned above, I decided to close off half of the account today on the bounce to 2905. The Dec STT dipped down about 60k during todays mini flash crash from 2892 to 2855, albeit that’s likely just temporary due to option pricing gaps between bid/ask but has since recovered to +10k on the day. Good enough for me and given the market movements and the news climate. I will wait for some opportunistic entries and be happy with the profits to date.

Funny enough, I entered 40 units of 488 yesterday and they hit 1/3rd profit target today on the afternoon ramp. I took it. I’ll always ladder my profits according to days in trade especially if it’s within the first week. One thing we must be careful of is that if these are opportunistic, and you’ve got nothing else planned, then if you start taking lower profits (the profit target is $1k, I took about $380) and you have a max loss of $2k, well, this could be a problem as you’re not capturing enough of the 1k wins to offset the max loss. However, for me, this entry wasn’t the only thing I put on and I mean, it was within one day. Any further down move, I’ll slap some more on with less vol requirements as I had with yesterdays.

I am becoming a big fan of risk reduction via non-correlating strategies. So I am more and more starting to add in a variety of things both as a base as well as opportunistic. I’ve got a solid momentum based TAA along with low vol bond rotation as my base.  It draws upon theories from several white paper authors in the tactical asset allocation realm, such as Keller and Keunings white papers on Vigilant Asset Allocation, Protective Asset Allocation, and Generalized Protective Momentum as well as Gary Antonacci’s white papers on Dual Momentum factors and his Risk Premia Harvesting paper. I’ve setup my own little combo of these and other things to create a nice long term strategic base portfolio that produces ~11% CAGR on average with a 5% MDD since 1990. Will it produce this in the future? Who knows, but that applies to anything. I worry mostly about the safety rotations ie IEF and TLT and as such I’ve mostly removed TLT as my safety rotation and changed it to IEF (that helps temper expectations a bit) . I mean, the last 10 years, TLT has produced 10% per year which is equity like w/out the equity risk. That won’t last. If we have a long period where rates just stay stagnant the returns are much much less. If rates fall to zero then it’ll be great (initially) but after that any increase will be horrific (for returns on TLT/IEF). So yah, bonds will def underperform going forward and much of these backtests rely on rotation to bonds so we have to be careful not to expect the same, that said we probably have 5 years before we have to worry about this.

I started to add in Rhino’s again and I actually got some on at 86c yesterday. That has to be a record price for me and I’ve been trading them on and off since 2016. That’s another opportunistic entry.

The plan going forward is to run the base portfolio (which consists of 8 different strategies each adding some non-correlation) coupled with the BSH factory, a variety of ATM trades, and finally opportunistic Rhinos and STT.