STT initial draw downs

Thought I’d share some of the nuance of STT draw-downs during the past several days which I found interesting but expected after back-testing it to death. Always different live though isn’t it? In the last 18 months we haven’t really had large VIX spikes or bearish moves so it’s a nice refresher on how things actually work in real life re trading.

I had entered several June 29 STTs last week when VOL spiked quite high despite the move upward. VIX was telling us that demand for protection was increasing as the market moved up. Traders were protecting themselves. The STTs were a decent price given the pricing of OTM options so I used that to compliment the entries I had the weeks prior in the June 29 expiration. On Monday, the market fell and we had a spike to 15.3 VIX area. So we went from a 9 VIX environment a week prior to a 15 VIX environment. The move was relatively small in the SPX but the VIX move was quite large. That day, the market was hovering around SPY 281.5 with a touch of 281.22. About the same place it was the week before. However, the STTs I entered drew down about $550-$600 a unit which closed in on a 100k total draw down. Of course, these types of VOL based draw downs are temporary and they follow the VIX spikes you see in the charts. If you see a large spike, expect a temporary draw down, likewise, even if the market continues down, if the spike subsides, expect your STTs to regain in value. This type of thing is most pronounced with a move from a low vol environment to a higher vol environment and it will affect newer STTs more than developed STTs. Likewise, If we start entering STTs in this higher vol environment, they’ll be less prone to vol shifts. Anyways, it’s Thursday, and pre-market is down to about 280.6 area and my STTs are only drawn down about $250 a unit yet the market is lower than it was on Monday. Totally normal and give another 10 days, we’ll likely be green pending no disaster in the market. All the while, I’ll be entering more and more STT and setting the next several months up as a success. As time goes buy, the profit tent will build up and even with the market moving lower, the STTs will regain value and eventually, probably in the next 30 days, we’ll be reaching profit targets. If we have another shock event or a shock VIX spike, we’ll have draw down but it’ll likely be less than the initial one as time has gone buy and time builds resilience in the STT. Yesterday they were only down about 200 a unit. Totally normal following a large spike with brand new STTs. Again, time kinda cures all of this. Given another 10 days, it’ll be very hard for the STT to draw down this amount again unless we have an actual larger bear move that requires adjustments etc. The STT likes grind down markets and can handle a sudden move and it’ll often do really good if we can get a bit closer to that tent. Give it 30 days and we and very likely we’ll be green and in a sweet zone for further profit expansion.

This is a great environment to get into STTs and if we can keep this going, we’ll be laughing.

Those vix spikes are great times to enter more. I did. Now we let this move play out and adjust as we need (I usually add condors weight to the direction I need to hedge). I will at times add debit spreads as well.

I’ve converted old STTs (March) to hedge structures by selling some of the longs of the PDS and buying back twice as many of the shorts of the PCS as well I’ll buy back the PCS at cheap prices and sometimes sell a bit more of the front long to compensate etc etc. Credit to Rui @ the PMTT Group for the idea.

2018 Plan

Wow. What a run in the markets. Historic on all levels. We’ve now gone the longest time without a 5% pull back. The RSI is at historic levels. The thing just won’t die. I am just glad I never got caught in the run with a neutral or negative UEL (upper expiration line) this time around. A lesson learned from the last 18 months.

I think the biggest mistakes I’ve made as a trader in the last 24 months have been approaching or erring my adjustment and entry decision making based on a positive EV (expected value) basis. I used to be a professional gambler (finding exploits in casino games both online and to a lesser degree off) and was v. successful at it (go figure, you actually can do something like that for a living). My mindset in exploiting edges carried over to the markets and it never paid off. Probably more of a function of timing and extremes in market conditions than it was on poor analysis. For the last 18 months, records and extremes have been a normality. Using previous market mechanics to game that system would be impossible. I’d use lots of technicals and market bias where the EV seemed well positive to shape my trades to err one way or the other or to time adjustments. I don’t think I was ever right. Now don’t get me wrong, only a few times did it really hurt but the other times just affected my planned bias just a bit. Nothing major. It was just an “err” to slightly positive or slightly negative deltas. A bias.

For example, we’d reach a yearly pivot point and major resistance w/ VIX at lowest in history, I’d remove the credit spread and wait for a small pull back or a cessation in the up move to take off the debit spread. That happened in October and did affect my December trade, the market screamed through and went up enormous amounts. I managed to get my PDS off but at a pretty shitty price. That was the big one. My big mistake of the year. Cost some of the profits. What are the others? Well after a big run, I’d setup the STT in a more standard format where I’d have a neutral UEL or slightly negative with some negative deltas. The market kept going up and the STT would struggle to reach target. What else? I’d try to wait for a red day to get on a PCS for upside adjustments. They mostly never came. Obviously the market is in extremes and all of these are reasonable bias and they’re only erring bias but it never worked out.

I learned from that, and now follow a no-bias approach. I set my UEL positive and I adjust based on price action and risk profile. Now I have no stress or worry about a never ending bull market. I’ll reach targets on the trades and I won’t have much to do. Like now.

I’ve gone back to basics as my mastermind group starts to go further down the rabbit hole re skew calculations (horizontal and vertical) and trying to find edges there-in. The last month or so they’ve gone so far in that they’ve lost me even 🙂 I think they’re exploring areas that are relatively untouched and I have no doubt that it will result in some quantifiable and actionable edges but a lot of it seems to be an exercise in complex analysis. But they will need to really simplify what they’re doing and it’d be for entries and adjustments. I am letting them run with this while I go back to the basics. My account size just can’t be put to use in anything but the simplest most predictable trades. The group is so invaluable and its the main reason I’ve been able to find myself in trading.

Right now, I’ve been setting up STTs much further out, a bit wider where I’d shrink the width as it ages and with the final intent to eventually convert all the STTs to a hedge structure as they approach the final 3 months. I’ve got my BSH factory running and I have other types of hedges. I’ve managed to get them to cost NIL while utilizing the STTs as a profit structure. Simple and easy. I haven’t messed about with exotic structures but eventually will on a very small non-concentrated amount.

I finally have moved into my new house and have an awesome office to work out of. It’s all coming together re trading.

2017 – The year of experimentation

This year has been a long year of experimenting and pushing the boundaries of complex option trading. I have come to realize that a good strategy has a triangle of requirements that need to be fulfilled to be a valid scalable trade. Namely, it has to satisfy 1) margin and margin expansion requirements 2) Slippage, fills and real life initiations of the trade 3)Good backtest results.

Pre 2017, backtests were generally good enough because everything was standard and because of this, generally, if it backtested well it would do well enough live. We used standard width PCS and PDS and combos therein, and generally putting those on were quite easy and can be done without much directional risks. IE putting on PCS then instantly putting on the PDS or even filling them as a condor or butterfly. Not a big deal.

This year, I got excited about a few strategies based solely on backtests,–> really good backtests. Almost ‘end game’ nothing else needed type of results. This specific trade required a high vol entry and I patiently waited for this entry in what ended up being the lowest volatility period on record, it didn’t come. Time was wasted from Sept-Nov. Then we had some red days and I licked my chops ready to get trades on, unfortunately, it was met with disappointment. Now, I did put on a few sample tests before but it was in relative low vol and the trade was OK to initiate in low vol as the market didn’t move much and I’ll get into why that ends up being important. Something I didn’t realize. The non-standard widths in the credit spreads were very very difficult to fill. It wasn’t low hanging fruit the market makers could understand and hedge. It was too exotic. Coupled with the PCS you had to initiate long puts that had some combos @ ATM and some OTM (the hedge portion). However, in a fast moving market these things move quickly. So there in lied the rub. IF you got filled on the long puts, there was no guarantee you could get filled on the PCS. Leaving you incredibly exposed. If you got filled on the PCS, it meant that the market was moving against your longs (the makers apparently called them STUPIDS) and you will pay a really bad price for the longs as they become high in demand. Filling this trade in size was a nightmare.

So some people had ideas about using ratios. I gave it a shot the next red day. Again, I had mega issues getting fills on this. It just was untenable. But I did manage to get on about 150 units of this trade through a lot of pain.

The backtests were great, it was the trade of all trades..but filling this live was a different story. It’s all easy when you just enter the trade and press commit in a backtest, not so easy in real life.

The next issue was margin, at first I didn’t have much margin issue at IB but as time went on, all of these seem to margin expand to abut 13-14k a unit! This made the trade almost untenable from a margin perspective. Gross use of capital. So not only did I have a nightmare fill situation but I had a nightmare margin situation. IB doesn’t take into account the full benefits of the longs below a certain delta (in this case our spread was so large that the margin hit from the short was not getting covered at all by the longs). This isn’t such an issue at Think or Swim but at IB it is.

So a dream trade from backtests became somewhat a nightmare trade from a margin and live slippage/initiation perspective. Lessons learned and 3 months of opportunity potentially wasted.

These things you just can’t know. And again, this year was a year of exploring every nuance of complex option trading and it ended my year at best break-even. But the year was the most successful year in growth as a trader and I feel there is not that many more stones to turn. We’re (my PMTT group) are approaching the apex of what’s possible with respect to the triangle of requirements in complex trades. Guess what? It’s gone pretty much full circle for me. I am actively trading STTs and variants of BSh factories and the last 1 month of doing this has produced great result. Now on to formalizing this as a base trade and putting capital to work with what is proven to work and not into nuanced complexities.

Here is the summary of how my year from memory:

1. Jan/Feb I still had on legacy Rhino structures that got smooshed from the incredible trump bull run. Remember these? They hate 4%+ up moves in a cycle. Love everything else. During this time I started testing the new STT/BSH stuff. I started off with BSH and waited as per the rules to finance with PCS on a down day. I think we had a 14 day bull run there with no opportunity to finance, this is extremely abnormal. Bad timing. So the BSHs put on lost money because they couldn’t be financed. Not a great start. The STTs obviously as they always do, did great.

2. March/April I start testing a combo trade I came up with called the PC2 and PC3. The PMTT group seems to like it as well. The tests were insane. Really good. But I miscalculated margin requirements and put the trade on the shelf. I documented this in the blog here even. Exciting stuff. Shelved due to miscalculating margin requirements (I entered each segment into IB and added the margin up). During this time, we used a method that tested very well but failed to deliver during this specific period as a way to finance the BSH. The BSH/STT combo broke even. During this time there was a cross expiration skew issue that kept the financing method from paying off the BSH costs. These are all legacy methods of financing that aren’t really used. Learning process. Backtests of the RC financing method did great. Just we had a bad period here…timing was poor.

3. May/June/July Extremely low volatility, RCs still not working, unable to really have opportunity to put on some good STT trades due to low vol. Start looking at PC2 again and do extreme testing and was aiming to present in September at the PMTT group. Basically broke even through this period. Poor pay off of the BSH. The PC2 had we started in April would have been hitting profit target every single month this year! The financing method is built into the PC2. Unfortunately, I calculated margin wrong and didn’t initiate, instead I used RCs which just did not pay off the cost of the BSH and we were slightly profitable but more or less break even during this period. Maybe up 7%?

4. Aug I entered some T5 (just about 40k worth). Along with most of the group. This was a juicer trade, a trade meant to pick up our returns. It is the most POSEV trade but its got variance. Variance I can accept though. We entered and experienced one of the worst skew issues you could imagine due to the NK missile issues. Vol sky rocketed in January options but not so much in earlier expirations. This caused massive draw down. Most of which was eventually recovered through October. But this was the highlight of August. Also during this time, I realized error of margin re PC2 and started heavy heavy testing and was ready to deploy a mastermind session in September.

5. Sep The HS3 and Fulcrum ideas come out. They tested so well. Dream like almost. Read the beginning of my blog post for more info. It needed high vol entries. Vol was extremely low and historical. We wait patiently for opportunities.

6. Oct Market runs up, I took off some Dec PCS in what was record low vol, with intent to get off PDS next day or so on any slow down. Again, the market gapped up like 1-2% and I destroyed my Dec STT profitability and actually went negative.

7. Nov I decide to enter moderate size of Rhinos thinking we’re apex’ing and unlikely to experience sustained and large up moves. That was wrong, Rhinos were exited at fairly big loss.

8. Dec I finally put live all the good core trades, they do great and recover a lot of the losses from before. STT, PC2 and BSH factory is producing great returns. Onward into 2018 this will be the core.

The interesting thing about all this is that the complexity of all these strategies is solely based on how to hedge them from risk. it’s not about seeking out max EV or anything like that. I say max EV because seeking out max hedge is equivalent to maximizing profit at least from a risk perspective. Max EV trades are trades that have the highest expectancy and this can be without regard to variance. The highest EV trade I know of is called the T5 which is taught in the PMTT Mastermind group.

Anyway. That’s a sum of the year. You can see it was a lot of experimenting and backtesting and trial. In the summer, I was backtesting an average of 4 hrs a day on 20 or so new variants of strategies. Though I may still be backtesting going forward, the core bulk of cash will be put to work in combos of STT and self financed BSh. The STT always produces, it did though 2017, it was the BSH not getting financed that caused the meh results. THat’s solved. Excited to see how this thing does through the year.

More to come.

My plan going forward.. (HS3, BSH Factory, TTTBSH)

Finally finished up a deep backtest run of the newest trade setups and am finalizing my plan for 2018 which I am confident will be a break out year re profits. The trade plans setup are so robust.

Since Jun I’ve just been testing and testing and testing all the various concepts trying to cohesively setup a plan for end of 2017 and 2018. Majority of my free time has gone into this testing and I think I am finally in the homestretch. I have a plan and I have extensive testing completed for the majority of that plan. Testing was completed for the HS3 from Jan 2014 to present and here are the compounded results:

I’ve been waiting for a high vol red day since Sep 5th, and one has just not really come. I need vol to enter this trade. I’ve tested that there are about 20-24 entries per year but some years can be as low as 12-15. Good enough as the trade will return 10-15% on margin. So not only has the trading from Jan to Aug sucked, but I can’t get a damn entry for these new trades 🙂 Frustrating. I guess a year end is just a date, so patience is what I’ll exercise.

As for live trading, basically up to August, trading has been not going my way. I was live trading the STT and BSH w/ financing and just had a terrible time paying off the BSH structures (as I mentioned several times). I underperformed relative to my goals. Couple that with the legacy Rhinos from the beginning of the year that did AWFUL, it’s just been such a “meh” crappy year. I mean, this year has broke records in all metrics for volatility and down day magnitudes and frequency, it went as badly as it could for these types of trades. Coupled that with the fact that I am waiting to enter large trades, and time is ticking, I doubt I’ll have much chance for even a modest year.

When we do get that down day, I am using the trade desk to put on a 100 unit trade and I am not messing about with filling it myself. If we get another few down days after that, I’ll put on another couple of 100 unit sets on. Fun.

Yeah, so when I look back at the year, it sucked for trading live and results therein but it was the biggest learning and trading maturity step I’ve taken. It feels good. The entire year was probably 500+ hours of testing and analysis. Lots of dead ends, but lots of discoveries Jeez, the latter half of the year was so much back testing that I was dreaming about it. When I was on my trip, I’d use the 3 hour nap (my newborn baby) period during the day to backtest and test concepts and lately, it’s been testing in day and at night when the wife and kids go to bed. Since June, I think there have been 15 or so concepts introduced and I think we’re nearing the end of the runway of what’s possible re overall conceptual structures in the equities options market. Anything from here on in will likely be plays off what we’ve already tested. You can see this manifest as the group naturally is moving towards the next level of complexity—>VIX trading.

I’ve been liking the idea of a TTTBSH protecting the initial setup of a BSH factory and have done some extensive testing on that. Even if you do it in low vol, it seems to work out just fine as the TTT will protect until its adequately setup (the factory).

New Trade Results

I’ve been backtesting 3 variants side by side from 2014-2017 w/ entry during a SPX down day of at least 0.5% and a corresponding VIX spike. The High vol entry makes the management of the trade much easier, the more the spike and down, the easier it is to manage. I’ve been testing the HS1, HS2 and the new fulcrum trade . I am not done yet but it’s close. I will be presenting at a mastermind next week and will be talking about the trades and its results.

So far I’ve not had a loser for the HS1 variant which I manage in a specific way. The drawdown has been less than 400 a unit as well. Very very good. The average days in trade is about 48 so far and the return is about 12.5%. The more higher VOL entries will sometimes get to profit in 8-14 DIT especially in more bearish conditions. Beautiful trade.

Here’s what it looks like at initiation:

Despite what it looks like to the left, in a black swan event, it will pick up and handle it just fine if not at a profit.

Here’s a few of the trade initiated around Aug 24 crash date:

Aug 20, 2015 ENTRY

Aug 21

Aug 24 Crash day


Despite the left side, it does pick up and reach profit target on the 21st AND almost double the profit target on the 24th.

The market moved from 2035 to 1890 and it did just fine.

The same goes for the Jan 2016 slow bear move down. It just crushes.

Yep, it’s a game changer. Horny Communist!?

Spent most of the day backtesting and working with the group on slight tweaks to the new trade as well I looked at parameters for adjusting, profit taking, margin expansion and so on. (Some tweaks are basically using different synthetics to better the greeks and so on IE you can short the market directly or you can create the same thing with a short call and long put at the money. But you then have some benefits re VEGA (vol) if the market falls re the long put) So you play with that stuff to get a better reacting trade while keeping the profiles relatively the same..long story short—>Buh-Bye STT and BSH. This thing is it. I’m saying hi to an old friend named optimism. I was down in trading mood this week and It think it showed. I guess at the same time, I mean, I didn’t have my combos on yet (PC2) and I was still struggling with the financing and so on which there was a light at the end of the tunnel. I just wasn’t feeling it. Now I am.

Like I said in the previous posts and above which might not have been obvious, the bulk of my current trading portfolio was still in individual BSHs, STTs and financing there in, NOT combos. A true struggle it was for me. I had not gone live with combos yet (not with any large amount). Had I, it would be just fine (not close to as good as the new stuff, but good). So I’m still old school and am suffering with poor profits from being unable to finance the BSHs in this environment. My reverse calendar financing DID not do well, my NPs were barely existent in some of my BSH financing and my STTs are suffering from bizarre option skews (OTM puts holding value). This whole thing was kinda a mess and resulted from a lot of things not going my way. Still, I am profitable, I just sucked.

So right now, I mostly kept backtesting the new parameters (when do we take profit, what if we move an option here or there and so on and playing with all sorts of dates to see how to setup the profit taking in the trades and to get a feel for draw-downs and so-on. I couldn’t keep up with the developments in the group and in the trade itself re parameters. So I probably backtested this thing in various small forms across every date possible 🙂 It’s using very familiar parts that I’ve traded a millions times before, so it’s not as if its going to do something unexpected but still diligence is required. I think we’ve nailed it now.

I’ll have a solid basket of 5-6 trades all working together and I am going to go live this upcoming few weeks. I’ll be going from the cumbersome financing BSHs, STT mess skipping over the combos and into the efficient versions of said combos that have accomplish the same things with elegance and ease w/ better profiles and greeks. The key thing is these things will be a blessing to manage. Looking forward!

The title had Horny Communist in it. That might be the name of the trade variant as a member noted that the Leftie tent was so big, he kept thinking of lefties/commies and we added a small tiny horn at the front (stolen from the Rhino trade) hence the name Horny Communist :). I kinda like it. This trade mixes ATM style properties but with built in black swan protection.

Game changer?

The last few days it appears we have found a ‘game changer’ that accomplishes what the STT+BSH trade does but without all of the issues that come with financing BSHs and relying on timing requirements for said financing and BSH initiation :). Basically, the entire thing I failed at doing properly this year due to how crazy the market’s been with both OTM puts holding value in the STT. The BSH financing wasn’t working across expirations via the reverse calendars and I was not getting any significant down days to get on naked puts to finance the opportunistic BSHs I put on. I heard this year was the historically worst year for 0.3% or more down days. There was barely any. Like the environment was with Rhinos, the worst possible, this environment was with this STT+BSH trade. Apparently I have the worst timing. I’ve been checking across option disciplines, it seems any delta neutral strategy has been failing since May due to the OTM puts holding value due to binary event type environment (War w/ NK can start, missiles can be launched on weekends, debt ceiling, Trump idiocy, and so on). This includes M3, Rhino, STTs themselves, combos, time trades etc.

There’s a few groups of trades we work on, one set is based upon cross expiration skew reversions and we call these time trades (TTT, T5 etc) which are usually not model-able in the sense that we can rely on any option software modelling to produce a risk profile of any real value. From backtesting, we know that they have probably the most EV of any trade we’ve done but they also lose on unpredictable internal market events (not market movement) but rather skew changes across expirations. This can cause draw downs of 100-300% though rarely. On the opposite end, they produce 100% returns regularly on an average of 10-12 days in the trade. The group was putting so much time into these trades (no pun intended) but we could only ever use 1-3% of our accounts. These types of trades take a lot of time to get comfortable with and it requires a lot of backtesting various conditions.

Thankfully, the focus of the group shifted to risk profile versions of our base trade…namely the STT and BSH and combos therein. The start of the movement away from relying on BSH financing and timing came with the advent of the PC2 which does really well but requires 45-60 Days in trade,is very cumbersome and requires 2 BSHs, a financing put and a PCS and PDS (STT). That’s a LOT of contracts/commissions, a lot of opportunity for slippage all while the p/L target for the combo itself is quite low. IF there was no alternative, this would be the trade. For me!, I haven’t even started THIS trade live with size yet, I am still trading BSH+STT and financing methods therein. These trade profiles are fairly similar to each other across their iterations. the STT, STT+BSH or the combos that we’ve set forth, usually these are kinda known in how they’ll react and where they’ll have weakness. Then Ben G came up with a similar risk profile of these combos but with far less contracts, no requirement for BSH (it’s built in) and a much better greek profile. Essentially, a slap on trade with like 3 contracts (replacing 7) that is easier to initiate and has a better behavior. He called this the Sail trade (though it has similar profile to a combo, it looks more like a sail). He’s honed this over the last 4 months and realized its weakness is that it needed to rely on specific entries (be it high vol or be it using a trend system where delta is erred). If put on in High vol, it basically doesn’t lose and produces 10% on margin. The trend following one is similar. Ron then produced a trade that again, mimics the profiles of a combo trade but with a MUCH MUCH simpler setup, better greeks, better everything at least compared to the PC2. It’s temporarily called the Fulcrum trade. Basically the last 3-4 days we’ve had people from all over the world back-testing it and Ron’s mentioned it will be the replacer of his entire base trade, namely the STT combos 🙂 I would agree. It’s solid. Though it appears we have a game-changer, it requires very onerous testing to ensure and hone how adjustments are made and where to setup profit taking etc. Now I need to test every single possible date even though I know a trade with this type of profile is docile and has already really been tested in various forms before. I’ve done about 25 different trades and so far the only time its break-even to slight loser is during the last 2 months re binary events and out of the money (OTM) options just not losing much value.

The trade does 5% on margin if its outside tent and 10-20% if it’s inside tent. It will do better if we err starting deltas using a trend system and the average DIT is around 30 from what I’ve seen in my backtesting.

This new trade replaces the STT+BSH combo with a much simpler more powerful setup, it’s a lot less contracts, it can be put on in ANY market condition, it’s an “always-on” type trade. The greek profile is fantastic, it does well through Aug 24 (max profit!), it crushes the Jan 2016 market and it does well in low vol. What more can you ask for! We can do it in futures and we can do it in SPX and possibly RUT. We’ve got scaleability and we’ve got low variance. Can’t wait to test this thing more. I do have 9 units on right now LIVE via ES on Friday. Wanted to test out execution.

I have a feeling the STT+BSH (using financing methods) and the PC2 might have just become an antiquity right now.

Sep 13 Update

Not a whole lot going on,

On the super low vol pump up during the last 13 days, I did enter a bunch of BSHs and set and enter much of the Jan STT at a higher UEL on the one down day we had. So the higher UEL is helping financing some of the BShs but not completely and I wait for ANY return of vol to get them paid off. When will this period end? This is the last time I work BSHs like this. I will enter a BSH factory and do opportunistic STTs, Sails and T5s. I just suck at financing these things.

My year is pretty crappy, I’m positive but it must be around 10% or so max thus far. I guess I can’t complain but I feel like I am just waiting for some sort of vol to happen so I can get out of my Dec STTs and start entering all the new setups I have (which all require some volatility to enter). The whole year went to shit re returns from the original Rhinos I had on in Jan-Mar and my poor payoff of BSH financing (RC’s didn’t work well enough and my over-patience for high vol entries of NPs didn’t go as planned). All of the poor performance is to do with my poor financing and using archaic strategies that we no longer use (it was all we had at the time). I attribute this year as a final year to my on-going learning and setup of the dream trading portfolio 🙂 If I can’t break 50% next year, I will question everything. I know that sounds crazy.

I did put on a small Rhino the other day but the up move has it in negative currently. I am still trying to get out of my T5 which I am seeing some value come back in.

As I mentioned, I am convinced that a BSH factory is a great core trade and pairing it with some opportunistic STTs, some Sail trades (High Vol entries and trend following entries with bias) will be the move going forward. I’ve been backtesting it like mad and I am getting crazy returns on any date I enter for the BSH factory, within 6 months or so. It’s a great income trade, but I can only use a fraction of the account on it re initial risks at the beginning. We have exposure for like 10-20 days. I will likely try to tool old structures I have on to compensate this risk so I can put on more and more.

I am back in Cayman now, boredom is starting to set in more regularly but I am getting a lot more work done 🙂

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.