That was an interesting day!

So that was an interesting day. As expected my portfolio has fallen due to vega issues. Normally not that stressed but this is kinda a weird environment re this trade war. I am not so much stressed about any permanent draw down or loss but more so managing the rolls and dealing with fills (if we drop much further than 2825). It’ll mean that the trade will take a lot longer to get to any reasonable target. However, if we crash, I should be perfectly fine with the BSH hedges.

  1. I’ve got 115 STTs on in Jan expiration
  2. I’ve got 80 or so Dec STT but coupled with loads of bearish STT adjustments
  3. I have 14 ES shorts
  4. I have 100 puts in Sep 19 expiration at 2125
  5. 110 BSH in Oct 17 expiration (only 54 days to expiration though)
  6. 20 BSH in Oct 31 expiration
  7. 95 BSHE in Oct 31 expiration (just ratio)
  8. 30 BSH in Nov 14 expiration
  9. 30 BSHE in Nov 14 expiration (just ratio)

So I have on an estimated 195 STT, 100s of bearish STT and 285 black swan hedges of some form and 100 long puts in Sep. So should be hedged against any crash by far. Typically, 1:1 on a Aug 2015, Feb 2018 event should get you break even all said. If they activate I should be in a profitable situation. Especially given the BSHE have not yet sold the additional short just yet.

Trump tweeted “Who’s the bigger enemy Jerome Powell or President Xi?” That’s so messed up on many levels and it creates a confusing trading environment. My trades are back to about -4% or so. Which is expected with that increase in fear/vol. However, I am sorta in a really sweet spot if we should stabilise anywhere between 2750 and 2900. I really don’t know what to think re what’s going to happen here but I hope it slows down else things get a bit annoying. If it goes down hard but without a crash like trigger, it’ll get rougher before it gets good. I’ll have to initiate rolls etc and it’ll take longer to reach any reasonable P/L. If we have a sharp crash, I should be profitable as I have about 195 STTs on with a LOAD of bearish STT, BSH hedges and ES hedges. If we move around between 2750-2850 over the course of several weeks, my P/L will be fantastic.

Today: Here’s what I was doing/thinking through the past few days:

On Thursday, I got on 25 bearish STT and sold some ES shorts at about 2922-2930 area. I wasn’t loving the move to 2937 during after-hours but it wouldn’t matter since I had tons of theta and I’d get my target. The previous weeks I had put on 100 or so bearish STT and converted some over to regular STT. I have this big hodge podge mid-hedge position over the past few weeks. All in December expiration. Overall I am still negative Vega by a far amount so any increases in Vega hurt. The move from sub 16 to 21 VIX did hurt the trades as predicted.

On Friday, Before the 10am Jackson Hole events, I was building up some hedges mostly to start the massaging process through September to get my P/L up to target before my trip. The plan was to get them more negative delta and just let the market move about. I sold 8 ES which gave me -400 deltas then (this was a bit weird) I had a bunch of bearish STT trying to fill then trump tweeted, we fell to 2919 quick and then rebounded and it for some reason filled, then we went straight down. The day before that, I got another set of Bearish STT when the vix acted weird on Thursday. So yeah, pre-trump I was about -300 delta all said. When the vol kicked in and the market fell, I ended up at about +700-+900 (Sans the ES hedges). This is the effect of vega on delta. I ended up day trading the ES to build more hedge. Every bounce I sold more, and then covered at specific points and resold over and over again to build it up to -14 ES shorts. I also added in BSHE and closed some units of STT.

I did sell some short puts right at 2835 EOD for a BSH factory and the market bounced to 2857 after close, those puts were then 80c cheaper. I almost closed them but didn’t. I don’t know what to expect Sunday/Monday but I am sure we’ll test 2825 and I’ll probably wait for confirmation of a bottom before closing off my shorts. If we break 2825 I’ll have to roll some STT and ride this thing longer than I hoped. I’ll be aiming to complete those 90 shorts to make 30 more free BSH on any bounce on Monday.

So I guess we find out what happens on Sunday. I am trying to analyse my portfolio and post it here but ONE data doesn’t work on weekends…..so I can’t do anything until Monday.

I think I am pretty solidly hedged and setup. I was profitable on Wed now I am down about 4%. It’ll take some time to get it back but time is on my side unless we have a Dec style slide down that doesn’t activate BSH, then it gets more painful as we roll and let time work.

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.

Aug 21 Trade update

Man, I really wish I would post more. I get so damn behind in traveling and this just gets totally forgotten about. I am really really sick of traveling and I think I’ll probably stop most of the longer trips as the net benefits and excitement are now becoming benign. I haven’t really been home since April. It’s too much.

Here’s my gut take on the version of STT+BSH trade I do, which is tailored in methodology to my preference (higher UEL etc). Since Feb 4, 2018, the volatility regime has changed significantly. There was a loss of several large market components ie the collapse of several inverse volatility ETFs, which were a component of the market structure. They arguably amplified (and dampened) certain reactions in the pricing of options and, more importantly, out of the money (OTM) options pricing. It had a large imposing effect on how volatility works and how option pricing reacted to market moves.  Volatility indexes such as the VIX is measured by the fear reaction in options pricing. Options have varying strikes, and the reaction happens differently depending on just how far out the option strike is and the positioning of the strike in general. Picture each strike price as a bar where some of that bar is coloured grey, now pretend that grey price is the fear portion of price. Each strike’s grey bar may react with different magnitude during a market move. This is known as skew.  A strike at the money may have a different % reaction in fear than one 5% out, and so on. Skew is not predictable in any actionable sense. 

How this relates to OTM trades and corresponding BSHs?  We purchase way out of the money insurance by way of a black swan hedge, and when we have a black swan or major down move, this has been our protection. However, since the volatility regime change, these OTM options have not activated as much as they have in the past. The % moves in SPX are not corresponding to the increase in pricing in way OTM options and Vix is not spiking the same relative to the % move in SPX. Another theory I have is that previous to 2018, there was no real open interest in these way OTM strikes, it is in fact our presence in the market that’s perhaps causing an additional opposing effect on the activation of these insurance structures.  Having open interest as large as the PMTT group would or could cause a levelling effect to volatility responses just as the inverse VIX indexes provided an over-reaction. Who knows but I think I might adjust some things.

Since Feb 2018, we’ve had several large market declines since then including the Oct and Dec declines which saw several moves within the time period where VIX should have spiked to >30, but it only spiked to 20. This was confirmed again in May of 2019 and this month (Aug 2019). The market has changed. The over reactions in vol are now more efficient and muted. This is probably overall neutral. This means that the income trade portions don’t lose as much, but also the black swan counter part does not activate as much. The problem is just how much MDD you’re comfortable with. With the OTM income trades that are initiated in very low vol (12-14) and the market transitions to higher vol. Our income trades are so negative vega (volatility) that we will have a roughly 7%-10% draw down on our income structures. Basically like all VEGA/Skew change losses. Typically bear moves have a spike, and BSHs activate and we can roll both the BSH and the income trades at minimal cost. In the new regime, it appears it’s not guaranteed. This has made me change my methodology going forward as my theory is a lower overall draw down provides for much better compounding effects and overall higher return. As well, going from low vol to higher vol can have margin expansion and prevent having capital to enter the juicier opportunities.  In the most recent event, you could get close to profit target on an STT in 6 days whereas it usually takes 75 days. That’s 69 days less risk!

I’ll probably be only entering STT+BSH income trades on a large fear spike found when the market is in a forced liquidation period and when the VIX is >21.  These happen a 2-3 times a year on average, but the tests indicate that it’ll do 15- 20% on capital per trade with incredibly less risk, much less draw down potential, and minimal time in the market. Our income trade exposure goes from 365 days in market to 65-75 days. 

In the August event that just happened, I am now slightly profitable BUT I did have some temporary draw downs that reached 7% due to vol and the BSH did not activate. I saw things in the models during that event that I did not like given I initiated these in lower vol environments and the transition hurt. The issue was specifically, the night when we had touched 2790 after hours. If it had opened at 2790 and slowly went down, the draw downs (IF the BSH did not activate) would have been larger though potentially temporary as we’d roll and eventually likely recover. But we’d miss the best opportunities, and it causes fatigue as it requires a lot of work to manage. Entering in a high vol regime negates tons of % of that risk. 

Since Aug 1 to now, I am up a few % and that’s pretty damn cool. My structures a bit more matured and resilient as time passed by. I will massage these and my theta per day is currently 11k but I’ve adjusted from positive delta to more negative to lock in small profits and to minimise risks. I’ll massage this into Sep and only enter new ones in big fear spikes. I am expecting to end September at 35% for the year to date on capital.

I’ll be doing BSH factories in income and hedge format, opportunistic STT and LTI stuff as a base (12% return per year with 6.5% max draw down). Done and done.

Jun 12 – Update

Long ass 6 days of poker. I was able to finish 150th out of 8,809 in the WSOP (World Series of Poker) Millionaire maker. Pretty wild, 5 of 12 of us in the coaching group finished in the top 150 the other 4 were pro (coaches). Pretty wild result and testament to the studying. I am utterly exhausted. It’s been 12-14 hour days and there’s no chance I could play any more tournaments right now. I busted the 1k and marathon pretty quickly and entered a 1k in the Venetian which had a fantastic structure and though there was re-entry I think I made a few mistakes that was telling me I was fatigued.

Hand 1:

I’m CO, I open 56hh to 1600

BB raises 4,100 so I call given size

Flop AA7h

He bets 1/4th pot. I call

Turn 8h

He checks. I think to myself that he’s most likely missed and unlikely to have an ace given the sizings of his flop bet and he insta checks turn so I pot it (stupid) to fold out everything else in case I miss the million outs on the river. He jams…Ugh oh. Now I am forced to call w/ those million outs… I miss (no 9 or 4 or heart). I also thought I had much higher equity in the pot but I didn’t and I should have checked back and folded a missed river. Too high variance in a weaker tournament.

I should have checked behind and c/f on a miss. I forced myself into an all-in pot with a pot sized bet.

Hand 2: AA MP

I raise and BB calls

Flop is 873 rainbow

Check, I bet pot, he min click raises back to me. I jam for the remaining 25bb. My initial gut was that I was beat and I could make an exploitative fold but then thought that was nuts on a 783 board with AA. I’d mandatory call the min-raise and probably a small bet on the turn and fold rivers if he triple barrels. I wouldn’t normally jam here and it was a rec player so a min raise back is probably pretty strong. I call one all day long here against anyone else but def not jamming. Instead, I think that I can get max value out of all pockets lower than mine and any pair of 8s and jam. I am obv wrong and I end up with 30% equity against 78 two pair and missed. Way to borderline a spot to get it in. I doubt rec player min-clicks back like that with anything worse. Maybe a small pair but I block A8. He has all sets and two pairs. Meh.

Not a whole lot going on with the trades. The run-up makes things boring (though tonight it seems like we’ve had a bit of a market fall). Might make for some STT opportunities tomorrow.

I am stuck right at about 24% and I don’t have a whole lot of opportunity for big increases until I can get on more trades.

May 22 (Trade Plan)

Busted the tournament in Day 2 (200th out of 529). Ran into another damn 3 outer that crushed my stack and that was the start of the end. Exiting main hurts bad every time. I had managed to get my stack up 50% for the day. Felt good, near average. I had AQspades SB vs BTN. He raised PF in the BTN, I three bet in the SB and he called mandatory with K7s. the flop had a K on it with two spades. Check/Bet turn is an Ace, he checks I shove..he calls and hits a 7 on the river. If I had won that I’d have been above average and ready to compete for the end. I’m always super emotional after a tournament (When I bust to these ridiculous hands) after having put in hours and hours of concentration. The good side is that my game has never been better, I’ve been playing really well, I have confidence in the game I am playing and I guess eventually it’ll work out. I guess I got two day 2’s out of the trip. I busted the 1k with a BS hand as well as I previously wrote. That was 240 or so out of 1540…..One of these have to damn well connect. It’s never about the money, its all about the competition 🙂

When you’re early in the tournament you’re usually not at risk re your entire stack. It’s the day 2/3 when you need a few 80-90% EV hands to not run bad on you! I get it in with the best of it and just get run out of. I am running bad. I haven’t been able to get it in positive more than 1 time in a row deep in a tournament. Unfortunately, you need 2-3 good hands in a row to chip up and if I don’t get these I can’t win. I mean AA vs AK in 2018 vs Ryan Reiss, I had KQ on KQ8 in the barcelona to exit to 88. Or A8s vs A2o in the Barcelona main only for him to hit the 2. Blah. Any one of those 5-10% go the other way, I’d be deep running.

My trading account is hitting about 19% today which is the only positive thing today 🙂 I removed most of my Aug trades today and have dry powder. I was able to get 60 short puts sold for my factory but I wasn’t able to get on more STTs today which is annoying, well maybe not, there’s 10 min left in the day, maybe my orders will fill.

Off to Ottawa tomorrow for a comedian show and some meetings. Then I am making my way to Toronto and over to Moab for a wedding. The next tournaments will be Vegas WSOP. Let’s see how those go.

May 21 2019 (STT+BSH Trade Plan)

I just hit 18.5% for the year which puts me right on target for my expectations. I am hoping to hit 20% for H1 2019 (roughly 3.4% a month). I can compound monthly (and will) and after 3 years (36 months of compounding @ 3.5%) which should double money every 21 months..and 7x every 5 years 🙂 Let’s see how it goes with diligence and trade plan following. So far so good. Within the next 7 days I’ll close off Aug and probably Sep and I may start removing Oct as I’ve already got some good profit in there. Then I’ll just wait for another vol event and rinse repeat.

I am in MTL right now for a few tournaments, I got 240/1535 on the first one which was a speedy tournament with very quick blind levels. Busted TT vs AJ right relatively close to the bubble. I didn’t cash but was damn close. By far the best I’ve ever played, it’s not even close it’s a different level then even the last round of play and all due to the coaching arrangement I have setup w/ Ryan Laplante and CLC coaching. I’ve learned a ton and confidence is through the roof. Getting next level in the game and ready to get cracking and finally get a final table within the next year or two. If I can get some good runs near the end of a tournament that would set me up. I got deep yet again here (240 out of 1535!) but just had a cold few hours and the blinds were way to quick. The main event is 3x less speed and the WSOP events are like 10x slower. So I should have some good opportunities with the WSOP main events, MTL main and marathons.

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.