Whirlwind month of Jul (Travels, HS3, STT, Rhino etc)

Finally settling down and getting back to normal work lifestyle rather than scurried catch-up.

Just finished a 24 day cruise, then traveled to Arona, Italy for some R&R with family friends then onwards to meet my biggest client (a well known Ferrari racer/entrepreneur socialite type guy who’s got the fastest lifestyle I’ve ever seen) in Budapest which consisted of me trying to balance 2 kids, a baby, an “at the end of her rope” wife while staying out to 3:30am for business (and some pleasure). I barely could keep up with anything. After that I made my way by rental van to Zadar, Croatia where I caught up. We just left and made it to Istria, Croatia and now I am in a villa in the countryside relaxing and catching up on everything.

During these little whirlwind periods, I have to balance everything which can be difficult but I think I have it down to a science. My communication usually suffers, emails that aren’t super important sometimes get forgotten but everything else is generally aces. One of the reasons I travel to Europe during the summer instead of elsewhere is because of the timezone, i.e. the market opens at 330pm here so I get the evenings to attend to trading.

My mind is always focused on the trades during every single day regardless of where I am, or what tours I might be on or if we’re on the road. I generally don’t miss a beat on the management of these trades and finding opportunities for entry and adjustment.

I usually wake up every day, model my trades, look at the market technicals, figure out what I need to do later, enter trades in IB/EDF and pause them for market open. I then get out for the day with the family and do whatever we may have planned. We have a small baby now so we have to usually be back for 12-1pm for nap time. I use that to further catch up and usually do some backtesting or whatever else I have to do for market open. Then at about 2:30-3pm my wife and I will typically head out for some alone time for about 3 hrs, usually touring cities and getting dinner and a drink. During this time, I got everything on my phone and sometimes I may have to interrupt the conversation to get things on but its never a prob. We are usually back by 7pm where I finish out the rest of the market hours and I’m done by 9:30pm to finish the night. Through all that, I am usually tapped out and non important things get left to the way side until I get to an area where I can relax more and catch-up. So yah, If I am out, and I usually am, I’ll be looking at phone and entering those BWBs (for new trades), PCS (for raising UELs in HS3s etc), and entering them in-between talking to my kids at dinner or wherever else I am. I am using downtime during the day (naps or AM) to model and get a plan in place.

The HS3 futures in EDF are crushing right now, I started them I think in May and it’s up almost 35% or so. I reached profit target on 111 units in Oct 31 expiration and 20 units in Sep expiration. I have another 83 (SPX equiv) units on in Dec monthly which are more than half way to target and 61 (SPX equiv) in Dec 31 expiration that I just started on those two down days we had last 8 days or so 🙂

My HS3s in SPX/IB are also near profit target. Wonderful. I think I have on about 100 units there. Solid gains. My CC campaign is also doing great.

I added in some Rhino and X14V14s in for ATM trades. I changed how I manage upside in the Rhino but the main reason I added is I call it a middler which loves moderate down moves and helps hedge that little area where the market falls 2-5% and affects (short term) the HS3s and CC trades negatively re vol and skew effects. I love how it reacts together. I really liked the rhino in the old days as I remember being super upset about making 20% when the market moved up 50% over 2016 🙂 I will use it small as a booster and middler 😉

I am not sure where we will go next (we’re here in Croatia until the 11th but for sure I will be in Barcelona for the Pokerstars tournament on the 22nd where hopefully I can have some decent luck..

More to come as I have lots of time…

Jun 29 – Trade update

Super unexpectedly, I got a slew of emails from my new futures broker wanting me to send more $ to cover their risk models. They suddenly realised my risk at -10% slice was high (on their models). I gather that the vol expansion the last few days had all the risk guys looking into accounts and they tumbled on to mine. The Eroom guys are introducers and they were the ones that seemed panicked about the risk profile. On a true crash, the HS3 would likely do very well but most models don’t correctly show that. I was on a sea day (on the way from Copenhagen to Estonia) and obviously couldn’t easily arrange for said wire.

After what was about 25 emails between several people, I was able to transfer from my SPX account at APEX to my futures account at EDF. IF this is how they act on a normal day how will they act on a true crash? I can’t deal with the emotions and demands of several people during a day like that so I am not sure I can expand much with the futures account.

That’s all good though, we’ve developed a few new trade types that have exact risk profiles and backtests (automated 1000s of them thanks to a genius quant in our group) that can be done with ease in SPX and IB. I’ve already moved most of the newest stuff to that methodology anyways.

I’m glad its Friday and the market is up pre. I can go enjoy Estonia and have the weekend in Russia. Yesterday would have been a terrible day to be at port re dealing with brokers.

Jun 27 – Trade Plan (STT, HS3 and X4V14)

Today was a typical bounce day and I used the opportunity to get in some bearish STT and PDS hedges.

I’d like to backtest the krishnan hedge as a vol spike hedge and probably will do so on the cruise during the vast amounts of free time I’ll have 🙂 Generally, I get a lot of sitting around time and I’ll typically choose something to research or test.

I’ve got on a slew of protected STT, HS3 and X4V14 trades (ATM BWBs). All reacted fine during the little fall and all are pretty well hedged. Not a whole lot to report really. I added some delta and vega hedges on the bounce just to balance out everything.

This trade war rhetoric should keep skews pretty disadvantageous to already on trades. Reasonable to put on new trades etc.

Jun 26 – Yesterdays Vol Shock and the trades

Yesterday was interesting day, VIX spiked up 40-45% and we had some relative fear in the market.

My fresh HS3 trades all drew down as expected on any initial vol spike of that magnitude. Nothing at all to be concerned about and not all that big. My older HS3s were just fine. After an initial spike (VIX spiked to 19) there’s not all that much relative exposure to Vega left before the BS portions of the trade kick in. I mean there is a bit but relatively small and any more down move would trigger the OTM longs and the trade goes profitable. The trade is almost as perfect as it can get but what it needs is some initial vol spike hedging to keep Drawdowns and psychology clean. We have initial ideas.

The draw down is due to Vega and Vanna as the initial vol spike doesn’t quite affect the far away longs as much as the more upfront part of the trade. The far away longs would trigger in a bigger move down or a continued move down. Works well. The draw downs from an initial shock are moderate but I don’t lose sleep on it, standard (pre-market now, we’re already recovered most of the draw down). Basically, just stating that a 40% initial vol spike will generally cause your HS3s to draw down $500 or more.

Another 3% drop would activate those longs and BS protection kicks in and the trades would crush. This is the nature of the trade and the trade-off of the structure and well, it’s expected with ANY positive theta trade, at least initially. Rui mentions that he noticed in his backtest that the lower long put Vomma, Vanna, and Gamma power kicks in when the SPX gets close to the upper longs and the lower get into the 10 delta range.

Essentially, an initial shock and the time before panic is the temporary dead zone of these trades. Once those lowers have the greeks activated, then the trade profits.

Let’s call it VolFEAR and VolPANIC to distinguish the two types. An STT combo and an HS3 combo will initially draw down when we are in-between VOlFEAR stage and the VolPANIC stage and this is usually a relatively temporary period before either the market moves towards VolPanic or VolNORMAL stages.

Adding in a Krishnan PBR might be the answer to this and I am going to explore adding it in for low vol times for that initial shock (that you’d typically get in a 1.5-2.5% down day). This would cover the initial DD and maybe even profit and taken off while the initial structure would activate on a move further and is safe anyways.

The market is bouncing now and my pre-market balance is relative recovered. In backtesting, this was always the case and often after a larger fall and a few days of rest, the trades hit the profit tent and reach targets. Let’s see if this is the case for my older trades.

I managed to get on about 40 more units yesterday and I got 25 PDS @ 45 DTE to help with hedging on the bounce to 2721 at EOD.

I Like where we are right now.

Big accounts and prepping for travels (HS3 and STT trades)

I am about to board a 24 day cruise and am preparing all of my trades.

I have this on right now:

250 units of HS3 (spread between ES @ EDF and SPX @ IB) (2.5MM planned capital)
20 units of Campaign style STT (1.5MM planned capital)
34 units of X4V14 (Locke style ATM BWB) – (765k Planned capital)
50 units of KH hedge (Black swan lottos)

So that’s quite a bit!

To prepare I have 2 sim cards (local EU with roaming and a CAD world wide roaming) as a reserve. I have unlimited internet on the cruise and I brought a portable monitor and laptop. I’ve entered GTC orders for every HS3 and STT so that they’re there for me. I’ve got all my models ready and none of these are particularly exposed to a BSH as they’ve all got BSH built in. Most of the work is entering, and I am fully entered. I’ve got the GTCs so I can close in crisis (hopefully at profit). The market opens here at 3:30pm-4:30pm depending where you are, so I am usually done my tours etc by then so I can attend to trades in the evening or early afternoon.

I’ve done this before and guess what, it was during Aug 24 2015 crash 🙂 Suffice to say I was tied to the computer for the last 4 days of that cruise. The internet handles IB with ease. Haven’t had an issue. It was different them, I was trading rhinos and Modified Condors. I needed to adjust.

Lately, skew and vol has increased due to trade war rhetoric and i’ve noticed my Decembers take a vol hit. Not a big deal but could have had better entries.

Jun 23 – In Europe and trading update (HS3/STT)

I just arrived in Europe on the 12th (Hamburg) and made my way to Copenhagen to board a 24 day northern Europe cruise on the 27th. We’re here in Europe till the 31st of Aug and will probably hit up Poland, Southern Germany and Italy again.

There’s been a lot of trade evolution in the PMTT group. We’re moving at an exponential pace in simplification of the HS3 and STT trades via almost synthetically identical structures into a much more manageable and executable way. We’ve also added in methodology for campaign style execution which is relevant for me re size. The new evolution of the STT now includes built in BSH which is necessary while the new HS3 is now executable with ease in SPX. All in all, I think they’ll totally replace the originals. We’re solving for drawdowns, margin issues, risk, and increasing potential returns but first and foremost the key thing everyone seems focused on is how these things will react in a crash and exactly how can we minimise the stress of reacting in that type of environment. Crashes are emotional events and we need trades that react positively and don’t require high stress adjustments.

The last crash had challenged certain assumptions and I think has led to a solving of hopefully every potential issue that could come up with margin, margin expansion, broker calculations of said margin and draw downs. I Learned a lot. It’s changed my goal and mindset. I think it has for other people in the group as well. We’re now naturally and entirely focused on risk managements, draw downs, and ease of execution and management during crashes. The one question I always ask myself w/ a trade is how would this react in a crash, how can I neutralise the risk or lock in profits during said crash and what is the likelihood I’d need to react in such a way that would be stressful or against the market. I want to be happy and relieved during a crash and not stressed. The situation I found myself in Feb — can’t happen again

I feel like the last year or two has been a grand experiment in creating a complex option position that sucks premium out of the market in a fairly riskless way thats both scalable and profitable while maintaining all of the secondary requirements of margin, margin expansion, broker calculations etc. We’re in one of the toughest most complex games in the world and it’s no surprise perhaps that it’s taken this long to develop something. It is what it is. It’s a journey.

The recovery since Feb has been nothing short of breathless which is nice.

I’ve got about 180 units of HS3 @ EDF&man, 100 units of SPX HS3, 20 units of campaign style STT, 30 or so units of X4V14, 20 units or so of the new style STT. Ready to rock.

Current Hodge Podge of Remaining Positions

Here’s my remaining positions from Feb. IT’s a hodge podge of 4 different expirations and is more like an ATM trade than the previous OTM trades. This Risk profile represents an “initiation” of 15 days ago (I re-entered my positions on my laptop 15 days ago). Decent recovery in those 15 days. I keep removing trades every day as I go, lessening risk and on other days, I am slowly raising the UEL. I also have some BSH hedges to protect this thing as I go forward. I will probably half the risk in another 10 days and so on. I do have some short puts in there that are around the 1700,1800 and 1900 strikes which I am getting off as well. They were for the BSH factory start and I sold them on super high vol days. Hence why the -10% time slice looks pretty gross. They’re nearly ready to take off. I nearly took half off yesterday on the bounce. I’ll slowly get those off next week as well.

Here is the risk profile 10 days forward

Back at it – April

After what was a very rough period from Feb 2 to about last week, I am starting to recover and regain my ambition and motivation.

I had a rough go with IB margin rules during Volmageddon (Feb). They had implemented a 30x rule which basically summed up the total value of the options and if it exceeded 30x the value of your account, you had severe restrictions with adding new positions/contracts EVEN if they were risk reducing. During what was one of the biggest vol spikes and thee biggest change in volatility (VVIX) the option pricing sky rocketed across the board, and when summed up vastly exceeded 30x. It’s a ridiculous rule and it was an unknown rule. IF I had opposing positions where I sold a put at $5 and bought another put at 4.75 they would sum the position as 9.75 even though there was no substantial risk in that position. In the vol spike, options 10x or more so they’d be $50 and 97.50. This summation technique would put the account in violation of the rule. This gave me problems for when I had to roll or remove hedges. They also used some bizarre calculations that would restrict even further. This left me in a very precarious position where the complexity of removing hedges and positions was very difficult. I couldn’t get off my variety of hedges unless I literally liquidated the entire account which would have been impossible during those few days. I tried as best as I could to remove hedges and small parts of income positions but I just couldn’t get it done in time and the hedges collapsed in value and the STT remained compromised.

Anyways, I’ve been nursing these remaining positions since February and have recovered much of it but not all. I hope that maybe I can get to full recovery by May or June. That’s my year so far.

Suffice to say, I am working with new brokers and won’t be using IB for PM type trading (STTs, HS3s etc). I will also be moving my base trade towards HS3 type trades, STTs in higher vol down moves and John Locke style trades (M3, X4v17 and some BB) as a booster and to bring back some diversification in my trade plan. I still like ATM type trades. I remember when I had the Aug 24 crash with my MICs (this happened right when I was learning the Locke trades and was just initiating). Soon after I had recovered the entire loss from Aug within 4-5 months using M3s and BBs. Anyone that traded MICs, would know just how bad those did during Aug 24 2015. I liked trading those things (M3). I eventually switched to Rhinos and did modestly with them but I hate the upside exposure on runaway markets. Though, I mean, I did Rhinos during one of the biggest up moves in history in the RUT. No wonder I was frustrated with those.

Anyways, that’s my current situation and plan re trading.

I am in Canada now visiting the office and some family and friends. I will be back again for the Montreal Party Poker tournament and probably touring Europe again this summer. I’ll post more about those travels and the trading complications there-in.

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.