BlueWaterSailor: trading journey and journal

BlueWaterSailor said:
Up until now, I've been keeping a private log of my trades, but based on an excellent suggestion...I'm starting this one.
More...
I saw your post in the "Road to Consistency” thread and thought I’d stop by to take a quick look at your journal, since I enjoy seeing others’ strategies and would love to someday come across another individual whose trade style is at least somewhat similar to my own.

Now that I’m here, it looks like you trade options, but I’m an unbelievably simple guy, and I’ve always had the impression that options are relatively complex—something your talk of American v. European style options, early exercise, the right to exercise by exception, stock settled v. cash settled, etc., has only reinforced.

However, I think if I keep reading, perhaps some of the terms will start to sound familiar and begin to take on meaning for me by osmosis, so I’m hoping you keep this journal going for some time. I just finished developing my own system, so this wouldn’t be a bad time for me to work on expanding my knowledge.

A handful of folks I’ve heard who know how to trade options make it sound like a wonderful way to make money if you know what you’re doing, so maybe after trading my own (Forex) system for a year or two, and reading your journal for a few months (if you keep it up that long) I’ll actually buy a full-fledged publication on the subject and start studying it seriously before trying it out myself.

In the meantime, thanks for sharing!
 
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Thanks for stopping by, @expiated. I'm pretty much an amateur at options, although I've spent the last half a year or so in highly focused, full-time study of them, and this journal is a record of my experimentation with them rather than something to be followed as a trading bible. I'm certain that I'm going to make lots of mistakes along the way - if I didn't, I'd start worrying about not challenging myself enough! - but I hope to learn from each one (experience is indeed the best teacher... even though it eventually kills all of its students. :) )

Just as a general recommendation, I would suggest working your way through https://optionalpha.com/ for a decent introduction to options, and https://www.tastytrade.com/ for some more depth and perspective. Both are free, and are more than enough to get you started and trading. Anything past that, well... that part is the difference between learning how to play chess and winning tournaments. I'm pretty intent on getting to the latter, but I'm an odd duck in what I like, and what I like to focus on. (I've also won chess tournaments in my younger days, and am hopeful that enough of the parallels hold.)

Please do feel free to follow along - and the best of luck to you in your own learning journey!
 
9/3/2019 IWM 190906P144.5 $0.80cr
9/3/2019 IWM 190906P144.5 -$0.60db $20.00
9/3/2019 IWM 190906P144.5 $0.81cr
9/3/2019 IWM 190906P144.5 -$0.69db $12.00
9/3/2019 SMH 190906P110 $0.70cr
9/3/2019 SMH 190906P110 -$0.60db $10.00

Trying something a little different here. Since I'm a) generally planning to hold "slow" [1] trades till expiration, and b) not using any margin to do so, I'm coming to realize that the greeks are less important for this type of trading than they would be otherwise. It's a simple enough form of trading that reduces everything to the basics: if not out with an early profit, is the trade ITM or OTM? Hm. It's kind of like riding a bike with training wheels, or playing in sim but with real money until I get the basics down. Not a bad way to think of it.

Perhaps I'm unnecessarily restricting what I can do, but I don't want to use margin until I'm fully comfortable in both my ability to execute good trades mechanically and my ability to produce a positive (if small) P&L over the longer term. Interesting to find these stopping points rather than having to swallow the entire elephant in one gulp - which options seemed to be, for quite a while.

I'm perfectly willing to use my impatience as an indicator that I've reached the above point; it's served me well for a number of years, and sets a hard limit on any "cautious" approach I take. I'm feeling rather impatient now, but it's not nearly at the "will you get off your ass ALREADY, dammit?" level I've come to recognize...

Patience, little grasshopper. Patience.


[1] That is, trades that don't pay off (increased return/decreased risk) ahead of schedule.
 
9/3/2019 STO IWM 190906P144.5 $0.80
9/3/2019 BTC IWM 190906P144.5 -$0.60 $20.00
9/3/2019 STO IWM 190906P144.5 $0.81
9/3/2019 BTC IWM 190906P144.5 -$0.69 $12.00
9/3/2019 STO SMH 190906P110 $0.70
9/3/2019 BTC SMH 190906P110 -$0.60 $10.00
9/4/2019 STO QQQ 190913P181 -$0.80 $45.00
9/4/2019 BTC QQQ 190920P183 $1.95
9/4/2019 BTC IWM 190913P144.5 -$0.80 $20.00
9/4/2019 AAPL 191018P205/191018P200/191018P190 $0.50

Bunch of trades went on and came off today, which is what happens when you start off with high vol which drops - or better yet, cycles, which lets you buy back in and repeat.

I'm starting to build some reasonable expectations days like this one, and that's been working out well so far. The underlyings that I typically work with are roughly centered around $100 - which means that taking them off for 10% may be useful in terms of reinforcing the mechanics, getting used to the process, etc., but gives me only a few bucks here and there, and is frankly not worth the bother. Also, given the expected move for stocks this size at high vol, it's not much of an expectation. So, I've started moving toward 20% as a minimum - while keeping the idea of 1 day/10% for later, larger trades where that granularity gives me meaningful returns. To put it a different way, I'm just not very interested in getting $10 from a trade; that soup is too thin for all the cooking time and effort.

Meanwhile, I've also opened up a skip-strike fly in AAPL - yet another "experience builder" (as most of the things I'm doing these days are; seeing these trades as they progress is a qualitatively different experience than just watching some numbers do some random stuff on the screen, which is how it felt when I was just starting out.) Could have taken it off for ~$14 today, which would have been better than 25% of the total credit I got, but I'm more interested in seeing how it behaves as time goes on. The strikes are spread out from ITM (~26% vol skew) to three strikes below (32.5%) with the short strike at 29% (x2), so theoretically I'm about vol-neutral at the moment - but that should change if the price drops, as the vol gradient increases down the chain. I'm cautiously projecting sticky-strike rather than sticky-delta behavior - AFAIK, the former is more the usual state - but mainly, I just want to see what happens with it.

(Gotta say: this is one of the coolest video games I've ever played. Except I never much liked video games because they always felt fake to me. This one is real.)
 
Nice recent bit of analysis from spintwig that's pertinent to my approach. Good to have some numbers to go with my intuition.

Suppose we open a 10-delta 44-DTE short put on SPY with a strike of 262.5 and collect $0.97. We have $26,250 at risk for 44 days.

Assuming we hold till expiration we have a return on capital [at risk] of 0.37% (97 / 26,250) which is 3.11% [(1+.0037)^(365/44)-1] annualized.

Let’s instead assume we close the short position after 1 day at 10% max profit.

Average daily capital at risk is $596.59 (26,250 / 44 DTE * 1 day in market) and we realized $9.7 in profit for a 1.62% (9.7 / 596.59) one-day return on capital which equates to a cool 352% [(1+.0162)^(365/)-1] annualized return.

By managing early we boost return on capital by over 100x!

Obviously, I'm not going to pull off the same hat trick every trading day of the year - but it should be a positive hit to the bottom line any time I can.
 
Forgot to list this one from yesterday:

SPY 191018P285 4.02cr

Then, today happened:

SPY 191018P285 2.93db from 4.02cr
Nice $105.00 overnight gain

X 190927P11.5 0.48db from 0.51cr
Out with a small positive after watching an ugly P&L on it for ages

AAPL 191018P205/191018P200/191018P190 0.28db from 0.50cr

Overall, I'm flat - except for those damn silly GE longs I bought as a hedge. Meh. I guess they'll be useful as I load the boat with short puts again.

That fly result was unexpected. Let's see: it cost -2.52 + 4.69*2 + -6.36, or 0.50 to open, and 1.50 + -2.91*2 + 4.29, or 0.03 to close (so why the hell did TradeStation show it as 0.28? TS, you and I are going to talk come tomorrow.)

Huh. Seems I've been hyper-focusing on values at expiration. Sure, it was helped along by the moronically-naive analyzer that TS uses, but - lesson learned. Yet another good reason to keep looking for a good analyzer (unsuccessfully, so far. Please don't tell me I need to build one; I'm still wrestling with the vol modeler.)

Better than 40% profit was just too tempting not to take off, but it was still a silly thing for me to do - the point was to see how the thing works, not shoot for pennies. Well... learned some lessons, and will open more of these.
 
$298.30 SPY 191018P291 $3.60
$298.51 SPY 191018P291 -$3.40
$20 in less than 3 hours

$191.70 QQQ 191018P186 $2.75
$191.97 QQQ 191018P186 -$2.60
$15 in 2 hours 11 minutes... hey, maybe I can set a record! :)

$298.35 SPY 190920P294 $1.65
$150.29 IWM 190920P148 $1.00
$151.04 IWM 190920P148 $1.10
$213.56 AAPL 191018P215/191018P210/191018P200 $0.60
Another BWB. They're pretty easy to fill when entering - need to try price discovery UP from mid next time! - but can be hard to get out of.

Interesting day; not quite as volatile as the one before. Either stable or rising prices, dropping VIX, no crazy-making tweets... you could almost hear the sighs of relief from here. I took it as an opportunity to think about what a good options trader would do in this type of environment, and decided that a VIX of 15.5 or so still made for sufficient opportunity to sell premium.

Something that caught my eye: a 0.21 move in SPY, at this IV, produced a $20 (plus B/A spread, etc.) change in a 30-delta option. QQQ was pretty similar: ~0.27 move gave me a $15 P&L bump. The prices I recorded for the entry and the exit are not very accurate - they were taken up to a minute after it happened - but seeing a 50:1-100:1 optionality multiplier is... apt to make you think there are more things in heaven and earth than are dreamt of in your philosophy. Keeps you humble and makes you study.

(The day that vega, theta, delta, and gamma make intuitive sense to me, I'll treat myself to a big fat top-quality steak with a chanterelle fricassee on the side and get riotously drunk. Looking forward to it.)

Being able to re-enter the same underlyings for a higher price than just a bit earlier in the day was also one of those Things That Make You Go "huh". The premium for SPY was really crappy early in the day when I looked at it, so I had to go further out to get something that appealed; then, when I got out of it, I looked at SPY again - and mirabile dictu, there was meat on them bones again! "That's a lesson and a half for yo ass", as an old MI buddy of mine used to say.

I'm doing pretty well. But it bothers me that I don't yet have any security about knowing why - or about what the hell to do when the environment changes. Hope I can catch up before the market catches up with me... or before senility kicks in.
 
$298.72 SPY 190920P294 -$1.45 $20
In just BMC on Friday, out just AMO on Monday

$215.89 AAPL 191018P215/191018P210/191018P200 -$0.45 $15.00
A fly that flew right out for 25% profit

$150.74 IWM 190920P148 -$0.90
$10.00

$150.74 IWM 190920P148 -$0.90 $20.00
Except for that GE hedge, I'm flat again.

OK, so... it looks like the market volatilty/upward trend is enough to knock me out of trades (for a 10% profit, or sometimes a bit more) very quickly. I'm going to start experimenting with a minimum 20% take-off, just to see how much that decreases the frequency. If the market is willing to give me that, I'll take it; if not, I'll scale back to the usual.
 
$140.96 TLT 191004P138.5 $1.10

I've been on the road this week, driving the RV back from Colorado to Florida; this doesn't give me much trading time, but I usually get some in before we take off. Today, I got a little treat of being able to put on a trade after I finished driving for the day. TLT fell like a rock, which made the IV shoot up - so, the premium looked pretty decent. Got in like two minutes before the bell - which, ya know, less intraday risk. I'll take it. :)
 
Decided to stay put where we are, right next to a lake at a beautiful state park in Arkansas, and had a rather nice active day today.

$146.70 ROKU 190927P138 $4.00
$148.25 ROKU 190927P138 -$3.60 $40.00
10% in 43 minutes. I'll take it.

$148.43 ROKU 190920P142 $3.40
$149.31 ROKU 190920P142 -$3.05 $35.00
10.3% in a bit over 2 hours.

$90.80 SBUX 190927P89 $1.00
$135.65 DIS 190927P133 $1.10
$149.34 ROKU 190927P141 $4.15

Still tapping that 10% gain, but it was rather nicely chunky today. The stops I have on the trades remaining in play are 15-20%, though.

Right now, I'm trying to figure out how much powder I should be keeping dry. I'm thinking 40-50% of the account total, but that's a number I got from... somewhere I can't remember. What's the rationale for it? It seems like it would make more sense if I was using margin, but I'm not - so no risk of a margin call. I've been using notional risk as a limit - when it equals my account size, I don't open any new trades - but... does that even make sense? Notional is nowhere near real risk, and I'm not an accountant tallying up GAAP numbers; it seems like 2SD - maybe 3SD for a start - would be a reasonable amount of exposure if I'm actually trying to produce anything but toy numbers.

Sure as hell wish I had a definitive basis for it, though. Guessing and hoping, or winging it from ignorance, are not exactly great strategies.
 
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