BlueWaterSailor: trading journey and journal

$120.13 SMH 191004P117.5 $1.00
VIX ~16.5; market not very active, with only the usual suspects (metals, bonds) on an IV scan.
$120.60 SMH 191004P117.5 -$0.80 $20.00
75 minutes; this may be a record so far. :)

$152.57 IWM 191018P149 $1.55
$142.28 TLT 191018P139.5 $1.00
$38.24 GDXJ 191018P37.5 $1.00

I'm feeling as cranky as a kid in a toy store who's missed his nap. M&D are perfectly willing to buy me all the toys I want, but... I can't play with all of them at the same time! Waaaah!!!

The amount of Cool Stuff in finance is a fractal that expands asymptotically in unpredictable directions as I learn more about it. My reading list is packed solid until approximately 2287 A.D., my cerebrum is secretly plotting to assassinate my entire limbic system to gain lebensraum, there are not enough hours in the day for trading and learning (this tyrannical "24" thing was created by evil communist nazi cannibals, surely), and MORE STUFF keeps showing up every day!

I'm just starting to see how futures interlock with options and equities, and how powerful all of that can be. And I don't yet have it, and only get to watch while other people trade when I can't. Damnation!

(This segment was brought to you by the "waah, not enough good stuff to trade today" attitude and the Brooklyn "Q" subway line. We now pause for a brief commercial message from our sponsors...)
 
Did not have the conviction to hold 0 day puts short with that kind of action in the first 10 mins. A bit of a let down paying more comms and passing on the rapid decay of the final day, knowing the spike is probably just a squeeze. But the loss projections on the off-chance it keeps going doesn't make for a good net r:r in my view. Out at +0.70 per spread, +0.45 on the vert and +0.25 on the shares.
 
Magic said:
Did not have the conviction to hold 0 day puts short with that kind of action in the first 10 mins. A bit of a let down paying more comms and passing on the rapid decay of the final day, knowing the spike is probably just a squeeze. But the loss projections on the off-chance it keeps going doesn't make for a good net r:r in my view. Out at +0.70 per spread, +0.45 on the vert and +0.25 on the shares.
More...

I'm a bit lost here: a squeeze, to me, implies a (temporary) rally to squeeze out the shorts - but the first 10 minutes looked like a pearl diver holding a BIG rock. Different usage, maybe?

Even more confusingly, I don't get how your hedge worked. Since you were long with your short put and short shares, they would have moved in opposite directions... i.e., shares 1:1 with the stock, or up to ~4.50 depending on where you bailed. The puts would be some fraction of that in the opposite direction. The overall delta for the whole strat would be minimal/mostly neutral, so... the gain on the vert would be mostly from the theta?
 
I've heard the term squeeze used for both directions. But maybe I have it wrong.

Just wanted to convey that I expected the opening move was exacerbated because of the uncertainty around the stock and had a good chance of stabilizing instead of continuing into the 90's. But even a 10% chance of a runner and losing a few $ on my puts vs. majority chance of collecting $0.60 holding through the day was enough to force my hand. I try to trade against the distribution instead of the most likely scenario.

I was short shares from $103 and my avg. cover price was below that so the shares gained. And the option technically did lose on the move down because it had positive deltas but that loss was dwarfed by the gain from ROKU realizing less than the implied vol on the option for the duration I held it.
 
Magic said:
I've heard the term squeeze used for both directions. But maybe I have it wrong.
More...

Hey, I'm the newbie here! :) 'Sall good. I just want to make sure that I'm getting what you mean.

Just wanted to convey that I expected the opening move was exacerbated because of the uncertainty around the stock and had a good chance of stabilizing instead of continuing into the 90's. But even a 10% chance of a runner and losing a few $ on my puts vs. majority chance of collecting $0.60 holding through the day was enough to force my hand. I try to trade against the distribution instead of the most likely scenario.
More...

I'd say you called it right - 97 was well inside 2SD. I also like the little clue in your last sentence; that's a good way to nail down a fair amount of that elusive "how much of my trading decision is based on numbers vs. other things" question. Not that "other things" can't be of value, but keeping track of the ratio is useful.

I was short shares from $103 and my avg. cover price was below that so the shares gained. And the option technically did lose on the move down because it had positive deltas but that loss was dwarfed by the gain from ROKU realizing less than the implied vol on the option for the duration I held it.
More...

OK, you've just managed to connect the dots on hedging for me. Yay! :D It lets you both set the initial delta to whatever you like, +/0/-, and decide how much you'll let your trade be affected by delta when the price moves (that's got to be some sort of a diverging line, 'cause you can't babysit every trade and adjust the hedge.) Can't wait to try it out. :)

But I'm still having a hard time visualizing the magnitude of the effect of vol. I know it's a power term in the BSM, but I'm just not connecting it to the actual option price (still looking for any kind of option modeling tools, and floundering in their absence.) I'm probably asking something really silly here, but - let's say you've sold a 7DTE option for 1.00 at an IV of 100. How much would you expect it to fall if realized vol crashes (say, max realistic expectation) on the first day? 0.10? 1/7th, plus or minus? 50%? 99%? I realize it's not linear or simple, but I have literally no idea of how much is even possible.
 
That would put spot around $15-$20. So say from day 7 to day 6 you have no vol, the option is going to decay by 0.08 or something on no vol for the day. If the implied stays bid and even rises because an event is in the expiration, the decay will be set against the rise in absolute IV and you won’t collect the whole 0.08.

If you realize 60% vol and IV stays at 100, over a large enough average you should net about 0.05 for the day. This close to expiration, the way spot paths is going to drive most of the variance of this scenario.

The Greeks are partial derivatives of the option value with respect to a certain parameter. They all work in tandem on the price of the option, but we isolate certain factors like current implied vol or the passing of a day in order to try to get a more precise view of that particular dimension’s effect on the option value.

If you have stronger views on how one or two inputs will behave, you can try to isolate them from the others, like hedging off your delta or trying to get closer to net zero vega with a time spread [of course then you introduce the term structure which is another topic]
 
Magic said:
That would put spot around $15-$20. So say from day 7 to day 6 you have no vol, the option is going to decay by 0.08 or something on no vol for the day. If the implied stays bid and even rises because an event is in the expiration, the decay will be set against the rise in absolute IV and you won’t collect the whole 0.08.

If you realize 60% vol and IV stays at 100, over a large enough average you should net about 0.05 for the day. This close to expiration, the way spot paths is going to drive most of the variance of this scenario.
More...

This is perfect; thanks. Now I can at least visualize a general curve and have an idea of what the stakes are.

The Greeks are partial derivatives of the option value with respect to a certain parameter. They all work in tandem on the price of the option, but we isolate certain factors like current implied vol or the passing of a day in order to try to get a more precise view of that particular dimension’s effect on the option value.

If you have stronger views on how one or two inputs will behave, you can try to isolate them from the others, like hedging off your delta or trying to get closer to net zero vega with a time spread [of course then you introduce the term structure which is another topic]
More...

Yeah, term structure will keep for a good while yet. ;) This is great context for the bits I've been struggling with, and plenty to think about; really appreciate it!
 
Last two days: no trades. "But whyyyyy?" Because: having to take a seven-hour road trip to deal with soulless bureaucracies that can wreck your life on a whim does not contribute positively to feeling risk-on.

All concluded successfully, but now I need a large vodka with a bleach chaser.
 
$153.15 IWM 191018P149 $1.03 $52.00
30% is a little low on the RRR curve, but I wanted some positive action to get back in the game.

$148.16 IWM 191115P143 $2.50

The comment on the first trade was rather funny, in retrospect: immediately after I got out, IWM crashed on a bad PMI report. By pure luck, I had caught the very tippy-top of the day. Then, later on, I baby-sat an entry back into it - and managed to catch the day's low, or near enough. The momentum in it was just too obvious; it looked like a car that had run out of gas and was coasting to a stop. That got me another $0.25 out of the deal - and that wasn't luck.

This is actually something that has contributed positively and solidly to my P&L since I've learned to do it, so it's worth underscoring here. Price discovery is all well and good, but when I enter a wheel trade, I'm looking for a solid underlying that's been beat up and is hitting a low. I.e., I need it to drop, grind to a halt, and start reverting. At first, there were WAY too many times when I just blithely sold a put and then watched it keep dropping. These were hard, rather un-pleasing trades, with numbers that stubbornly stayed in the red for most of their duration - and that I usually had to fight to get a profit out of. Now, my entries go like this:

1) Review the IVR/IV% against the VIX (just added VIX9D to the process - HT to @tommcginnis , this provides some nice extra context)
2) If high enough, glance at the chart. Is the price anywhere near historic (month, hopefully more) lows, or did it just slam down due to some binary event?
3) Assuming all of the above is good, check out the expiration IVs out to the 2nd monthly, and look at the 30-delta premium; find the one closest in that still gives me at least 1% of spot.
4) Stare at the mid/nat for a bit. Is the premium still rising (i.e., is the underlying still dropping?) If not, what's the range in which the premium is moving? Add a bit to the mid price - say, 50% of the movement range - and route it.

Then, I'll sit and watch the offers for a minute or so. If they keep rising rapidly, I'll keep pushing my price up a bit at a time. If they cycle within a range, I'll put it a penny to a nickel over the top depending on how active the underlying is, and walk away. ~80% of the time, I'll get filled within an hour... or it will have gone a thousand miles away, which just reaffirms my take on the overall strategy.

Yes, I miss some trades this way. But the ones I do end up in usually go positive almost immediately, tend to stay positive throughout their run, and turn out MUCH more satisfactory than before (in fact, they almost always beat the RRR curve and thus cash out within a couple of days.)

I'm willing to call this subprocess in my trading solidly successful. Only a few thousand more to go before I can claim to have a real clue... :)
 
I did really well today. No trades.

The reason I call it doing well is that today was a day where I didn't see any good trades to take (actually came ->this<- close to doing an IC in SPX toward the end, but the premium was just a bit too low.) Before, I'd have taken a trade just to do something... except that I know the "something" translates as "setting money on fire and flushing down the toilet."

Goddamn, I suppose that means I'm still able to learn. Even via those mild, gentle reproofs [1] handed out by the market, which some people might resent.

I guess I should stick around for a decade or two and see what happens.


[1] Read "full-swing kick in the balls with hob-nailed boots"
 
You must log in or register to reply here.
Back
Top