Dunning Kruger Journal

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Ending up losing about $250 or .8% of account value last week. It wasn't easy, but I managed to find several ways to lose. About a third of my loss was an error where I loaded the wrong preset order and executed a trade going against momentum is fast market conditions. Loss $85.00 in seconds.

Last night I entered a partially hedged short straddle on ES 2760 for Oct 15, 2018 expiration @ 30.75. Also bought a ES Oct 15, 2018 2790 Call @ 3.50 and a put ratio spread - bought 1 Oct 15, 2018 2730 put / sold 2 Oct 15, 2018 2960 puts @2.25. I exited this partially hedged straddle after seeing the Nikkei decisively take out last week's low. At on point today, I would have been up $800 on this trade. Overall, including a loss on a ES bear spread, I lost $150 today, mostly on commissions and fees. I will not beat myself up too much today because I acted on best available information available.

Been studying gamma and delta "neutral" overwrites as mentioned in an article on investopedia.com. Also looking at doing more straddles in the future and hedging accumulated deltas as the underlying price moves away from straddle strike price.

Going to be a really busy work week for me so few chances to trade or post.

I will be maintaining a bearish outlook on stocks for the foreseeable future. It is going to take more than a US-China Trade deal for me to change my mind. There is too much geopolitical risk and economic growth concerns going forward for to have much confidence in this market right now.

 

[maximumpossiblesuffering]

Quite the rally today. Looks like short covering triggered by news showing strong earnings reports and record job openings.

Jobs openings is a solid, positive sign for our economy going forward. China's increasing manufacturing weakness may imply less demand from the US. However, maybe the US is enjoying both increased domestic manufacturing utilization and an increased manufacturing capacity that makes the previous correlation between China manufacturing statistics to future US economic statistics less relevant now.

It seems a good way to approach this market with its recent big moves is on an intraday basis instead of declaring my bearishness.

I am long 1 ES Oct 17, 2018 2790 call / short 2 ES Oct 17, 2018 2805 calls for a debit of $1.95 on this ratio spread. There may be strong resistance for ES in the 2800 area. If this resistance holds, Theta decay should be my friend assuming ES does not reverse hard off the 2800 area. My stop is a print on ES of 2820.

Edit: If we get above 2801, I will likely convert this trade into a butterfly spread.

One more edit: By the way, I notice ZB is not down today. A sign of the Fed providing a little liquidity, perhaps? One does not want to fight the Fed...

 

[maximumpossiblesuffering]

Lost money last week on options spreads. My account is now down about $20 from inception. Added $17,000 to bring my basis in this account to $50,000. This new balance will allow me to hedge volatility using VXX and maintain open ES futures positions at the same time.

The increase in ES volatility and the new downtrend has caused increased daily range variability and more frequent intraday reversals. Therefore, my trading adjustments will be as follows: Focus on directional trades intraday. My previous day trading parameters need to be adjusted to account for recent market changes. Price action off of 5 minute highs and lows and moving averages appear to have been working well. Butterfly spreads of one week until expiration also seem to have been performing reasonably.

Many industrial, basic materials, and developing country equities markets have hit multi year lows this week. Include German and Swiss banks as well. Clearly investors are having economic growth concerns. Part of that is trade uncertainty, of course. Higher interest rates in the US are making more conservative investments such as bonds more attractive. Companies that have high debt loads are probably feeling additional pressure as well. The economic expansion this cycle has been long and ever unrelenting headwinds of adverse demographics in developed countries are going to be a greater drag on growth for the long term. Geopolitical concerns over Russia, China, and Saudi Arabia can't be helping investor sentiment either.

Current economic conditions in the US still seems strong with recent measures of consumer confidence and employment numbers. Transportation volumes are still reasonable, but year over year comparisons going forward are likely to be less favorable.

Overall, the recent market correction or reversal seems reasonable given the considerations above. I believe we are in a great trading environment and intraday traders should be well rewarded. Personally, I need to see lower prices for me to take unhedged positions in my retirement account.

Been very busy at work, but will update my account performance statistics at the end of the month as usual. Hopefully I will get some good trades before month end to save my monthly winning streak.

 

[RRY16]

Lost money last week on options spreads. My account is now down about $20 from inception. Added $17,000 to bring my basis in this account to $50,000. This new balance will allow me to hedge volatility using VXX and maintain open ES futures positions at the same time.

The increase in ES volatility and the new downtrend has caused increased daily range variability and more frequent intraday reversals. Therefore, my trading adjustments will be as follows: Focus on directional trades intraday. My previous day trading parameters need to be adjusted to account for recent market changes. Price action off of 5 minute highs and lows and moving averages appear to have been working well. Butterfly spreads of one week until expiration also seem to have been performing reasonably.

Many industrial, basic materials, and developing country equities markets have hit multi year lows this week. Include German and Swiss banks as well. Clearly investors are having economic growth concerns. Part of that is trade uncertainty, of course. Higher interest rates in the US are making more conservative investments such as bonds more attractive. Companies that have high debt loads are probably feeling additional pressure as well. The economic expansion this cycle has been long and ever unrelenting headwinds of adverse demographics in developed countries are going to be a greater drag on growth for the long term. Geopolitical concerns over Russia, China, and Saudi Arabia can't be helping investor sentiment either.

Current economic conditions in the US still seems strong with recent measures of consumer confidence and employment numbers. Transportation volumes are still reasonable, but year over year comparisons going forward are likely to be less favorable.

Overall, the recent market correction or reversal seems reasonable given the considerations above. I believe we are in a great trading environment and intraday traders should be well rewarded. Personally, I need to see lower prices for me to take unhedged positions in my retirement account.

Been very busy at work, but will update my account performance statistics at the end of the month as usual. Hopefully I will get some good trades before month end to save my monthly winning streak.

Better Keep that winning streak alive so you can fix your flat tire on your stingray and keep your afternoon paper route.

 

[maximumpossiblesuffering]

Poker is a card game played by people. Or is poker really a people game played with cards? Would it be fair to apply this idea to trading? Is trading really a people game played with money?

Investor psychology as measured by actual sentiment measures or one's perceived market sentiment assessment is an important, if not critical trading tool. I will be studying various sentiment indicators for predictability in determining likely trading range days, trend days, and potential reversal days. When I get enough time to do so. If I find a positive correlation, it should help me to use the best trading style for the expected trading conditions for the day.

There has been some politically related violence that appears to be motivated by the upcoming Midterm elections in the United States. I am concerned if this sort of thing ramps up it could affect investor and consumer sentiment, among other things. My respects for the decedents.

I am currently long 100 shares of FCX at favorable prices. This company had a decent earnings report and has hit recent long term lows. Although this short to medium term trade a partly a value play and considers the possibility of investor sentiment being at extreme bearishness for this issue right now, I still consider this a speculative trade that will not be held long if the US economy starts to weaken. In a recession, I would expect this issue to drop at least 50% in price, for example.

I bought 50 share of GE at other than favorable prices. GE had a recent and positive management change. This is another speculative investment as GE is having quality problems in their power division, has balance sheet issues, seems to have an entrenched bureaucracy, and still may need an effective "technologist" in order to maximize their potential. Although GE may be experiencing continuing pain in their financial division, I believe long term this could end up being one of GE's stronger performing divisions if managed well.

I bought 10 shares of XOM at about current market prices. This more conservative trade is also economy dependent.

All told, I am about 5% invested with this account right now. Since I am so busy at work with an increasingly busy outlook, I do not have time to be intraday trading right now. I still expect to be able to do option spreads on TSLA, NVDA, TLRY, VXX, ES, CL and perhaps a few others as situations may develop.

 

[maximumpossiblesuffering]

As of Friday, my account is now down .2% since inception after being down as much as 1.4%. Although this account is now technically outperforming the SP500, this is of little consolation. I am flat and my stock trades of FCX, GE, and XOM have been closed at almost breakeven over economic growth concerns.

My account performance suffered due to option strategies that had a net short component during two of the largest down moves in the last six months. In other words, I was right on direction but still lost money.

Lower auto production because of less demand from Baby Boomers due to them holding on to their vehicles longer to Millennials increasingly utilizing alternative forms of transportation, weakening new housing starts due to increased interest rates, and the recent downtrend in oil prices that will tend to curtail exploration at some point are likely to create diminished need for basic materials and are thus negative for a basic materials company like FCX.

GE had their credit rating cut because of rating agency concerns over GE’s financial condition and business outlook. Then management announced a share buyback plan. This does not inspire confidence that management is properly focused right now. I want to hear how they are going to address the quality issues in their power business and develop an appropiate methodology so future potential quality problems can be avoided. Also would like to hear how they will implement high margin, technology based, value added services for their customers. At least they cut the dividend.

XOM is outperforming in spite of the crude selloff. I suppose it’s one of the benefits of being an integrated oil company. However, should energy demand drop over a slowing economy, refining margins will likely come under increasing pressure.

The maritime based Dry Baltic Shipping Index may have peaked this year over reduced growth of global trade volumes. In addition, new construction and equipment sensitive flatbed trucking companies are seeing load to truck ratios and rates drop significantly, and is lower now versus last year at this time. Part of this is related to increased capacity. Typically, the end of the month is the strongest part of the month for truck shipping volumes. This did not happen for October. However, The start of November seems ok, apparently reflecting holiday shipments gearing up in the US. An inportant leading indicator for trucking is the relationship of spot rates versus contract rates. Spot rates are now below contract rates, a bearish sign for future transportation rates.

Based on my perceptions above, even a trade agreement with China would not address all the issues facing the global economy. It would, at least, remove some uncertaintly and probably encourage business investment and increase consumer confidence. Maybe that would be enough for stock indexes to make new highs. At least for a little bit.

SP500 Volatility seems low to me given my perceptions of potential economic and geopolitical risks.

I have completed a intraday decision matrix that considers various imputs in projecting probable direction, the likely size of a move, and considers intrasession event risk. This decision matrix will help me decide on the optimum strategy for a given intraday outlook.

I will go over this matrix in detail in future posts.

 

[maximumpossiblesuffering]

Correction: My account has outperformed small caps, but not the SP500 since inception.

 

[maximumpossiblesuffering]

Lost about $300 this week mainly trying to catch a bottom in crude. I was a few hours early and could have easily ended up profitable using options for Friday expiration or even waiting for a simple 30 minute bar break or two to the upside or even a moving average penetration.

Had a strong long bias on Thursday and got stopped out several times early in the trading session. Finally got long YM and made money on the day but closed position way too soon as lunchtime approached. I was still bullish but did not want to risk leaving an unmonitored futures position open as I had to get back to work. I did not want to leave a breakeven stop either. Next time, I can either trade DIA, sell a call, are trade a long vertical spread to reduce directional exposure as measured by deltas basis YM.

Went long a ES calendar spread during the early European session this Monday: Bought 1 ES November 23, 2018 2740 Put / Sold 1 ES November 21, 2018 2740 Put for a debit of 2.50. This is my first calendar spread and I want to monitor how this type of trade develops. I am a bit concerned about my expectation of declining volatility this week as well as expectation of a modest rally. May look to sell an ES or SPY straddle or somewhat tight strangle in the late morning of the US session today for same day expiration as the option premium to be received as a percent of expected daily range seems large. By waiting through a good part of the US session morning I will be better able to trade on the right side of the open and to maybe get a sense how strong trader interest is.

Another idea I want to explore and backtest is selling straddles or tight strangles on DIA on each day of the week for expiration at the end of the week. I would imagine this to be consistently profitable strategy on a weekly basis. Appropiate money management and leverage levels still need to be determined. Perhaps I can practice on lower priced, but roughly similarly volatile ETFs such as EEM.

In addition, there appears to be interesting possibilities with longer term outright positions hedged with short options. The profitability range on these type of positions is larger than butterfly spreads at the expense of overnight risk, of course. I can acquire “cheap” deltas from a risk standpoint and manage them according to my outlook or close the position and take Theta decay profits as the trade develops.

 

[maximumpossiblesuffering]

Closed ES Calendar Spread at $2.10 beause of suprisingly large move due to FAANG stocks seeing heavy selling. Interestingly, emerging markets, industrial commodities CL and HG, and FXI are seeing very good relative strength today. Perhaps the selling of FAANG stocks is a result of sector rotation by large institutions as well as some net divestment in the market through these large cap stocks

Flight to safety currencies JPY and CHF, but not USD are strong. ZB is about unchanged. Gold is also about unchanged. With ZB weak on a relative basis to other “safe haven” assets, I wonder if China and is divesting US Treasuries at an increasing rate while buying other safe haven currencies while reducing their US dollar exposure.

The looming US Budget battle may start to weigh as well. VXX’s rise seems a bit muted so far given the current drop in ES.

At this point, I will likely not enter new trades today except maybe a quick scalp short DIA or long VXX while awaiting further developments.

 

[maximumpossiblesuffering]

Bought a ES ratio spread: Bought 1 ES November 19, 2018 2775 Put, Sold 2 ES November 19, 2018 2760 Puts at a debit of 1.25. Stop is a print of 2745 on ESZ2018. Target is 7.50. Not expecting a complete unravelling today, but still want to respect the fact ES is below the open on a range expansion day. Was considering entering the ratio spread a little higher, but decided on a little more safety versus perceived the higher profit probability being closer in to current prices.

Spot market transportation volumes are decreasing at a time when I would be expecting them to increase. For example, uncovered spot market loads hit a peak near 60,000 a few months ago. Today this number is around 36,000 versus a rough average of the last fews weeks in the low 40,000 area. This is can be a volatile indicator that may be affected by a rush tariff beating freight a few months ago and much less likely, the Thanksgiving holiday. Additionally, the housing market has been weakening in prominent real estate markets. New auto sales have been disappointing as well. I am now officially concerned about US economic growth prospects going forward and see the high valuations on most growth stocks as being vulnerable to selling.