Thanks for the idea. Will go through it in detail tonight.
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Dunning Kruger Journal
- Thread starter maximumpossiblesuffering
- Start date
Thanks for the idea. Will go through it in detail tonight.
RTY has taken out yesterday's low by a significant amount. NQ is now below its open. Will be looking to increase my bearish positions today except BA. BA is outperforming on several new aircraft orders and I will need to see the relative strength and technical situation to become more favorable before considering adding. New orders are an important indicator to large institutions such as pension funds because it provides long term stability to earnings. It is not easy for these large institutions to exit and enter their huge orders. These large institutions can be the basis for large long term moves in a stock. I am currently reevaluating my current bearish BA position.
Edit now out of BA bear spread at $.88. Looks like I got out too early again. Added another another VXX ratio spread at $.13 and have another order to buy at $.12. If this market does end up reversing today, volatility will increase but hopefully not too much. ES is now below its open; RTY is down a full 1%.
Edit now out of BA bear spread at $.88. Looks like I got out too early again. Added another another VXX ratio spread at $.13 and have another order to buy at $.12. If this market does end up reversing today, volatility will increase but hopefully not too much. ES is now below its open; RTY is down a full 1%.
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Closed my VXX ratio spread, 1@$.09 and 2@$.08. Earlier tried to get $.18 with the bid/offer at $.17/$.20 but did not get filled. Got busy and later saw I was never filled. That's an $.08 ouch that turned a small profit into a loss.
Love the potential of options spreads. I was able to enter at about a $.10 debit with a potential payoff, although unlikely, of $3.00 in a week. My main concern was if volatility shot up massively overnight, exposing me to potential huge losses. In addition, IB allocated about $11,000 in margin for 3 net short options 3 points out off the money versus a strike price of $30.00. That's $9000 in notational value, if I am using the term correctly. I will be focusing mostly on vertical and butterfly spreads in the future, with an occasional long option play.
Bought a Wheat Bull Spread earlier today on global monetary debasement ideas and possible talks between China and US on trade again. Now long 1 Oct 26, 2018 ZW $510 call / Short 1 Oct 26, 2018 ZW $5.25 call for a Net Debit of $.05. Stop is $.03 with a target of $.10.
Edit: Bought 1 Oct 05, 2018 VXX 1/2/1 $27.00/$29.00/$31.00 Butterfly spread at a Debit of $.14. I have another order working and am looking for a total position of 7 options.
Edit again, RTY is now having it's worst week in about six months. Emerging markets are lagging. Other US equities indexes seem vulnerable to negative news and someday volatility will reflect this.
One more edit: Sold 1 YMZ @ 26793 at 15:00:51 for a quick scalp related to unexpected volume increase. Bought 1 YMZ @ 26775 at 15:06:27 because volume dried up.
Love the potential of options spreads. I was able to enter at about a $.10 debit with a potential payoff, although unlikely, of $3.00 in a week. My main concern was if volatility shot up massively overnight, exposing me to potential huge losses. In addition, IB allocated about $11,000 in margin for 3 net short options 3 points out off the money versus a strike price of $30.00. That's $9000 in notational value, if I am using the term correctly. I will be focusing mostly on vertical and butterfly spreads in the future, with an occasional long option play.
Bought a Wheat Bull Spread earlier today on global monetary debasement ideas and possible talks between China and US on trade again. Now long 1 Oct 26, 2018 ZW $510 call / Short 1 Oct 26, 2018 ZW $5.25 call for a Net Debit of $.05. Stop is $.03 with a target of $.10.
Edit: Bought 1 Oct 05, 2018 VXX 1/2/1 $27.00/$29.00/$31.00 Butterfly spread at a Debit of $.14. I have another order working and am looking for a total position of 7 options.
Edit again, RTY is now having it's worst week in about six months. Emerging markets are lagging. Other US equities indexes seem vulnerable to negative news and someday volatility will reflect this.
One more edit: Sold 1 YMZ @ 26793 at 15:00:51 for a quick scalp related to unexpected volume increase. Bought 1 YMZ @ 26775 at 15:06:27 because volume dried up.
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Looks like I'm not going to get a fill on my remaining VXX butterfly spread order. Now beginning to wish I kept my VXX ratio spread. However, I can always simply pay a higher price for VXX.
Edit: Bought VXX bull spread: Long 1 VXX Oct 19, 2018 $27.00 call / Short 1 VXX Oct 19, 2018 $29.00 call for a net debit of $.45. I ment to trade the Oct 05 calls but did not notice my option expiration selector defaulted to Oct 19. VXX is now at high of day resistance.
These close to expiration option spreads are much more responsive to price changes in the underlying than I expected. Must be gamma and momentary supply and demand imbalances. Now have the idea of placing exit limit orders at fanciful prices on ideas I may get filled on a momentary surge in interest.
Looks like resistance is holding. For now, anyway. Will hold through Asia and European sessions and see what happens.
Oops. Looks like they saw me coming. Reversal after hitting resistance. Other bearish orders cancelled. Looks like I need to buy the trading book entitled: "Don't Buy at Resistance".
Edit: Bought VXX bull spread: Long 1 VXX Oct 19, 2018 $27.00 call / Short 1 VXX Oct 19, 2018 $29.00 call for a net debit of $.45. I ment to trade the Oct 05 calls but did not notice my option expiration selector defaulted to Oct 19. VXX is now at high of day resistance.
These close to expiration option spreads are much more responsive to price changes in the underlying than I expected. Must be gamma and momentary supply and demand imbalances. Now have the idea of placing exit limit orders at fanciful prices on ideas I may get filled on a momentary surge in interest.
Looks like resistance is holding. For now, anyway. Will hold through Asia and European sessions and see what happens.
Oops. Looks like they saw me coming. Reversal after hitting resistance. Other bearish orders cancelled. Looks like I need to buy the trading book entitled: "Don't Buy at Resistance".
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ES is up 11.25 in overseas trading as I write this at 0900 New York time. There appears to be broad and reasonably strong money flows towards risk based assets. ES is right at resistance so it would not be unreasonable to see at least a bit of a sell off at the open.
As an experiment, I brought an ES out of the money ratio spread that expires today. Now long 1 ES Oct 03, 2018 2545 call, short 2 ES Oct 03, 2550 calls at a debit of .35. My stop is a print on ESZ2018 of 2555. My objective is $4.00 and I will place an order for this price around lunchtime. I consider this trade as a long shot but for $17.50 in risk, a $200.00 target and a possible short squeeze today towards a test of all time highs may give the trade a positive expectation.
I will wait until after the open before deciding to close my VXX Bullspread.
As an experiment, I brought an ES out of the money ratio spread that expires today. Now long 1 ES Oct 03, 2018 2545 call, short 2 ES Oct 03, 2550 calls at a debit of .35. My stop is a print on ESZ2018 of 2555. My objective is $4.00 and I will place an order for this price around lunchtime. I consider this trade as a long shot but for $17.50 in risk, a $200.00 target and a possible short squeeze today towards a test of all time highs may give the trade a positive expectation.
I will wait until after the open before deciding to close my VXX Bullspread.
Shorted 10 BA at $392.06 as intraday reversion to mean trade. Price stop is $393.00. In five minutes, time stop applies. Ideally, I would have liked to put this trade on after 1130.
Out at $291.05. I usually go for a 1:1 RR on this type of trade. I expect 80% profitability rate.
Edit: I made a position size mistake on this trade. I needed to make this a 100 shares to meet my new money management rules. Thus is what I get for allowing myself to be distracted by posting in ETs politics section during trading hours.
Out at $291.05. I usually go for a 1:1 RR on this type of trade. I expect 80% profitability rate.
Edit: I made a position size mistake on this trade. I needed to make this a 100 shares to meet my new money management rules. Thus is what I get for allowing myself to be distracted by posting in ETs politics section during trading hours.
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Late update: Closed my ES ratio spread accidentally @.40 at about 10:00. Was doing a test order way above the bid of $.15 at the time because there was no bid/offer posted on my spread. I wanted to see if my offer would be shown. It was not. At about that time, ES quickly rallied rallied to new highs on the day and I was filled unexpectedly. I decided no to reenter at that point because RTY was lagging badly at the time. Current bid / offer is .25/.55.
Going to maintain my VXX positions overnight on weakening flows towards risk based assets, such as emerging markets. At least RTY/IWM is finally outperforming.
Going to maintain my VXX positions overnight on weakening flows towards risk based assets, such as emerging markets. At least RTY/IWM is finally outperforming.
Now effectively flat. Closed out my VXX options spreads at a profit. Had a ES Oct 05 bear put spread entered Wednesday evening at very favorable prices, had another brain fart, and only made a small profit.
I have been following my previously closed VXX call ratio spreads. In spike of the significant spike up in volatility, the VXX call premiums and trading has seemed orderly. There have been pockets of wider than usual spreads, but still tradable. My $.10 to $.13 debit on these ratio spreads (Long 3 VXX Oct 05,2018 $27.00 calls / Short 6 VXX Oct 05, 2018 $30.00 calls) was a little over a $1.00 yesterday and is near $2.00 as we speak. My trading plan will now incorporate more trades of this type.
I will not post option trades that are net short in this journal. Net short options expose one to potentially large losses and are a major cause of account blow ups after major adverse overnight events. I believe my analysis, strong discipline in taking small losses, and low leverage with these trades types will allow me to realize a positive expectation. I don't always like butterfly spreads because my net debt is significantly larger and a similarity structured ratio spread. I can even structure these ratio spreads to have a positive delta, at least to a point. I will break down my profit and losses by trade type in future posts.
My account is closing this week at another all time high, in spite of my many mistakes except letting losses run against me. I need to work on letting profits run for me next. My overall Sharpe Ratio and relative performance to the SP500 is much improved this week as well.
I have been following my previously closed VXX call ratio spreads. In spike of the significant spike up in volatility, the VXX call premiums and trading has seemed orderly. There have been pockets of wider than usual spreads, but still tradable. My $.10 to $.13 debit on these ratio spreads (Long 3 VXX Oct 05,2018 $27.00 calls / Short 6 VXX Oct 05, 2018 $30.00 calls) was a little over a $1.00 yesterday and is near $2.00 as we speak. My trading plan will now incorporate more trades of this type.
I will not post option trades that are net short in this journal. Net short options expose one to potentially large losses and are a major cause of account blow ups after major adverse overnight events. I believe my analysis, strong discipline in taking small losses, and low leverage with these trades types will allow me to realize a positive expectation. I don't always like butterfly spreads because my net debt is significantly larger and a similarity structured ratio spread. I can even structure these ratio spreads to have a positive delta, at least to a point. I will break down my profit and losses by trade type in future posts.
My account is closing this week at another all time high, in spite of my many mistakes except letting losses run against me. I need to work on letting profits run for me next. My overall Sharpe Ratio and relative performance to the SP500 is much improved this week as well.
Read the Market Takers Edge by Dan Passarelli this weekend. Dan is a trader and gives a good overview on his experience on the trading floor and trading options. I recommend this book for traders wanting to learn about options.
Next up is John C. Hull's book Options, Futures, and other Derivatives. This book is a little pricey at $204.00 new, but John C. Hull is also a trader and has a great reputation.
Also skimmed through a book this weekend that expressed many trading concepts and situations mathematically. After I develop a greater foundation of knowledge in options and statistics will this book be useful to me in the development of trading algorithms and optimizing my options strategies.
Was on the right side of the market 2 out of three times today on both bullish and bearish positions. My one loss was $7.50 before fees on a option ratio spread becoming worthless because of a market reversal in the afternoon. It was interesting to watch volatility increase on ES options that expire today at one point during a sell off. I need to work on matching the optimal options strategies to the trading environment before me.
I saved a bit of of money today by taking the time to price the appropiate value of an option spread rather than automatically trying to split the difference between the bid and offer and giving 1 tick improvement as is typical for me. I bought my ES option spread immediately at the bid plus one tick, saving several ticks over the midpoint of the spread plus one tick.
My net naked ES futures option position at about a $12,000 IB margin requirement and my recent designation as a pattern day trader caused my account to be locked in opening new equity or equity option positions today because of insufficient cash available on the equity side. There is a $25,000 free cash minimum that must be maintained at all times, if I'm understanding IB requirements correctly. Therefore, my choice is to avoid naked option positions or deposit more money into this account. I will go for the latter and deposit $17,000 into this account, bringing total deposits since inception to $50,000. My risk allowance will go up proportionately to $180.00 per trade or .36% of starting capital plus pending deposit, per trade. My risk allowance amount applies to any intraday net short option positions as well. I will not carry net short option positions overnight.
Next up is John C. Hull's book Options, Futures, and other Derivatives. This book is a little pricey at $204.00 new, but John C. Hull is also a trader and has a great reputation.
Also skimmed through a book this weekend that expressed many trading concepts and situations mathematically. After I develop a greater foundation of knowledge in options and statistics will this book be useful to me in the development of trading algorithms and optimizing my options strategies.
Was on the right side of the market 2 out of three times today on both bullish and bearish positions. My one loss was $7.50 before fees on a option ratio spread becoming worthless because of a market reversal in the afternoon. It was interesting to watch volatility increase on ES options that expire today at one point during a sell off. I need to work on matching the optimal options strategies to the trading environment before me.
I saved a bit of of money today by taking the time to price the appropiate value of an option spread rather than automatically trying to split the difference between the bid and offer and giving 1 tick improvement as is typical for me. I bought my ES option spread immediately at the bid plus one tick, saving several ticks over the midpoint of the spread plus one tick.
My net naked ES futures option position at about a $12,000 IB margin requirement and my recent designation as a pattern day trader caused my account to be locked in opening new equity or equity option positions today because of insufficient cash available on the equity side. There is a $25,000 free cash minimum that must be maintained at all times, if I'm understanding IB requirements correctly. Therefore, my choice is to avoid naked option positions or deposit more money into this account. I will go for the latter and deposit $17,000 into this account, bringing total deposits since inception to $50,000. My risk allowance will go up proportionately to $180.00 per trade or .36% of starting capital plus pending deposit, per trade. My risk allowance amount applies to any intraday net short option positions as well. I will not carry net short option positions overnight.
Interesting week so far. Had a "conversation" with the bond market on Tuesday. It went kind of like this:
MPS: That's an interesting market you have there, with the big tick dollar amounts.
ZB: We like the ground to shake a little when someone hits the bid. We do have a reputation of chewing up and spitting out new traders in short order.
MPS: Oh I think I can handle a market that still deals in fractions. For example, I'm looking at a high probability long setup now.
ZB: Assume the position.
MPS: Assume the position?
ZB: You want trade, don't you?
MPS: OK, I'll buy it.
ZB: You're now long. Here we go...
MPS: Jesus! I'm down four ticks instantly. I want out!
ZB: Done. Would you like to try again to get your money back?
MPS: Um, I have some errands to do.
ZB: "There is an ATM just down the street."
The "tone" of the previous statement was between over-politeness and condescending, kind of like from a waiter in fancy restaurant after you've pounded the table in order to make a point and accidentally hitting the edge of a bowl of soup and getting yourself splashed.
I ended up losing 3 ticks on T-notes on Tuesday.
Tuesday evening I had the idea of shorting ES or its derivatives for a range expansion day. Although money flows to correlated assets were bullish, price action in ES seemed different from the recent past. My sense was in previous corrections and subsequent rallies in ES the bids would be stronger. To borrow a line from the band Aerosmith, the market's getup and go got up and went. I debated a while how I should to play this. After considering gamma scalping, butterfly spreads, bear spreads, long puts, and a put ratio spread, I decided to buy a ratio spread. Oops.
Bought 1 Oct 10, 2018 ESZ2018 2970 put / sold 2 Oct 10, 2018 ESZ2018 2955 Puts at a $.90 debit. My stop was to be about $1.10 credit, or about $100 plus transaction costs. My decision to trade the ratio spread route was based on the idea that the expected ES decline would not get out of hand. Oops again. I figured apparent support of 2860 in ES would hold, at least for a while if tested. The 2855 short leg was chosen to give me a little more protection on the downside.
At roughly 10:00 am (I say roughly because my confirmation and blotter times do not match) and under fast market conditions, I briefly debated between taking a $250 loss or converting this trade into a butterfly spread. ES was near 2855 at the time and I decided to buy a Oct 10, 2019 ES 2840 put at $3.75. My overall basis in this butterfly spread was $4.65. Had I simply bought this butterfly spread in the first place, my basis would have been around $1.25 to $1.35 debit. I figured there were ten points in either direction that provided reasonable opportunity for profit. After a bit of a lull in the sell off, I noticed the Nikkei futures hit a new low and previous market leading equities were not recovering. I decided to close this fly at the then current price of $4.50 for a loss of $.15, or $7.50 plus trading costs. Whew! Thank God for break even, almost! I'm done with naked options forever. Had I held on the original ratio spread to the close, my loss would have been over $3000. Two of my other trade ideas would have returned about a $1000 in the first half hour of trading, or tripling my overall account profit over the last 3 months. Lesson learned.
This market sell off is serious business in my opinion. There are competing investments that are less volatile and provide a increased and guaranteed return such as US Government Bonds. In addition, many countries are under fiscal or economic stress such as China, Italy, and smaller developing countries. The US economy is likely to be adversely affected by slowdowns in other countries either directly or indirectly. Trade uncertainties or Brexit can't be helping either. The Federal Reserve is holding to a tightening policy in an apparent attempt to forestall inflation and excessive speculation. Although the Fed's current policy may seem reasonable, it is not without risk of causing an economic slowdown or recession in the US.
MPS: That's an interesting market you have there, with the big tick dollar amounts.
ZB: We like the ground to shake a little when someone hits the bid. We do have a reputation of chewing up and spitting out new traders in short order.
MPS: Oh I think I can handle a market that still deals in fractions. For example, I'm looking at a high probability long setup now.
ZB: Assume the position.
MPS: Assume the position?
ZB: You want trade, don't you?
MPS: OK, I'll buy it.
ZB: You're now long. Here we go...
MPS: Jesus! I'm down four ticks instantly. I want out!
ZB: Done. Would you like to try again to get your money back?
MPS: Um, I have some errands to do.
ZB: "There is an ATM just down the street."
The "tone" of the previous statement was between over-politeness and condescending, kind of like from a waiter in fancy restaurant after you've pounded the table in order to make a point and accidentally hitting the edge of a bowl of soup and getting yourself splashed.
I ended up losing 3 ticks on T-notes on Tuesday.
Tuesday evening I had the idea of shorting ES or its derivatives for a range expansion day. Although money flows to correlated assets were bullish, price action in ES seemed different from the recent past. My sense was in previous corrections and subsequent rallies in ES the bids would be stronger. To borrow a line from the band Aerosmith, the market's getup and go got up and went. I debated a while how I should to play this. After considering gamma scalping, butterfly spreads, bear spreads, long puts, and a put ratio spread, I decided to buy a ratio spread. Oops.
Bought 1 Oct 10, 2018 ESZ2018 2970 put / sold 2 Oct 10, 2018 ESZ2018 2955 Puts at a $.90 debit. My stop was to be about $1.10 credit, or about $100 plus transaction costs. My decision to trade the ratio spread route was based on the idea that the expected ES decline would not get out of hand. Oops again. I figured apparent support of 2860 in ES would hold, at least for a while if tested. The 2855 short leg was chosen to give me a little more protection on the downside.
At roughly 10:00 am (I say roughly because my confirmation and blotter times do not match) and under fast market conditions, I briefly debated between taking a $250 loss or converting this trade into a butterfly spread. ES was near 2855 at the time and I decided to buy a Oct 10, 2019 ES 2840 put at $3.75. My overall basis in this butterfly spread was $4.65. Had I simply bought this butterfly spread in the first place, my basis would have been around $1.25 to $1.35 debit. I figured there were ten points in either direction that provided reasonable opportunity for profit. After a bit of a lull in the sell off, I noticed the Nikkei futures hit a new low and previous market leading equities were not recovering. I decided to close this fly at the then current price of $4.50 for a loss of $.15, or $7.50 plus trading costs. Whew! Thank God for break even, almost! I'm done with naked options forever. Had I held on the original ratio spread to the close, my loss would have been over $3000. Two of my other trade ideas would have returned about a $1000 in the first half hour of trading, or tripling my overall account profit over the last 3 months. Lesson learned.
This market sell off is serious business in my opinion. There are competing investments that are less volatile and provide a increased and guaranteed return such as US Government Bonds. In addition, many countries are under fiscal or economic stress such as China, Italy, and smaller developing countries. The US economy is likely to be adversely affected by slowdowns in other countries either directly or indirectly. Trade uncertainties or Brexit can't be helping either. The Federal Reserve is holding to a tightening policy in an apparent attempt to forestall inflation and excessive speculation. Although the Fed's current policy may seem reasonable, it is not without risk of causing an economic slowdown or recession in the US.