Hello Guru, are you saying you lost money during September? I am very surprised, because in my previous post, I said that I thought you had already found the holy grail. I believe you made around $100k during the Feb Mar crash? So that's a holy grail scenario right there. September is a mere mild drop compared to Feb/Mar.
So how could you lose in Sep when you made huge gains in Feb/Mar? Fortunately I have been dissecting some of you posts and working out your trades
and I believe in the Feb/Mar crash your options spreads were set up early and sitting there for like a month decaying, and getting more vega and gamma positive? while you lost in Sep because your spreads were only recently put on and were vulnerable. Therefore they were not yet ready for any substantial drop in the SPX index whereas back in Feb/Mar you were welcoming that huge crash.
I lost a lot in March. At one stage I was fearing the worst. Saw where I went wrong, read more of yours and other posters that I respect to regain some confidence and composure and then made some adjustments to my spreads. So September for me was fine and my PUT combos made money. Not sure how they would hold up if a fall the magnitude of Feb/Mar happened tho.
Hey,
Well, in Feb I was acting on a hunch and was one of the first people stocking up on food and survival stuff after seeing reports of the virus in China
. So by extension I’ve also bought puts and bearish combos on various stocks, some later making 1500% profit, though I’ve bet very small amounts here and there. And from beginning of the year I was also generally positioned somewhat neutral to bearish, so I wasn’t making money in bull market, gaining mostly during the crash.
Additionally, I didn’t have my option trade idea generating system in place yet, just some theories and ideas on how to get great reward-to-risk, which turned out to work great, especially when purchased at low volatility and later benefiting from high VIX.
Starting around March or April I had the first version of my internal software that comes up with complex option trade ideas and pretty much tells me what to buy in terms of good reward-to-risk ratio and with some built-in hedging, and especially how to trade more bullishly than I did previously. So at that point I started trading and benefitting from the bullish market, but such trading style creates higher risk that is difficult to hedge. Additionally, my system was a bit overfit, so not all my trades were technically optimal but benefitted from the bullish market.
In July-August I started trading more seriously based on my system’s suggestions, which worked great and I’ve kept adding to winners aka martingaling or pyramiding, which has grown my profits exponentially but also creating bigger and bigger risk. I was still hedged very well, but hedging was limited by the already high VIX that wasn’t dropping with the bullish market, so my hedging was expensive but limited.
Though all this still worked fine and I wouldn’t lose much in September if I got out by the end of the first day when the market dropped around 2%. My hedges did kick in and I’ve lost a bit but not as much as I would’ve without hedging.
My issue was simply that I was waiting too long, like another couple days, while the market kept dropping while VIX no longer kept going higher, so my hedges were losing value together with the market dropping.
I also had too many positions and simply didn’t know what to exit out of first, at what prices, and generally needing time to close positions. I also wrongly assumed that my hedges will protect me for a few more days, but that didn’t happen . By the 3rd day I finally said “fuck it” and clicked the “Close all positions” button and my broker got me out of everything I had with huge slippage losses, likely 10%+ of account lost just to slippage, often on illiquid options, which I could’ve kept without issues if I didn’t auto-close everything. But I also could’ve lost more if I simply kept waiting.
The conclusion is that if I was automated then each of my positions would automatically be programmed for when to exit, and I wouldn’t need to worry much, and definitely wouldn’t lose as much.
But, on another hand, I’m not sure whether I really need to categorize such loss as a large loss, because it depends on the context, the period measured, etc.
I simply had extremely good month or two, and later lost much of that gain, which still comes out to a small gain over a few months. I simply made oversized gains but if I traded more reasonably then both my gains and my losses would be smaller. Leveraging it all up only makes both gains and losses appear larger, while the end result may be the same as when trading smaller.
However, that experience itself has accidentally showed me that pyramiding has an amazing potential when you can add to winners while being able to limit losses, which now I have in the back of my mind as a future goal.
Some of the option setups/profiles I’ve posted here are much different from the ones I’m actually trading. They’re still good and I’m just using them as examples and sometimes testing them out, but I’m trying to utilize more of the quicker 1-12 week trades that can generate profits fast under right conditions, while being hedged to a good degree. I also utilize unhedged option combos that have mathematically high reward-to-risk ratio, so even on a bullish position I wouldn’t lose much (say 30% of a trade but 100% loss is possible if the stock simply crashes) while gaining a lot (often 30%-50%, sometimes more than 100%) if the stock goes up.
I also have bearish trades that can work well on the way down, but currently not finding many of these due to puts simply being expensive post-March. Actually my current goal is to find best reward-to-risk bearish option trades, and it ain’t easy, unless a stock drops more than 70%. So I’m still exposed to small drops in price, but not sufficiently strong to trigger sufficient hedging.
And you really can’t have a cake and eat it too, so usually I just have to decide where to open the risk holes, both volatility-wise and price-wise. For example on some trades I may lose the most if a stock goes down between 20%-30%, but I’m fine otherwise. On other trades I may lose the most if the stock drops by up to 10%-20% and stays there for a while. So making the right choices does play a role, while bullish market definitely helps.
