Just Buy The Dip

Overnight said:
I have ET scars from the establishment, and have learnt my limits.
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I hope you set a stop loss! It's all good fun. 3 glasses of vintage select moscato with sweet flavors of ripe apricot and aromas of juicy peach helps! Yes, I cringe when people withdraw their profits. Never get anywhere, unless you roll the bones.
https://www.bing.com/videos/search?...542A15EE275AD70DB481542A15EE275AD70&FORM=VIRE
Sorry 'bout that misquote error. I think plagiarism is frowned upon on ET. Although, Now I know your have issues if you don't like RUSH!
 
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If I were doing this strat, I would look at the typical price rise vs decline (declines are usually faster) and slap on weekly collars to prevent major drawdowns. Say, for example, a good up week is 4% (just a guess) and a bad down week, a crash, is maybe 8-10%. The pattern is something like U-U-U-D. So if you limit upside to 2 or 3% and downside to same, you would have a safe and steady strat, methinks, and never more than a 3% drawdown.

You could even push out the downside to 4% and buy more puts (keeping neutral on premium), potentially making money on a serious drawdown.
 
Hi misterkel,

Thanks a bunch for the ideas you have presented. I haven’t traded options, but it’s something I want to learn more about. Do you or anyone know of a good resource? I’ve had scribbled on some paper by trading computer “Buy Put Options” for a few months.

In Backtesting, my Win % is greater than my loss % , but my average loss is greater than my average gain. I'll eventually start posting expectancy when I have more trades. Like you said, declines are usually faster. I would only want to use options as hedge. My fear is that it would reduce my alpha significantly.

Isn’t hedging with options what Hedge Funds often do? Their annual returns have been about 2% for a decade I believe. I would sure like protection from a major DD. I just don’t want it eating up my profits in the meantime. I just need to learn more about the subject.
 
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rolan said:
Hi misterkel,

Thanks a bunch for the ideas you have presented. I haven’t traded options, but it’s something I want to learn more about. Do you or anyone know of a good resource? I’ve had scribbled on some paper by trading computer “Buy Put Options” for a few months.

In Backtesting, my Win % is greater than my loss % , but my average loss is greater than my average gain. I'll eventually start posting expectancy when I have more trades. Like you said, declines are usually faster. I would only want to use options as hedge. My fear is that it would reduce my alpha significantly.

Isn’t hedging with options what Hedge Funds often do? Their annual returns have been about 2% for a decade I believe. I would sure like protection from a major DD. I just don’t want it eating up my profits in the meantime. I just need to learn more about the subject.
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Well, a collar is pretty simple - it's just long stock, short calls and long puts. Yeah, it would eat into your alpha, but it really helps adjust your risk, allowing for far larger position sizes, leading to better alpha. With weeklies, it's great because you can roll them exactly when and where you want. I'd look at the best percentage gains in your market (SPX, I'm guessing) for a week and sell calls at 80% of that. Then buy corresponding puts (same price, they'll be a little further out because puts cost more). I'd probably adjust slightly for a credit so you make a bit of money on the options, too. Alternatively, go lower, risk a worse drawdown, but get more puts, then in a really bad crash, you'll actually make some money - maybe a lot, because you'll be overweighted on puts.

example - spy at 200.
You hold 500 shares.
Sell 5@206 calls (3% upside)
Buy 6@193 or 192 puts - adjust until you're flat or have a credit.
Get into position on Friday, then you're clear against a weekend surprise.

I like options against downside, too - you never get stopped out. And if you're smart / know your markets, you can close out a loser with much smaller losses due to the premium effect.
Good luck and have fun.
 
I sat out the first part of the week, then grabbed some entries midweek, which I exited Friday for some quick gains. Back to 100% cash. It’s funny, but I don’t like being on the sidelines, but I also can’t wait to get back to the sidelines when I have trades on in case the market dives.

Tradestation’s TradeManager Analysis was messing up calculations on the positions I held. I had to include positions in the date range that were opened prior to the date range to make it calculate correctly. So now there are a few trades included from December 19 until the end of the year with relatively small position size.

I’ve got my work cut out for me if I am going to surpass just buying and holding.

Total Net Profit $1,368.46
Gross Profit $1,368.46
Gross Loss $0.00
Profit Factor n/a
Total Number of Trades 15
Percent Profitable 100.00%
Winning Trades 15
Losing Trades 0
Avg. Trade Net Profit $91.23
Avg. Winning Trade $91.23
Avg. Losing Trade $0.00
Ratio Avg. Win:Avg. Loss n/a
Largest Winning Trade $306.82
Largest Losing Trade $0.00
Max. Consecutive Winning Trades 15
Max. Consecutive Losing Trades 0
Total Commission $21.59
Return on Initial Capital 1.37%
Annual Rate of Return 20.68%
Buy & Hold Return 12.14%
Trading Period 24 days
Max. Equity Run-up(Daily) $1,756.80
Date of Max. Equity Run-up 1/12/2018 15:00
Max. Drawdown(Daily)
Value ($388.33)
Date 12/29/2017 15:00
as % of Initial Capital 0.39%
Max. Trade Drawdown ($110.52)


equity curve.png
 
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Each week seems to be a repeat of buying early in the week and then going to cash on Friday. Not complaining, I just know it can’t continue of not having a losing trade. I’m liking how commissions don’t seem out of control relative to net profit.

Tradestation appears to be calculating runup and drawdown wrong. I think it is using the ETFs highs and lows of each day I am in the market, rather than intraday. So, I will just calculate it manually and report draw down when it is notable from most recent equity peaks.


Total Net Profit $2,299.88
Gross Profit $2,299.88
Gross Loss $0.00
Profit Factor n/a
Total Number of Trades 20
Percent Profitable 100.00%
Winning Trades 20
Losing Trades 0
Avg. Trade Net Profit $114.99
Avg. Winning Trade $114.99
Avg. Losing Trade $0.00
Ratio Avg. Win:Avg. Loss n/a
Largest Winning Trade $306.82
Largest Losing Trade $0.00
Max. Consecutive Winning Trades 20
Max. Consecutive Losing Trades 0
Total Commission $30.86
Return on Initial Capital 2.30%
Annual Rate of Return 26.79%
Buy & Hold Return 13.92%
Trading Period 1 Month

equity curve.png
 
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