Karen the Supertrader - TastyTrade Hybrid Experiment

CBC · May 21, 2016

Sori Bobby,

I watched the vid a few years ago. I thought that she said she uses bollinger bands and different strategies after she the flash crash for more protection.

Althought I remember the bit where she was talking about theta, she said that she enters trades and the theta just eats away at the options. I got the opinion that she thought theta was the holy grail. I couldn't find that bit either.

Thing is Bobby, all options traders know about this strategy, and it is a great strategy 95% of the time. You could trade this for 12 months and not lose a thing, probably be the most profitable trader here on this site. If you wanted to do it for 12 months then I would be happy to say its a good strategy, I don't like it been used any longer than that.

Up to you.

Sweet Bobby · May 21, 2016

CBC said:
Sori Bobby,

I watched the vid a few years ago. I thought that she said she uses bollinger bands and different strategies after she the flash crash for more protection.

Althought I remember the bit where she was talking about theta, she said that she enters trades and the theta just eats away at the options. I got the opinion that she thought theta was the holy grail. I couldn't find that bit either.

Thing is Bobby, all options traders know about this strategy, and it is a great strategy 95% of the time. You could trade this for 12 months and not lose a thing, probably be the most profitable trader here on this site. If you wanted to do it for 12 months then I would be happy to say its a good strategy, I don't like it been used any longer than that.

Up to you.

Thanks, CBC. I think the key to Karen style trading is you have to stay small enough, manage a somewhat doomsday type risk, and at times be willing to cut losses. My account is stressed 15% to the upside and is designed to keep me in business in the event of a 20% downside disaster. Can I lose everything? Sure, but I am a risk taker. No one will ever make money without taking strategical, calculated risks.

El OchoCinco · May 21, 2016

When I was selling credit spreads heavily and journaled it, I rarely had more than 50% of total portfolio value committed in maximum total loss scenerio (which would never happen unless you simply shut your computer off for weeks into expiration and ignored everything). That was the main way I knew I would never blow out my account or lose even too large a chunk because it would never get that far.

However the one point I made back then that was never focused on is I did this strategy for 2-3 years mainly when the VIX was really low and the market was trending to chop consistently. People believe they want higher VIX for bigger premiums to make this strat work but I preferred extremely low VIX (ES moving 10 points a day would get me worried) and smaller credits for more manageable portfolio. When VIX started increasing steadily I just stopped trading them pretty much. Most people find it hard to abandon something that works for them but never realize the market conditions is what makes it work- when that changes, so do you.

Sweet Bobby · May 21, 2016

Two trades yesterday. One trade caught me by surprise.

I sold the ratio strangle:

15 JUL 16 225C(3)/184P(2) with 56 DTE. This trade will be closed automatically at 32 DTE if it doesn't hit the profit/loss targets before then.

I had looked over all my GTC orders during the morning hours and it appeared that none would be triggered for the day. But after the close, I noticed that my GTC order was triggered and I bought back:

24 JUN 16 2165C(3)/1810P(2) at 50% profit for a total profit of $895.00. I wish I had known that this trade triggered so I could have put some other trades on. Now my theta numbers are low going into the weekend.

Theta is 57, delta is -42.90, and vega is -275.89. The experiment was up $362 for the day.

Have a great weekend everyone!

Bobby

kurros · May 21, 2016

Thank you for taking the time to share your trade log and journal here, despite many posters on ET being hostile to anything with Tastytrade's scent on it. Though you probably knew what you were stirring up when you named the topic what it is.

You have an interesting hybrid strategy going here and I'm continuing to watch with interest.

Sweet Bobby · May 21, 2016

kurros said:
Thank you for taking the time to share your trade log and journal here, despite many posters on ET being hostile to anything with Tastytrade's scent on it. Though you probably knew what you were stirring up when you named the topic what it is.

You have an interesting hybrid strategy going here and I'm continuing to watch with interest.

Thanks, kurros, for having an open mind. It's an experiment. I am actually looking to incorporate straddles into my strategy in the near future. Thanks for following!

Bobby

isotope · May 23, 2016

Sweet Bobby said:
Why not try to understand this simple strategy rather than coming in like a damn bully trying to destroy and crash everything with a ball bat? If you have something constructive to add then do it. Otherwise, shut the hell up you insignificant newbie. You know nothing. Now get back to losing money and chasing every snake oil system on the planet. I'm glad you're in the markets. You help keep my kids fed!

@Sweet Bobby :
Well said and my salute to your sharing your experiment. Here are 2 cents from an old fool. For those who are dedicated to life long humble learning, the Internet provides unprecedented wealth of knowledge in the history of civilization. But we must use some critical thinking to filter out the noise from the real signals.
For the benefit of those who share the same learning spirit, take a look at these links which may explain in more detail what Sweet Bobby is trying to tell us.

https://smoothprofit.blogspot.ca/2014/05/investigating-stress-tested-portfolio.html
https://smoothprofit.blogspot.ca/2014/04/a-study-of-market-drop-and-volatility.html
https://smoothprofit.blogspot.ca/2014/02/a-summary-of-karen-super-traders-option.html

Full disclaimer:
I am a retired old fool trading futures and options for amusement. I am lucky enough that I have been earning enough income from my trading so that I don't actually have to live off my savings. My emphasis is that I have been lucky because I don't pretend that I can consistently beat the market. My interest in Karen is purely academic.

Pekelo · May 23, 2016

isotope said:
@Sweet Bobby :
My interest in Karen is purely academic.

Mine too. That being said, just running the test on a fairly boring sideways market is not going to tell us much, specially that others already have been doing it for 2 years. We already know that it can generate 1% monthly and with portfolio margin 2-3 times more.

What I am more interested in is, how the strategy worked in January, when the market tanked 10% in 2 weeks and how did it perform when the market recovered in 2-3 weeks. Or I guess we could ask the guys in the Yahoo group how they did last August?

So I guess we just have to wait until another big move comes...

Sweet Bobby · May 23, 2016

P

Pekelo said:
Mine too. That being said, just running the test on a fairly boring sideways market is not going to tell us much, specially that others already have been doing it for 2 years. We already know that it can generate 1% monthly and with portfolio margin 2-3 times more.

What I am more interested in is, how the strategy worked in January, when the market tanked 10% in 2 weeks and how did it perform when the market recovered in 2-3 weeks. Or I guess we could ask the guys in the Yahoo group how they did last August?

So I guess we just have to wait until another big move comes...

Pekelo,

Tom and Keith report daily in our group.

Keith mainly sells deep out of the money puts. I am looking at his spreadsheet now. He actually had a profit of $4,415 for August and a loss of $6,368 for September. September was his only losing month. His total realized profit for 2015 was $36,226 on about a 200k account.

Tom reports a little differently, but it looks as though he was up $42,175 for the year. His largest drawdown was $82,200 that occurred on 08/24. From 08/24 to the end of the year, he had profits of $55,430.

isotope · May 23, 2016

Pekelo said:
Mine too. That being said, just running the test on a fairly boring sideways market is not going to tell us much, specially that others already have been doing it for 2 years. We already know that it can generate 1% monthly and with portfolio margin 2-3 times more.

What I am more interested in is, how the strategy worked in January, when the market tanked 10% in 2 weeks and how did it perform when the market recovered in 2-3 weeks. Or I guess we could ask the guys in the Yahoo group how they did last August?

So I guess we just have to wait until another big move comes...

Hey Pekelo,

I short vega and long theta on SPX, using a combination of credit spreads. I use stochastic-RSI, two-line MACD and the VXST/VIX/VXV/VXMT clusters to watch the weather. So far, I manage to average 10-15% per month return on capital at risk. The StochasticRSI and MACD give me some sense of whether the market is over bought or over sold. Monitoring the relationship between VXST/VIX/VXV/VXMT helps me to stay alert of imminent dangers. 80% of the time when the volatility graphs are in contango, I deem it safe to surf the waves. When there are signs of ominous backwardation in the making, I stay on the beach. This is the old fool's way of getting some fun in the water. Every time somebody quotes "picking up pennies in front of a steam roller", I am reminded of my insurance broker who is much wealthier than me. One of his favorite brag is his selling hurricane policies right after a hundred year storm.

Lucky trading, and hope that I don't get drowned on a sunny calm day.