Karen the Supertrader - TastyTrade Hybrid Experiment

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lawrence-lugar said:
Alot of people are too proud...to post failure stories o_O:banghead:
They only want to show off the positive of themselves.
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It's not a failure story. But his followers are probably more interested in how this strategy does when it's not working vs coming on here during the theta bleed and talking about the small decay he is earning every day. I won't call him a failure. I just want him to be consistent.
 
Three trades today.

upload_2016-7-19_21-5-14.png


Here's a look at the Greeks:
upload_2016-7-19_21-8-44.png


Since I can't enter a OCO order to close my ES positions at 2x the credit received, I have added yet another column to my spreadsheet to help me keep an eye on those positions. I never had this trouble with SPY and SPX. I still have several "problem children" but I have some time on my hands.

Happy trading!

Bobby
 
i960 said:
Why can't you do this? You should totally be able to submit an order to do that.
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On my SPX and SPY I set up two closing orders simultaneously. One to take profits at 50% and the other to close at 2x loss, with one order cancelling the other. TD told me that I can't do a stop limit order on ES options. If you can tell me how to do it, I would greatly appreciate it.
 
JoeLeTrader said:
Hi Bobby and all,
I am new to the forum and I am following this thread from the very beginning as I am quite interested in this experiment. I was following Tastytrade and employing quite a similar strategy as you do but the many statements of experienced option traders in this thread got me really thinking about the risk I am undertaking.

As everyone I was not expecting Brexit vote. Unfortuntaley I didn't bother reducing my size in advance. I was thinking I was protected through my diversification because I was selling in all kinds of assets like soft commmodities and so on. I was even so careless leaving a short put on GBP Future on. I was thinking: well volatiliy in beans won't get influenced by Brexit. Not so!
As everyone says: Diversification doesnt help in a downmove. I learned this the hard way.

On the morning of the Brexit day I looked into my portfolio and half of my gains of this year were erased. All deep red and volatility was exploded throughout the board no matter what asset class. This was quite a shock since I was overleveraged (80% of margin tied up even before the event!!) and margin was so elevated that I couldn't close legs of my positions and apply any of the Tastytrade defensive measures....

That was a very unpleasant day and fortunately the Brexit vote was just a shock-like event and not the beginning of a protracted downmove with even more increasing volatility. Otherwise this could have been a very deep bite into my account. Now I am still up 24 % as of today so I should be happy but to be honest this kind of return with this strategy is plainly showing that I was taking unhealthy risk and I just got lucky.

So I was re-evaluating and investigating a bit and this is what I found.

First thing I found that although there are thousands of videos on Tastytrade about selling volatility in fact they do not endorse a Karen-like style at all!

Very revealing for me was the series about the TopDogs Portfolio where Tom explains how he would manage a 250 k Portfolio. Please find his allocation below:

View attachment 165393
With Core positions they mean buying/selling ETFs /Futures and selling premium against them to reduce cost basis. This is their suggested basic strategy. So only 6 % of their portfolio value would go into Karen-like undefined risk trades while maintaining 63 % in cash! Sounds not too fancy, or?

Then from another source ( the Capital discussions Board) a video that I found very interesting:


This is about a guy "Larry" who was starting out and about to embark on a vol selling strategy. Well, quite experienced option traders were in this Trading Group and they were really honest and helpful. In the end he was talked out of his endeavour by Dan Harvey in person. Dan was (of course) recommending to trade wide butterflies instead which have significant better risk/reward profiles. Dan is offering service in this area too but it did not come across as marketing in any way and the discussion was very interesting. So this is a thing I am definitely going to explore further.

And then a third point I found: I think this intersting article about "the system Karen" was already mentioned before:

http://macro-ops.com/karen-the-supertrader-goes-rogue/

I just mention it because it includes a backtest as well:

"I went back to Jan 2014 and mechanically sold a 10 delta strangle with 60 days to expiration. For position sizing I assumed a $1,000,000 account and sold 1 SPX option per $100,000 of capital."

I think this capital curve with this incredibly sharp declines sums it up perfectly. When you are with IB you might get autoliquidated right on the bottom and then have to watch the backlights of the following rally.

View attachment 165394
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The put skew is there for a reason, think about this the 87 crash completely changed how options are priced, that's a pretty big deal. There is a paper somewhere that talks about the crash in sigma's some insane number, don't have time to find the paper. On a crash with defined risk you eat the max loss and move on, with naked options you are f&*ked.

https://www.cboe.com/micro/skew/documents/skewwhitepaperjan2011.pdf
 
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