No Time for Caution

Daytrading 'flys? God help me. My trading does not have my full attention right now as I am working 70 plus hours per week. I want to grow my net worth as quickly as possible given anticipated economic challenges ahead for my industry.

I went for a very bearish 'fly on watching rapidly decreasing trucking spot load availability. We are not at crisis levels yet, but the rapidity of the decline in freight volumes and rates may suggest, say 2 weeks at current trends, we will be at crisis levels.

I went long a very bearish 'fly on the RTH open today. Long 1 ES 2700/2575/2450 Apr 24, 2020 'fly in puts @ 33.00. I closed the trade at 36.25 on what appeared to be underlying support in the market. As time allows, I intend to trade both sides of the market, but given my tendency to want to trade shorter term, I will look at more responsive structures. I did note liquidity for these types of trades is very high, making splitting the Bid/Offer on small size easy for quick fills on position opening and closing. Too bad I waited 50 points before putting a similar trade on. "I'll sleep on it" is not always the best trading strategy.

I will be watching the 2735 to 2745 levels in ES closely, although Monday's low is 2710 or so.
 
Closed out 2 ES April 17/April 20 2700 calendar spread for a net gain of $80. I had to get in well in the overnight session and exit well during RTH just to do that. What a market! What a Nasdaq! At least this journal is now in the green.

Just went long a April 22 (Opps, should have been April 24, but was looking at diagonal spreads earlier) ES 1/2/1 Butterfly 2800/2700/2600 in puts @ 18.50. Probably will add another butterfly at end of day, this time using the April 24th expiration and doing a 2/3/1 as well, in case we get a big gap down next week. This structure has less positive expectancy than the other structure, according to IB's calculator, but at least I'm guaranteed a payoff if the market crashes. In addition, this 'fly shows positive convexity, allowing easier hedging if desired as well as positive theta.
 
Closed the 'fly for a loss at 12.75. At one point this trade had an open loss more than my loss allowance. Must remember to apply a stress test to each position and hedge excess deltas as appropriate.

Although I'm not impressed by the news late afternoon yesterday, the critical thing I must remind myself in trading is how I perceive how others may react to news.

As far a money management is concerned, after taking a stop loss, when is taking a new similar trade could be thought as merely a continuation of a losing trade? Should there be a timeout after taking a loss? Should trade criteria be more rigorous for a set period of time? I don't have as defined entry criteria on option trades as scalping, creating this ambiguous feeling on options trading.

I have some work to do this weekend.

Current account value: $29822.
 
The weekend is a great time to reflect upon the previous week, refine one's strategies, and to prepare for the next week. With each iteration, hopefully moving closer to becoming a well-oiled trading machine!

While I don't have a strong opinion on market direction next week, I expect a change in certain relationships between sectors and will weigh my trading accordingly. I will get into specifics on Monday.

A continued area of difficulty for me is managing the different time frames between options trading and scalping. I need to take more time to prepare and where my analysis indicates a longer term opportunity, I can build the position using my scalping skills. In other words, My plan is to scalp into my option spreads and hedges. In addition, I will place less emphasis on buying relatively cheaper volatility and selling expensive volatility and spend more effort focusing where I believe the price central tendency will be for a particular point in time and structure my position accordingly.

I will be putting up a lot more option trades next week and will look into ideas of building a portfolio of option trades and creating an effective overall hedging strategy.
 
Attached below is a screenshot of some recent trades I did not get a chance to update here.

The single name option spreads were basically practice trades. I was lucky on trader’s response to NFLX earnings report. I am a sucker for inverted term structure, I guess.

The single names offer very nice metrics and I plan to do more of them.

It seems IB does not always provide quotes for single name option spreads, leaving me to search for liquidity by working orders and thus putting even more importance on having a solid options pricing model and to maybe create a custom algo to work orders.

The ES butterfly was up nicely until Friday’s run up. A seemingly risk off day elsewhere and equities rallied? What, are they expecting a super dismal jobs report tomorrow? Grin. My spot trucking freight indicator is now off almost 50% in three weeks. Interestingly heavy truck traffic patterns seem normal and I have been busy as hell delivering toilet paper and furnishings for new stores. At least there was a nice selloff on the close. Got stubborn on shorting MNQ, when simply fading wide range bars and exiting a few minutes later, win, lose, or draw would have been fine. Even better would have been to buy the consolidation areas when the bids seemed almost impenetrable.

Been debating whether it is better to put on few larger trades or many smaller trades. Since I’ve been so busy lately, for now, it seems better to focus on fewer issues.

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Exited the ES ‘fly yesterday at 22.50 on a inverse head and shoulders pattern on the 30 minute chart.

Now long 1 ES directional ‘fly: May 01, 2020 2820/2670/2520 in puts @ 26.50. I intend to hedge my deltas using my scalping methodology as necessary. ES may have reversed to the downside today. Will not be looking hedge deltas until ES gets back above 2828. This is a moving target.

At this point, I’ll continue to hold my CVNA ‘fly.
 
Only 2 trades today, 1 closing and 1 opening. Missed several good trades while trying to provide liquidity. At least I tried trading with the earlier uptrend. Getting too precise, I guess! Today was further validation of my scalping methods, even though no trades were actually executed. My adjustment will be to pay the spread now on at least part of my future orders.

My “Grand Unification of Trading” theory is coming along nicely, with progress being made on all fronts. The following are a list of approaches, trading time horizon, underlying principle(s), and preferred instrument, that I am in the process of integrating into my trading plan:

1. Fundamental approach - Long term - Relative performance between asset classes - Option spreads

3. Options Trading - Multiple time frames - Risk management; volatility forecasting; relative volatility spread strategies - Option spreads.

3. Technical approach - Swing and day - Trading psychology - Options and underlying(for intraday trading only).

4. Market mechanics - Scalping - Order flow analysis - Underlying

5. Identification of systemic inefficiencies - Long term - Marketing and funding - Unsecuritized assets.

Closed the 4-24 ES ‘fly and opened the 5-01 ES directional put ‘fly as shown below.


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Exited the ES fly at 35.00 instead of hedging after noticing unnaturally low volatility during the European session. Bought a new ES fly in puts near today’s RTH close. Deltas were about .48/.20/.06. I set the body at a weekly low. On directional ‘flys in puts, probably having the body at .25 delta is optimal, but I like to leave room for additional range expansion should selling renew in earnest. I want to maintain some short overnight exposure because the Corona virus will be with us for years, causing “Setbacks” in case number improvements. Governmental policy is not cohesive on this issue and secondary infection of this high R0 virus is guaranteed, in my opinion. This will result in loss of productivity due to increase in disability years and probable restrained consumer spending for an extended period of time.

No scalps today as I was busy at work. Although I missed a great scalping day, Monday will present another opportunity.

I have set aside a week to dedicate to scalping the next time I get home. Each time I beat my previous week’s high water mark, ending Wednesdays, by at least a $1000, I will take another week off work to trade. It is nice to have this kind of flexibility with my employment situation. I am actually quite confident I will achieve the $1000+ weekly goal by scalping. When I reach an additional $30,000 in capital, I will have dedicated accounts for options and scalping.


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Attached below is my monthly performance report.

My trade selection and structuring could have been better. My adjustments for next month will be to take a less directional assumption, to structure my trades as iron condors that may still allow for some directional bias, and to wait for a daily or weekly bar break as a confirmation to my outlook. A bar break against my outlook will cause me to reassess and probably close the position. In addition, I will consider increasing the duration of my option spreads as may be dictated by my scenario.

I plan to some post live index option trades with color in May.


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