No Time for Caution

BeautifulStranger

BeautifulStranger

Well, OK, some caution.


Retail trader here looking to create a live trading journal to document my trading results and to stimulate ideas and perhaps discussions on relevant trading issues, especially involving options strategies.

My trading vehicle will be solely options based, with the majority of positions being Iron Condors or Butterfly spreads.

My basic trading strategy will revolve around structuring my option positions around what would have otherwise been an outright position in an underlying with its stop and profit target being represented by short option legs(As in an Iron Condor) with the long option legs as protection against larger than anticipated moves. Where term structure offers an apparent discount in back expirations, I will look to go horizontal with my long options. In addition, I will expect to partially hedge deltas to maintain a target delta to theta ratio, depending on initial position moneyness, volatility levels, and outlook.

Trade duration will usually be in the 1 to 2 week range.

Profit targets will be be heavily weighted towards expiration day, but with an eye on recent support/resistance levels and stat-arb considerations.

Money management will be based on soft and hard stops on the underlying. The soft stop will usually be set at a support or resistance level, and if hit, starts a timer for trade exit if price hits a diminishing price threshold from soft stop level as time goes by. The hard stop will be based on an absolute threshold amount from a support or resistance area. My stop loss amount shall be a fixed $250 if my risk capital is under $6000. If my risk capital is over $6000, my stop loss will be 5% of risk capital. For purposes of this journal, my risk capital is defined by account value minus the $25,000 PDR. My initial account value will be $30,000 for an risk capital amount of $5000. If I lose my risk capital, I close the account and end this journal.

Performance goals include exceeding industry established trading metrics while producing a return on capital well above the performance of the SP500 index.

Performance will be documented monthly with account balance history and metrics as provided by my trading platform.

On select trades, some real time, I will review my thought process for entry and trade management.

My new IB account will be ready to trade on Thursday, 4-2-20, after clearing ACH. I had assumed the ACH clearing process would have been quicker than 6 days.
 
Just curious, why does your ACH take that long? Even a regular deposit wire usually takes less than 2 hours to be reflected in IB, given the user prior to the electronic wire request put in an electronic deposit notification in his IB account.

BeautifulStranger said:
Well, OK, some caution.


Retail trader here looking to create a live trading journal to document my trading results and to stimulate ideas and perhaps discussions on relevant trading issues, especially involving options strategies.

My trading vehicle will be solely options based, with the majority of positions being Iron Condors or Butterfly spreads.

My basic trading strategy will revolve around structuring my option positions around what would have otherwise been an outright position in an underlying with its stop and profit target being represented by short option legs(As in an Iron Condor) with the long option legs as protection against larger than anticipated moves. Where term structure offers an apparent discount in back expirations, I will look to go horizontal with my long options. In addition, I will expect to partially hedge deltas to maintain a target delta to theta ratio, depending on initial position moneyness, volatility levels, and outlook.

Trade duration will usually be in the 1 to 2 week range.

Profit targets will be be heavily weighted towards expiration day, but with an eye on recent support/resistance levels and stat-arb considerations.

Money management will be based on soft and hard stops on the underlying. The soft stop will usually be set at a support or resistance level, and if hit, starts a timer for trade exit if price hits a diminishing price threshold from soft stop level as time goes by. The hard stop will be based on an absolute threshold amount from a support or resistance area. My stop loss amount shall be a fixed $250 if my risk capital is under $6000. If my risk capital is over $6000, my stop loss will be 5% of risk capital. For purposes of this journal, my risk capital is defined by account value minus the $25,000 PDR. My initial account value will be $30,000 for an risk capital amount of $5000. If I lose my risk capital, I close the account and end this journal.

Performance goals include exceeding industry established trading metrics while producing a return on capital well above the performance of the SP500 index.

Performance will be documented monthly with account balance history and metrics as provided by my trading platform.

On select trades, some real time, I will review my thought process for entry and trade management.

My new IB account will be ready to trade on Thursday, 4-2-20, after clearing ACH. I had assumed the ACH clearing process would have been quicker than 6 days.
More...
 
FrankInLa said:
Just curious, why does your ACH take that long? Even a regular deposit wire usually takes less than 2 hours to be reflected in IB, given the user prior to the electronic wire request put in an electronic deposit notification in his IB account.
More...

I have been an IB client for years, already had a top US domiciled funding source set up that was previously used, and sent the transfer to an existing open account, even though I opened a new account for this journal. My plan is to do a internal transfer to the new account. For whatever reason, IB needs 6 days. I would expect wire transfers to be immediately available, perhaps because they are not cancellable like ACH transfers? Perhaps I should initiate a chat session with IB.
 
So much for trading away from home on a IPad.

Lost $104 from daytrading MES, and have a unrealized loss of $143 on a long ES 4-3-20 2470/2340/2210 put butterfly spread at 20.00.

Today's trading saw a reduction of .82% in account value.

IB platform generated stats on the 'fly show RR of 5.42 and profit probability of 31%. Current delta is -.10, theta is .61, gamma is about neutral, and vega is -.03. Tomorrow's action will help me determine whether to close, hedge, or add on to this position.

On Monday, I will have my computer and thus will be able to have option prices shown in volatility, helping me optimize my option trades by buying relatively cheap volatility and selling more expensive volatility in accordance with my trading outlook.

Attached below is a payoff diagram for a similar position in SPY from optionsprofitcalculator.com. Note: No compensation was made for difference in prices between SPY and ES in the attached chart. Numbers below represent percentage return based on percent of maximum risk:

image.jpeg


Edit: I don't know what options pricing model this site uses. However, I need to create my own spreadsheet to gain a better feel of what to expect as time to expiration, volatility, term structure, skew, and price changes. No small task, but necessary.
 
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Had a realized loss of $62.19 on a long MES trade that was used as a temporary hedge against The OTM ES butterfly mentioned in an earlier post. Although the MES trade generally followed my trading rules, I felt like I was taking bad tasting medicine when putting on the trade because I had a fairly strong opinion in the other direction. I was being too mechanical and should have been content to let my money stop, still far away, do the trade management for me. Also, I entered and exited that trade late. So late on both sides, in fact, I was able to turn what should have been a scratch trade into a 12 point loss. The movie "The Quick and the Dead" comes to mind.

Bought a May 20, CL 26/23/20 CL put 'fly at .38. I put the order at the bid in when CL was up 8% and was filled as CL continued to rally. It would not surprise me if our Arab friends coordinated other actions, such as a friendly invasion of a neighbor, in an effort to prop up oil prices further.

All told, my NLV is now 29.92K.

Very interesting day from a learning perspective. First, I'm feeling better focused on what time frame I want to trade that will efficiently balance time I can watch the markets and potential performance. Even more exciting, is I now feel the completion of my "Grand Unification Theory" of different trading styles and methods are in sight.

To that end, I am going to suspend trading in this account, closing my open positions on Monday, while I finish my trading plan. I will also be paper trading as time allows in order to gain proficiency on some new ideas before going live with them.

In broad terms, my trading plan and workflow will consist of the following:

1. Prospective Trade Indentification - Event pricing and duration of impact
2. Optimal strategy selection according to outlook and current trading conditions
3. Structuring trades according to relative volatility levels and desired contribution of various metrics
4. Statistical Arbitrage for a given timeframe for increased alpha, as my schedule allows.
5. Scalping into legs of overnight positions with positive expectancy, as my schedule allows.
6. Order execution strategy
7. Trade management, Money management, and portfolio stress testing rules.
 
Exited the ES butterfly at 18.75 on instant fill when I thought I was splitting the bid/ask. Probably left 2 ticks, maybe 3 on the table based on subsequent changes in bid ask levels after I was filled. Two adjustments would be to have my own option pricing model and the other would be to enter the trade near the ask if closing and see how the inside market responded to my order. Another consideration is to consider the other side's opinion. It may be easier to get better pricing selling butterflys than buying butterflys. On directional butterfly spreads, I am willing to sit through a day or two of adverse action, as delta is still low and my theta cost is not an issue. As time goes on these short dated 'flys, if they are still completely out of the money, theta costs start to creep up and my trade outlook has probably been invalidated. I expect ES to test last week's high. Assuming that happens, from there, I have no opinion.

I entered an order to sell the crude fly at .41, not offering a tick improvement versus midpoint, like I thought I did in the previous trade. I'll let the order work for a bit, especially since crude is going in my direction. I am closing this position today to focus on scalping and to have my trade performance reports "clean" after today for accounting clarity reasons.

It will not be too long before I am able to fund an additional account of $30,000, making it possible to keep my option trading results separate from my scalping/hedge trade results, even though the scalping/hedging trades would be in support of my options positions.

Edit: Out of my crude fly at .41.
 
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I ended up taking an options trade today. I bought a April 17th, 2020 OTM 1/2/1 ES butterfly in puts: Long 1 ES 2725 / Short 2 ES 2600 / long 1 ES 2475 for a net debit of 17.00.

I suppose the only thing one needs to know about the stock market is liquidity is the fuel that powers market advances. In practical terms, It seems liquidity is much more powerful than economic or monetary considerations. At least until systemic collapse. Then again, what are the alternatives? Allowing a negative feedback loop in demand destruction is collapse, right?

One of the benefits of being an interstate trucker is being able to talk to lots of business owners of varying sized establishments and learning the experiences of other drivers.

There have been a lot of load cancellations due to businesses either unable to receive their product due to CV related quarantines or unwilling to receive their product because of economic concerns. Some loads are or were intended to go to stores still in the process of being built, to construction sites for new buildings, or as "Annual quantity pre-buys" that are offered to retailing or wholesaling businesses by manufacturers for a discount, have been cancelled or postponed, even while enroute. Many of the businesses receiving these relatively large pre-buy orders are now sweating over what is going to happen with consumer demand. These businesses have spent a large amount of money and sales in some cases have ceased. The relief in the form of Government guaranteed, low interest businesses loans, possibly forgivable if employees are retained, is hitting bank created difficulties ranging from strict adherence to traditional underwriting practices(?) (!), to whether a potential borrower had an checking account with them for a certain period of time. Some banks are apparently complaining the interest rates on these loans are too low.

The spot freight market of trucking freight availability has declined about 30%, from peak intraday loads of about 45,000 to 32,000 on my company's electronic load board in the last two weeks for dry van loads. The number of trucking loads on the can be very volatile, is a small subset of all loads, and is very sensitive to small economic and regulatory changes. My subjective interpretation of this decline is that it's worrisome, especially at this time of year, but does not imply economic catastrophe.

Demand destruction in energy infrastructure spending, in retail, and especially in other capital goods are increasingly looking like it will longer term than what some may have initially anticipated. It does not seem like the stock markets haste fully priced this possibility in. Or does it even matter with our "Through the floorboards" Fed?
 
Closed my ES fly Sunday night at 18.00, which was slightly better than break even. After about an hour or so, I noticed a very tight range form on the one minute chart for about 5 minutes are so. The bids were getting hit, but would not budge. Later, much larger size came in and finally was able to penetrate the lower end of the range by a significant amount. However, it seemed to me the 2735 to 2745 area had major support looking at the action in the DOM. I decided there was strong underlying support for the market and closed my position after more evidence of strength was found.

The tough part to know is if the apparent support is nearly "immutable" or could be gone on the next test. I went with "Immutable" because of the ability of prices to bounce back after such an onslaught of selling. The weird part was why didn't the sellers, upon finding such strong bids, simply back off and stayed at the offer instead of slamming the bids so aggressively? Also on my mind was what the US Session would bring. My conclusion is we are in a bull market and it is best to use bullish strategies on the dips until proven otherwise. Proven otherwise means for me a close below a prior week's low on ES.
 
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