Noregrets' "Double or Nothing" Volatility Trading Journal
- Thread starter noregrets
- Start date
Out at 12.37 for a 6.3% return on risk inc. commissions and the roll.
I feel very constrained in my position exits by the fact that I am trading 1-lots (my philosophy right now is that I am generally limiting myself to 1-lots until I am consistently profitable). For both this and the VIX position I would have scaled out of 1/3 right now and held the rest. However, since it is all or nothing, I feel compelled to take profits when they present themselves rather than slowly locking it in by scaling out gradually. Earlier in the journal I let the positions run longer but several times they completely turned against me and turned a nice profit into a loss so I am trying to be quicker with taking profits now. However, I have the feeling that in this case I am leaving profits on the table but feel that I have to protect what currently exists. I would welcome any advice that folks might have in this regard.
I don't as yet have a definitive answer for options trading because I haven't been trading options long enough to have worked out all I need to, but let me share with you what I am working on (from my past experience as a swing trader).
If you do not manage your R:R, you will never be consistently profitable. There are no 2 ways about this.
With options, I am looking at 2 forms of stop loss.
1) Where 100% loss of premium paid is the maximum acceptable loss.
2) Where a % of premium paid is the maximum acceptable loss. I am currently working on 30%, as I have more trades recorded I will look to optimise/reduce this. I will probably also separate by type of spread.
For (1), I do sometimes close early if it is obvious it is a goner. As for taking profits, I look to let the position run to expiration week/day to maximise return, but sometimes will take profits early if UL is moving out to the limits and/or I'm expecting headlines to cause severe fluctuations. As an example with an OTM calendar once the front month becomes ITM I will usually close unless I have good reason to believe it will fall back.
For (2), if under normal market conditions the bid is at -30%, I'll monitor to close. I will not close if the spread has widened because of a data release or such, because it will tighten. Yes, trying to finesse it sometimes means I lose more than 30%, and I do need more experience working bid-ask spreads in options. I'm used to tight spreads so it can be a little disconcerting looking at 20% or more with thinly traded stuff.
So in order to manage R:R, if I'm working on a 30% loss, I want at least 60% profits or better. As an example, I still have my TLT flies on, expiration this Friday, bid is +43% and I still have not closed even part of the position. Yes, it is a bit stressful with all the political BS going on, and what that should be doing to bond prices, but letting winners run is key.
As a rule of thumb, once I get over 50% profits, I'll give up to a third back, before 50% I'll give back half, below 20% I'll give back 2/3. These are based on peak intraday bid values for the spread. This was stuff I worked out back when, I may need to optimise for options but I'm using it in the meantime. Other folks have different levels, so take it for what it's worth.
Just to add, with spreads and a defined profit, I will also weigh what's left to gain against the risk, and close out if there is not much more to gain. No point chasing the last few bucks at the risk of good profits in hand.
Long the Oct VIX 14 put, 20 put, 20 call, and 30 call from 4.70. The premise is to take advantage of the increased VIX volatility, and the goal is to fly these off for zero cost or a net credit. Time decay here is non-trivial so will need to cut slingload on this within a few days if the hoped-for moves are not materializing. If the moves do materialize, this strategy is repeatable.
ââ¬ÅVolatility is blind to the sign of the moveââ¬ânot humans.ââ¬Â ââ¬â Nassim Taleb
ââ¬ÅVolatility is blind to the sign of the moveââ¬ânot humans.ââ¬Â ââ¬â Nassim Taleb