Progress Reports Here

H

handelaar.nl

A short update today. It was a really long day.

First of all, I managed to subscribe all my tickers to my news sources so that I have easy access to their developments. So now I have instant access to news related to them on Bloomberg, the WSJ, seekingalpha and a couple others. Besides my initial ten tickers, I decided to add AAPL, GLD and TQQQ to my watch list. They seem liquid enough to be able to trade options on them. And I enjoy reading about them, so I thought ‘why not?’.

I further tried to find some analyst reports on the ten tickers, like I set out on my game plan, but I could not find them. Next time I will try to find information from other sources, such as Google Scholar or my university’s database. And if that does not work out, I’ll just take a trip down the seekingalpha blog and read those in-depth analysis.

Another thing that happened is that I got a message from another trader in Trader Elite, and he shared with me some nice strategies using covered calls, which I set up in my paper account at IBKR. (The interface is overwhelming sometimes!) I spent some time thinking about the strategy, and I think I get the basics of how it works; it does not seem that difficult. With time I will understand more and more the ins-and-outs of it.

I also joined an "introduction call" with the guys at Option Alpha. However, I was not convinced of their methodology. They were saying that you only needed to work at it 30 min. per day, that you could do it on the side, that it did not require any effort. Etc. Etc. Well, that sounds boring. I would much rather work and study options trading for 9+ hours every day and learn a lot faster. And become better faster. And start earning money faster. Sure it takes time, but that does not mean you cannot accelerate the process. And I guess this ‘laziness’ also shows in their rate of return: they were capping it at 10% annualized. But it does not seem unrealistic to assume that you can make a lot more than that. note that I am not completely hating them… I guess there are people that only want to put only the 30 min a day, and for those people this might be a nice community. But I think I am out before getting in there.

Finally, I set up a WordPress blog in which I will write some findings and notes that I experience during my learning curve. For example, these journal entries are also posted there. I feel that writing these things out, even if it’s just for an audience of one, really helps me cement the knowledge and keep me on track. The blog is bullishwolf.blogspot.com if you would be interested.

All further journal entries will be posted as reply to this thread, by the way.
 
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OP, imagine how many 'individual' progress threads you'd have after several hundred newly created threads

suggest that you move your progress report(s) to the Journal thread & just keep one thread, do the daily weekly updates one after the other in the same thread
 
kboekholt said:
Besides my initial ten tickers, I decided to add AAPL, GLD and TQQQ to my watch list. They seem liquid enough to be able to trade options on them. And I enjoy reading about them, so I thought ‘why not?’.
More...

what are the other 10 ticker watchings?

as for your added three, lets see a progress report if & when you put real money trades to just those three & how you made money, what are the trades?

have you considered index futures?

on GLD, how would you make option money on that one?

have you looked at GDX or GDXJ
 
never2old said:
what are the other 10 ticker watchings?

as for your added three, lets see a progress report if & when you put real money trades to just those three & how you made money, what are the trades?

have you considered index futures?

on GLD, how would you make option money on that one?

have you looked at GDX or GDXJ
More...

Right now, these are my tickers. Not that I look at everything around them all the time, but I want to eventually learn their business like the palm of my hand:

Indices: SPY, EEM, QQQ, TQQQ
Equities: AAPL, MSFT, SHOP, JPM, XOM, BA
Commodities: GLD, SLV, USO

I will do report threads, that sounds like a great idea to analyze how trades work differently for different stocks.

And in regards to GLD, I have the hypothesis that there is a lot of price action that one could play based on economic fundamentals. For example, gold has shown to appreciate in those "flights to safety" where the markets are a little bit uncertain. Case in point was the recent COVID crisis where, although it crashedon the initial days, it eventually rallied to recover itself 18% of its March low. Also, the March drawdown was relatively tame at 13% (in comparison to indices). All together, it is up around 10% from February.

upload_2020-5-14_13-50-16.png
 
Progress Report 3

Today I spent some time trying to understand better the covered call strategy. Thereafter, I studied a slight modification of the covered call: the collar.

The covered call is a bullish low IV strategy, which you need to ‘milk’ by entering the strategy multiple times a year with short time horizons. At its basis, you can see the covered call as a ‘boost’ to the performance of owning the underlying stock. How it works is as follows:
  1. You buy a security which you think is going to appreciate in price.
  2. You write a call at a strike price which you expect to be out of the money by the time of expiration. A good idea would be to write the call ATM. Why exactly is not clear to me. It seems that ITM options in general have higher premiums than OTM, and I am hypothesizing that this higher premium is nothing intrinsic uch that, in general, selling an ITM option is more profitable for an option writer. But surely we don’t want to sell the option ITM because we don’t want to be assigned at maturity. Remember, since we are bullish, we are expecting the ATM call to end up OTM. An ATM option ending up OTM is more likely than an ITM option ending up OTM.
  3. The option maturity should be something more than four weeks from the selling date. This allows enough time for us to benefit from the price increase on the stock, and also to take advantage of the time decay of the option that benefits us as writers.
  4. Near the maturity date, we roll our position and start the cycle anew. But since we already hold the underlying, the only thing we need to do is write a new call ATM.
As you can see, you are benefitting from the price increase of the stock, but ‘milking’ it by getting that extra income from selling the options.

The collar is a similar strategy, but it protects your downside. You could implement this strategy on a stock you are bullish, but that is prone to shock events that could make the price drop considerably.

For tomorrow, I am going to set up a collar strategy in one of my twelve tickers. I think that a good one for this is SHOP. I am relatively bullish on the price of the stock going up. But given that it has already appreciated 200% since the March crash, it might be due for a correction. This makes it justifiable to protect our downside.

Another exciting thing tomorrow is that we are having a introduction call with a prop trading firm with some other students at my university via Zoom. I am still a bit more year from graduating, but I think it helps to already orientate myself in that path. When the time comes to go full into trading, I can be ready. As of now, I am still balancing learning about trading with my studies.

One last thing I did today was to write a python script to see the theoretical growth of an initial €10k invested in the stock markets under different conditions. One of the insights is that if one were to consistently have a 36% yearly return over 12 years (so 3% per month), as well as adding up €5k of outside equity YoY, becoming a millionaire in less than ten years is doable. A nice thought experiment.

This progress report has also been posted at bullishwolf.wordpress.com
 
handelaar.nl said:
Progress Report 3

One last thing I did today was to write a python script to see the theoretical growth of an initial €10k invested in the stock markets under different conditions.

One of the insights is that if one were to consistently have a 36% yearly return over 12 years (so 3% per month), as well as adding up €5k of outside equity YoY, becoming a millionaire in less than ten years is doable.
More...

imagine that - have you set yourself this target?

can you be better than the index returns, or definitely maybe better than Ray Dalio average 5.37%/yr with all his quants/Algo's

https://www.tipranks.com/hedge-funds/ray-dalio

or Warren Buffet

https://www.barchart.com/stocks/quotes/BRK.B/performance

key is your win rate & return on capital ROC, so even if your win rate was 50% with 36%/yr yoy you'd be as good as Jim Simons
 
never2old said:
imagine that - have you set yourself this target?

can you be better than the index returns, or definitely maybe better than Ray Dalio average 5.37%/yr with all his quants/Algo's

https://www.tipranks.com/hedge-funds/ray-dalio

or Warren Buffet

https://www.barchart.com/stocks/quotes/BRK.B/performance

key is your win rate & return on capital ROC, so even if your win rate was 50% with 36%/yr yoy you'd be as good as Jim Simons
More...

Short answer: Yes.

Long answer:

The benchmarks are wrong. And there are many vectors to explain why this is faulty, below are a few.

1. Most funds are constructed for capital preservation, NOT for alpha generation. Let's first focus on Ray Dalio's performance, and in particular in regards to the All-Weather portfolio. Ray Dalio explains it himself: "[the fund] is supposed to be able to weather any economic storm, manage risk exposure, and make steady returns over the long term." This teases out one big important truth about the hedge fund industry: they're just trying not to get wiped out. Most of them not really care for the upside, but on providing steady returns that their investors can manage. Think about it. Ray Dalio is managing money for people that are already billionaires or in any case incredibly high net-worth individuals or institutions. They do not really care about getting more more money. They care about safeguarding their capital and allowing that capital to provide a constant and steady stream of income. And this is why they go for Hedge Funds. The name implies it itself, they are there to hedge. And have they done what they promised? Many of the funds, they have. They are really good at managing losses in adverse market situations. Dalio's all-wheather portfolio has had a MDD of only 12%. No returns to kill for, but losses to not die from.

upload_2020-5-15_17-4-55.png

​
2. Incentives are misaligned. Let's take the standard 2/20 cost rule of a hedge fund. The fund gets 2% of all capital managed, plus an additional 20% of the gains made on capital. Uhmmm, ok. Now what is easier for a principal? To grow their fund to no end and continuously collect a sure 2% cost on their AUM, or try to generate alpha, which might be uncertain? Also take into account that as the fund gets bigger and bigger, it's more difficult to profit from market imperfections. Incentives are misaligned.

3. Funds do generate abnormal returns. And these are not necessarily 'funds', they're trading firms. You mentioned Simons, he generated an annualized average of 70% with the medallion fund. A fund I know from here where I live generated 60% last year. Some HFT firms generate consistent ROE of higher than 30%. Quantitative trading firms as well. I think it's not unreasonable to think that there is a trader in there that generates >40%. There is also plenty of traders here in ET that have those numbers.

4. And finally, people just don't want to believe. That it seems to good to be true. I am starting with the assumption that it isn't.

And on the note on being better than quants... Well, you only need to be half as good than Simons to still get 35% (he has annualized 70%).
 
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