Progress Reports Here

Progress Report 13

A small update today. I spent the whole morning practicing mental mathematics, and the strategies are starting to get chiseled in my brain. So that is a good development. I will definitely be ready for the time when I will have to apply for the prop trading firms.

Besides that, I started reading the book "The Options Trader Hedge Fund", which basically sets out a strategy to make money by writing options. I think I will follow this strategy in my trading, but I still want to make it more "fun" by complementing it with some type of momentum trading. What I like about this book is that it sets out a "step-by-step" plan to consistently make income with options. This is super hand to have a basis from where to start from.
 
Progress Report 14

I forgot that the markets were closed today in the US for holidays, so I could not follow up in my trades as well I would have wanted to. I would have loved to sell some of my positions that have already netted me >20% over the last days, for example. On the same vein of keeping up with my trades, I realized I am not keeping up with them as good as I should. On Friday, I inadvertently let two of my option strategies expiry without closing. One of them was a covered call, so my stock got called away. Not a gigantic problem, but I would have definitely preferred to close that option than let it be exercised. The second was a bull spread on the USO, that I also did not close, leaving me holding 100 shares short of the ETP. Oh well, oh well. Next time I will pay more attention, and close the positions when I need to.

Looking forward, I will close some of the spreads that I opened around a week ago and try to make a small P&L analysis to understand a little bit of what happened with them. I put in the trades without really understanding what was going on at the beginning, but following the price movements has already provided me tons of information. In any case, it feels like this batch of trades has been quite profitable.

Further, I have been looking more into the "writing options model" and it looks like it would be a really good framework from which to operate. If you consider writing options as running an insurance business, you have to sources of income: the underwriting profit (the difference between the premiums that you receive and the cost of honoring the options that you get assigned) and the investment profit (the return that you make on the money that you receive from the premiums before you might have to give it back). I could use this framework to have an income-generating basis with low-risk by writing options, which I can complement with an aggressive momentum-driven swing-trading strategy. They would support each other and hopefully provide a superior return.

Lastly, some other things I have done today is mental mathematics, and focusing on getting my thesis done so that I free up more time for trading!

This entry has also been posted on bullishwolf.wordpress.com
 
Progress Report 15

I had a look at the trades I did last week, and decided to close a bear spread on Cinemark. This I did out of "feeling" because it seems that the markets are rallying this week on news that the world is opening up again. I know that "feeling" is not the best way to do discretionary trading, but given that I do not have a system, this is what I am going with.

I made a mistake with my SHOP bull spread. I hit the maximum profit on that spread on Friday already, but I did not sell. I could have sold it this morning, since SHOP started at a high price, but I was not paying attention, so I held on to it. A few hours after markets opened, the price crashed wit 5% and my spread became worthless. When I went to check, I saw that, got annoyed, and decided to close it right there and ended up losing more money that my "maximum loss". Very smart.

So how this happened is that the OTM option that I wrote still had some time value attached to it, so paying to close it was not the right decision; I should have let it expire worthless. Moreover, given that my call did not stand to lose anything more, there was another reason to hold on to it: over the next following days SHOP could have rebounded to a price where my spread still generated some profit. Not that it would be likely (I am not ‘hoping’), but it was possible. It was mathematically the right thing to do, but I did not wait. I just sold because I had it in my head that this is what I had to do today. In summary, main learnings from SHOP: (1) get out once most of your profit is realized. I could have done this, I did not, I lost the moneys. (2) Have a game plan to hold/sell your spreads. In this case it could have been (a) always exit when the underlying hits the top of your spread (b) sell the position at a 10%/20% loss with a stop-loss and (c) if the price gaps on you and the option is worthless, let it expire rather than close it yourself.

But, to be real, these experiences where I have actual positions (albeit in a paper trading account) are really helping me understand what the fuck is going in the markets and really drive me to pay attention to the learning process. It feels super exciting, and I hope I am acquiring the right tools that will serve me well, specially in regards to risk management. As many people have said: "it’s not the same paper trading than real trading because emotions and blah blah blah". True, but there are so many small mistakes that I can already correct in my paper trading that I really feel like this has been a good investment on time.

On the education front, I have managed to modify the code in the way I needed to get all the results for my thesis. It seems like I could have an early rough draft done by this weekend. I am doing my best to get this done. The sooner, the more time I have to dive deeper into options!

This entry has also been posted on bullishwolf.wordpress.com
 
Progress Report 16

Today I did a small P&L of my trades and the result is: If I had traded with my money, I would have lost 10%. This loss can be mostly attributed to the SHOP trade, which was a staggering -100%. Although I had some winners at SLV (+14%), XOM (+22%), they were not nearly enough to offset such a big loss. Due to this, I have become more mindful of position sizing. If SHOP would have been less of my money invested, say, my result would have not been as bad. Viceversa if my winners had had a bigger exposure. I think that for this, I should decide on a range per trade and adjust the range based on the risk of the trade. For example, I might say that any position I hold must be between 3%-8% of my portfolio capital depending on risk and probability of win. This range could change if the trade experiences some price swings, but at least I know that a fixed portion of my capital is at risk.

With those numbers, I closed the trade on XOM and BYND, the latter which was also a gain of 7%. Open remain EEM (-4%) and SLV (+17%). I will close them over the following week, as this have June07 expiry.

Further, I continued reading "The Inner Voice of Trading", which continues to highlight the importance of stoicism when a trader is facing losses. I am almost done with it, just one more chapter to go. Besides that, I am making big strides of progress with my thesis which I am aiming to finish by Tuesday next week now. I wanted to have it done this Sunday, and I am trying to meet that deadline. However, the code is taking quite a while to run, which is keeping me behind.
 
Progress Report 17

Very brief progress report today. I was focused most of the day in my thesis, and I made great strides on it. I am finishing my first draft without results and conclusions by tomorrow. Tomorrow I will invest at least 90 min. in thinking about new positions to open next week. Saturday I have the hackathon with a prop trading firm here in the NL and Sunday I will allocate at least half of the day for trading.

Today I closed my first batch of positions completely, I am now just holding cash (paper trading). The results are as follows:

ETPS:

  • UPRO (holding period: about a month): +22%
  • TQQQ (holding period: about a month): +12%
  • UDOW (holding period: about a month): +30%
Options:

  • EEM 35/39 bull spread (holding period: about a week): +2.5%
  • SLV 15.5/18.5 bull spread (holding period: about a week): +14%
I have been lucky with the bullish sentiment. But is it luck only when you act on the circumstances that surround you? Since I am quite optimistic by nature, I have a bullish bias on asset prices that is something that I have recently exploited for my advantage. But, at the same time, it would my blind spot if markets turn pessimistic. In any case, I should pay attention to this bias. Exploit it when it works, treat it with care when it might prompt me to insensible decisions.
 
Progress Report 18

Ok, some bad news today. I got rejected from the master’s research programme at my university so that kind of sucks. I did not see it coming. But, funnily enough, the other quantitative finance master’s that I am considering is so good that I was already sold on the idea of not doing the research master. But it’s still kind of weird, I felt a bit affected for being rejected for something that I actually did not really want to do. Second set of bad news is that I am not participating in the hackathon for the prop trading firm. The issue is that they require you to write your code in C++ or Java. And, even though I know some Java, I do not feel comfortable enough coding in that language to participate in such a competition (I like Python and code on Python a lot more). Play to your strengths, they say. So I told them that I wouldn’t take part on the competition, which they were kind enough to understand.

I spent a huge amount of time in researching option-like strategies on cryptocurrencies with small success. There is a company in the NL called deribit that offers options with bitcoin as underlying, but they are really expensive. Makes sense, though, since the underlying is so volatile and unpredictable already. Binance also offers some options, but they are only written by Binance and they have only one strike price. That’s very inconvenient. Lastly, there are some ETPs traded on the Swiss exchange that I thought might have a sweet liquid option cult following, but it does not seem that’s the case. Along the same lines, there is a possibility to play with bitcoin futures via the CBOE or CME, but that’s not my cup of tea. Conclusion: cryptos are not in its current form very viable to be traded with options.

And it makes sense, you know, options provide me huge leverage that increases my gain on small price swings. Small price swings are the exception rather than the rule with crypto, so this aspect of options is nothing valuable. Second, writing options can serve as some type of insurance, but it does not seem that a lot of crypto traders are in it for the ‘safety’ of it. But we will see, maybe there is some vector of attack that I have not figured out yet.

Besides what I shared above, I have also been looking at some screeners to play on high-momentum stocks. I have realized that these are mostly small-caps with not a big supporting options market. I want to look more into them tomorrow to see whether I can adjust the filters so that I get companies that show high momentum but also have options with high-open interest. Or maybe just play these small-caps without any options. But I am starting to figure out my trades for next week: some covered calls and naked puts as part of the writing game and some bull and bear spreads as part of the momentum game.
 
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Progress Report 19


If you remember from a few weeks back, I said that I would start tracking my time to understand where most of my attention had been going. After gathering almost two weeks po daily data, I can already provide some insights. Of all my allocatable time (that is, that is not sleeping), I spent a big chunk in my university studies–around 30%. This makes sense, since I have been putting good effort into trying to finish all assignments and related studies as soon as possible to have more free time for options. I am forecasting two more weeks that my time allocation will remain high for university, after which it will be slowly start to be taken up by options trading. The second activities where I spend most of time is either sports or options trading. Both of these fluctuate between 9%-15% percent over day, and sometimes I spent more in options trading, and sometimes I spend more in sport. In general, sports takes more of my time. For my time allocation to sports, there is not a lot I want to change. I like moving around and staying fit, so the percentages can only change at the margin. What I will try to do over the following days, though, is prepare a training plan that could be a bit more efficient so that fitness time allocation stays under the 12% average per day, but I still remain fit and healthy. After all, it is not really about the hours that you put in in this regard, but mostly about nutrition. Moreover, I spent relatively little chunks of my time with friends and family (around 6%), but I always try to make these moments with them valuable, so I am ok with this. Also a factor in these low numbers is the COVID-19 lockdown atmosphere. I expect this to change a bit, but only over the medium term (e.g. somewhere around September or so). Besides other things that draw my attention, I have lastly realized that my ‘taking breaks’ behavior is a little bit exaggerated, at an average of 30%; I can definitely do better.

Besides this time analysis, I spent some time today learning about technical analysis or ‘visual analysis’ as the author of the book I am reading likes to call it. And I have realized that I have been incredibly ignorant in my past investment decisions over the last 3 years for not taking into account this visual analysis. The author makes some really good points, but one of the ones that really hit me (and that I was naïve enough not to consider) was the fact that markets trend. I intuitively felt that this made sense: whatever goes up tends to keep on rising. However, you hear so much propaganda with statements such as past behavior is not indicative of future returns. And well, yeah, you can never predict anything with 100% certainty, but completely disregarding that past history gives you signals is also not the way to go about it. The author showcases the value of visual trading with the following example, when being asked to come up a list of companies that might be undervalued and might stand to win in the recent future:

‘I went back to my office and got out a long-term chart book showing price histories, going back several decades, for each stock. I simply noted the price levels where the stocks had peaked and troughed in the past, and which stocks were closest to those peaks and troughs. The entire project was completed the same afternoon.’
‘However, my report wasn’t submitted for another two weeks, which was how long it took my fundamental counterpart to complete his report. When both lists were submitted, the funny thing was that we both came up with essentially the same results. He had taken all of the fundamental factors, including historic price/earnings ratios and the like, into consideration to determine his numbers for historic valuations. I simply looked at the price histories of the stocks. We came up with the same numbers, but my task took two hours while his took two weeks. I learned two things from that. First, both approaches often give us the same results, demonstrating the enormous overlap between the two. Second, the chart approach is much quicker and doesn’t require much knowledge of the stocks in question.’

I think this idea of trending, though, has been something that I have been already engaging with, albeit on a sub-conscious level. I do watch price movements a lot, and a lot of the past trades I did were ‘gut feeling’. I think this gut feeling was me detecting a pattern in the market and acting on it. And it does not seem likely to be just luck, given that most of the times (I wouldn’t be surprised if it’s 80% or higher) my trend calls were correct. It’s good that I found some validation for these past decisions whose effectiveness I could not understand before.
 
Progress Report 20

Not a lot of movement today. I continued reading up on technical analysis, and that theory is dry.

Besides that, I spent most of the day creating my new workout plan which should now be more efficient and give me what I want in less time.

That’s it. No further news.
 
Progress Report 21

A few reports back I was criticizing Option Alpha for the initial introductory call I had to them. But I have to take that back since, although the initial call was indeed a disaster, the content that they have put up in their website is quite good. Today, I have been reading the ‘Master Guide to the Covered Call’ strategy, and it’s a perfect introduction to the ‘writing-options-as-a-business’ (from now own WOAH!) model that I have been trying to learn.

I will be trying to use this guide as a basis for the Python code I have already started working on. It will be the groundwork that will allow me to build all the functions for the covered call, and all related programs that I might find valuable. Think of calculators, backtesting, forecasted P&L, calculating the greeks of the options and etc., as I had earlier stated in one of my entries. Once the covered call is neatly written up in code, I can start with other strategies that will just reuse the code of the initial covered call code.

To conclude this blog, I want to give a status update on the goals I had set up a few days ago. Weirdly enough, I kind of forgot about them. I was sloppy enough to not add them to my to-do list so they were lost in one of my past entries. BUT I dug them up today and I am actually surprised that I had been subconsciously working towards this goals, and can now close two of them.

Learn how to apply option strategies to benefit from price action: upwards, downwards and sideways. Although I am not well acquainted with all strategies yet, this turned out not to be incredibly difficult:

  • Upwards movements: buy a call or a bull spread.
  • Downwards movements: buy a put or a bear spread.
  • Sideways: Look for smaller time horizons to benefit from a short-lived bull/bear trend and use one of the strategies mentioned before.
There are more ways in which to benefit from the momentum of the markets, but these are the ones that I stumbled upon and that I applied in my paper trading. Therefore, I am closing this commitment as I consider it ‘done’.

I need to understand how options provide leverage. In particular, I need to understand better the delta and gammas of options/options strategies because these represent the link of the price movement of an option in regards to the price movement of the underlying.

This is just delta of the option. Delta tells you how much the price of your option changes in regards to the price of the underlying. So simple, but I did not see it before. For an option contract of 100 deltas at 0.1, you get 1:1 leverage. 100 deltas at 0.2 gives you 2:1 leverage. I am also considering this commitment as done and therefore closing it.

Learn to read momentum and trends from price movement. Currently, I’m dipping my toes in the water of technical analysis (charting), but there might also be some interesting programming ideas to assess trends/momentum.

This has not yet been closed; it is a big endeavor. However, I have started looking into visual analysis and understanding the basics of it.

So there. Some of the commitments done, which allows me to come up with new goals. It is probably going to be something related to actual trade execution rather than learning. But also something to do with code, to get that ball rolling.
 
Progress Report 22


Small update today. I spent the whole day working in my thesis (besides a few distractions) and guess what! I have everything in place to finish it tomorrow. My initial deadline was set on Sunday, but that was overkill; I kind of overestimated myself. So I had to extend the deadline a bit until Wednesday. Today it was almost done but then I realized that the code–which takes like 6 hours to run–had some mistakes. Which means that I have to wait at least until tomorrow to have all the analysis ready. Still proud of myself, though. Finishing it on Wednesday will mean finishing it a full month before the final deadline… Which means that I will be able to free up more time for options! (Yay!)

In this blog, I am stating the new goals for the following weeks that I am going to accomplish:

Learn to read momentum and trends from price movement. Currently, I’m dipping my toes in the water of technical analysis (charting), but there might also be some interesting programming ideas to assess trends/momentum.

Same as before, I need to continue to learn how to read into momentum.

Write a fully-fledged program to decompose the anatomy of a covered call.

This is the goal I am most looking forward to. It will mean that a dive into programming, python for finance, quantitative modelling, plotting, etc. etc., which I love! A friend send me a book of a guy that wrote a lot of things for options in Python, and I already see how I could make some things so much better–at least better for my applications.

Make a option trade with my own money

Up until now, everything I have been doing has been with paper trading. I need to start trading in the real markets. I will thread carefully and choose a very ‘safe’ risk-defined strategy that still has a high upside. This will be a position with no more than 5% of my portfolio so that my losses are always capped at a small level.
 
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