So it finally happened.

F

fbirdien

So it finally happened. 27 % draw down on the nest egg in a day.
I am premium seller. Work full time as IT consultant, travel M-Th and juggle the investment. Feel terrible. Can’t believe could get into such a big hole after having 11 month of wining streak .Some how got through the day at work. Felt like total shit all evening. Sat down for couple of hours and mulled about what happened . After frustration, anger and kicking myself phase, I thought about the learnings / improvements/next steps:
1. Better Risk management –
Will create a risk model using Black Scholes model. Use this model to simulate the future market scenarios and monitor the risk everyday for the period position is held.
2. Entry & Exit point–
Will incorporate Economic events, fundamentals and TA (even though a rookie at TA). Backtest to determine the optimal exit point for losing positions
3. Back testing–
Back test the strategy on underlying and the option data before entering the position
4. Be less greedy and more patient -
Cut down the premium collected.
5. Never chase the market-
If market is moving against me , admit that I am wrong and move on.“ I can believe it went xyz % against me .. this is so not possible fundamentally … tomorrow it will move in my favor .. will make the adjustment/exit tomorrow..” so typical
6. Always, always , always cut loses-
Have read this in every other post on ET and in all the popular books….MILLION times… but still human nature ..easy said/read than done ..need discipline
7. Complacency Check-
Just because it worked for so many months it does not imply that it is going to work for this month.

I am not saying that implementing above points would be the Holy Grail. I am an engineer ( BS mechanical Engineering and MS Industrial Engg. ) but solving this problem is such a big challenge. Not sure what the litmus test is 1 yr , 2 yr , 3yr 5yr. Few small whipsaws in the past 2 weeks and here I am down 27 %. But part of it might be the new instrument that I have adopted since last 3 months.. not sure . I worked through VIX in 50’s and 40’s earlier this year and was up 19% ( compounded) YTD on March 9 when S&P was down 24%.

Cannot discuss with the loved ones why I look so upset. Cannot explain to them why the hell I am in big shit when Dow went up 600 pt in a week. ET is a good place to get a perspective from folks as they get it . After a devastating 08 and months of working hard to b/e in 09, gave back everything to the market. But I am not going to give up

Would appreciate input/comments on the 7 points that I mentioned to enhance overall process in 2010.
 
Fuck it brother. Its only money. You takes your shots you pay the price.
You know what you need to fix so fix it.

Learn from your mistakes but don't dwell on them.
If you look in the rearview mirror long enough, you are going to crash head on into that tree.
 
Quote from fbirdien:

So it finally happened. 27 % draw down on the nest egg in a day.
I am premium seller. Work full time as IT consultant, travel M-Th and juggle the investment. Feel terrible. Can’t believe could get into such a big hole after having 11 month of wining streak .Some how got through the day at work. Felt like total shit all evening. Sat down for couple of hours and mulled about what happened . After frustration, anger and kicking myself phase, I thought about the learnings / improvements/next steps:
1. Better Risk management –
Will create a risk model using Black Scholes model. Use this model to simulate the future market scenarios and monitor the risk everyday for the period position is held.
2. Entry & Exit point–
Will incorporate Economic events, fundamentals and TA (even though a rookie at TA). Backtest to determine the optimal exit point for losing positions
3. Back testing–
Back test the strategy on underlying and the option data before entering the position
4. Be less greedy and more patient -
Cut down the premium collected.
5. Never chase the market-
If market is moving against me , admit that I am wrong and move on.“ I can believe it went xyz % against me .. this is so not possible fundamentally … tomorrow it will move in my favor .. will make the adjustment/exit tomorrow..” so typical
6. Always, always , always cut loses-
Have read this in every other post on ET and in all the popular books….MILLION times… but still human nature ..easy said/read than done ..need discipline
7. Complacency Check-
Just because it worked for so many months it does not imply that it is going to work for this month.

I am not saying that implementing above points would be the Holy Grail. I am an engineer ( BS mechanical Engineering and MS Industrial Engg. ) but solving this problem is such a big challenge. Not sure what the litmus test is 1 yr , 2 yr , 3yr 5yr. Few small whipsaws in the past 2 weeks and here I am down 27 %. But part of it might be the new instrument that I have adopted since last 3 months.. not sure . I worked through VIX in 50’s and 40’s earlier this year and was up 19% ( compounded) YTD on March 9 when S&P was down 24%.

Cannot discuss with the loved ones why I look so upset. Cannot explain to them why the hell I am in big shit when Dow went up 600 pt in a week. ET is a good place to get a perspective from folks as they get it . After a devastating 08 and months of working hard to b/e in 09, gave back everything to the market. But I am not going to give up

Would appreciate input/comments on the 7 points that I mentioned to enhance overall process in 2010.
More...

Your a smart guy... Would you wager and play a 1 minute chess game against a computer? Set your computer up to monitor and manage your trading strategies.
 
Nice to see an engineer on here. BSEE here. Good luck, persistence is the name of the game. You won't make the same mistakes next time.
 
Don't worry man, it happens; I mean, it's tough, but it is the price of learning. my humble 2 cents for you: take some days off trading. Then, implement the steps you mentioned above, or implement just the following steP:

Decide an maximum amount that you are willing to lose in a daily and monthly basis, and do stick to it with heart and soul. That is a liberating thing. And, if you have a bad streak, take smaller positions until you start getting it right again, even do the simulator if necessary (for some time until regaining confidence).

All the best
 
Quote from fbirdien:

So it finally happened. 27 % draw down on the nest egg in a day.
I am premium seller... Can’t believe could get into such a big hole after having 11 month of wining streak...
More...

That's the nature of premium selling - one bad trade can wipe out months of profits. Obviously the key is to avoid these bad trades by using proper position sizing and risk management.
 
You've shifted risk farther out on the bell curve but assumed more magnitude of risk doing it, thus 11 months of profits in the friendly 97% of the curve, and a large loss on the tail. Unless you sell mis-priced premium, or have an edge, it's possible you'll break-even before commissions in the long run.
 
I would be interested to know if your loss is in one position or multiple positions.
I had a recent similar loss on CVS but that was only one of 15 positions I held at the time and thus less devastating to my portfolio. I was able to hold my position on CVS while it improved and make a counter trade that also mitigated my losses.
ddefina is right...on average we play a losing game, unless we have an edge.
 
Quote from fbirdien:

So it finally happened. 27 % draw down on the nest egg in a day.
I am premium seller. Work full time as IT consultant, travel M-Th and juggle the investment. Feel terrible. Can’t believe could get into such a big hole after having 11 month of wining streak .Some how got through the day at work. Felt like total shit all evening. Sat down for couple of hours and mulled about what happened . After frustration, anger and kicking myself phase, I thought about the learnings / improvements/next steps:
1. Better Risk management –
Will create a risk model using Black Scholes model. Use this model to simulate the future market scenarios and monitor the risk everyday for the period position is held.
2. Entry & Exit point–
Will incorporate Economic events, fundamentals and TA (even though a rookie at TA). Backtest to determine the optimal exit point for losing positions
3. Back testing–
Back test the strategy on underlying and the option data before entering the position
4. Be less greedy and more patient -
Cut down the premium collected.
5. Never chase the market-
If market is moving against me , admit that I am wrong and move on.“ I can believe it went xyz % against me .. this is so not possible fundamentally … tomorrow it will move in my favor .. will make the adjustment/exit tomorrow..” so typical
6. Always, always , always cut loses-
Have read this in every other post on ET and in all the popular books….MILLION times… but still human nature ..easy said/read than done ..need discipline
7. Complacency Check-
Just because it worked for so many months it does not imply that it is going to work for this month.

I am not saying that implementing above points would be the Holy Grail. I am an engineer ( BS mechanical Engineering and MS Industrial Engg. ) but solving this problem is such a big challenge. Not sure what the litmus test is 1 yr , 2 yr , 3yr 5yr. Few small whipsaws in the past 2 weeks and here I am down 27 %. But part of it might be the new instrument that I have adopted since last 3 months.. not sure . I worked through VIX in 50’s and 40’s earlier this year and was up 19% ( compounded) YTD on March 9 when S&P was down 24%.

Cannot discuss with the loved ones why I look so upset. Cannot explain to them why the hell I am in big shit when Dow went up 600 pt in a week. ET is a good place to get a perspective from folks as they get it . After a devastating 08 and months of working hard to b/e in 09, gave back everything to the market. But I am not going to give up

Would appreciate input/comments on the 7 points that I mentioned to enhance overall process in 2010.
More...
so what exactly did you do?
 
Quote from vhehn:

so what exactly did you do?
More...

Yes, I agree. The details would be helpful not only for us but for yourself as well.

For example:

What instrument (s) were you using?

How did the size on this position (these positions) differ from your other trades?

How long did you wait before adjusting/closing positions?

What exactly would you have done differently in hindsight on this (these) positions?

AZD
 
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