Two Years of Trading Dangerously at 84% Annualized Returns

[ironchef]

If you have a strategy that has been profitable since 2014, more power to you, brother!

I didn't say it has been profitable since 2014, just said I used the same strategy since 2014.

 

[ironchef]

Right now, my focus is on NDX/SPX based insurance debit spreads that "decays" into small profit window.

My head is spinning reading it. Obviously beyond my pay grade.

I should study up on more complex options strategies instead of just doing directional bets.

Take care.

 

[InTheMaking]

My head is spinning reading it. Obviously beyond my pay grade.

I should study up on more complex options strategies instead of just doing directional bets.

Take care.

NDX/SPX insurance is helping! I believe NDX will consolidate below 7000 till a month prior to next earnings. Hopefully by that time, I'll have completely liquidated. This market feels so overbought and with VIX rising the resistance is building up.

@ironchef
here's an example of NDX insurance trade
A PUT Bearish Butterfly Spread. Pick a strike 100 points below the current price of NDX. Sell 2 PUTS and buy a long PUT 150 points above and below the short strikes.

I had bought the following construct when NDX was at 7020

-2P NDX@6950
+1P NDX@6800
+1P NDX@7100

This is an insurance hedge for a bull market and ought be profitable if NDX drops from current price to 6900 or increases to 7100. Its expensive at $30 a slice, and if NDX pins at 6950, strike price of the short PUT, the slice will be worth $150 (or 5x profit). Close it at 100% to 150% loss.

Your other insurance hedge against a loss is to completely liquidate, :/

 

[sss12]

Hmm, savant? I doubt it. But, obsessive compulsive, yes!
Unlike most people on this forum, I trade options full-time. I've been glued to the monitors since April of 2016. Fortunately, I didn't have the the distraction of a J-O-B.

And my other businesses are based on rent-generating assets. So it doesn't take much time once the paperwork is done. I just have to acquire the asset for best discounted price (cheap long calls) and sign a customer with best possible rent that the market can give (high theta) for longest possible lease cycle (low gamma and low delta risk) to a candidate that's less likely to default (low vega). Once that is done, its just collecting rent (theta), protected by insurance (long put). Asset occasionally requires maintenance and service (fees). At the end of the day, its no different from trading options. The "permanency" of my other business, affords a certain level of security and thus more risk-taking on my trading side.

But, there's also something to be said about mindset in the field of options. First 6 months of trading, I was stuck in the 10 to 20% return mindset by selling premium. Then during a cocktail conversation with another option trader who wrote credit spreads on pharma stocks revealed to me that he got a 120% return (450k, i think) for 2015. This revelation changed my mindset. Although, I don't agree with his technique of selling credit spreads on pharma companies waiting for FDA approval, it goes to show you that once you come across a real-life person who can do triple digit returns, the whole new realm of possibilities just open up.

And lets not forget this. WE'RE IN A BULL MARKET! Most of those who took risks, have been favored by luck.

I like your real estate/land lord comparison but, getting the best possible tennent with low default risk and willing to pay high rent on a long lease cycle is just as hard in reality as it is to find those characteristics (Greeks) in an option trade. Also maintenace on real estate is just like fees...it is a constant, not occasional cost that has to be factored in.

 

[InTheMaking]

I like your real estate/land lord comparison but, getting the best possible tennent with low default risk and willing to pay high rent on a long lease cycle is just as hard in reality as it is to find those characteristics (Greeks) in an option trade. Also maintenace on real estate is just like fees...it is a constant, not occasional cost that has to be factored in.

Thanks for the feedback!

Real-Estate management was a learning exercise just like Options. I hated the volatility associated with short options, so I studied about Vega and how to account for delta/vega risk factors. One of the ways, I was able to better smoothen out my equity curve. However, last two days I suffered a 2% DD,

BTW, the above example is not Real-Estate. Its equipment leasing.
But, your're right! In RE, tenant selection is key. Beyond doing a credit check, there are other factors to maintaining a long-term tenant; Divorcee? / Single-Mom with BF? / Obesity (yes, I said it) / Job Type (Will Amazon take it away?). And as you know best credit is not good either. They will end up buying a house and you need to search for a new tenant every year. I don't do regular tenants any more in real-estate. I hated having to show homes every year. I sign 7-year leases with some non-profits for my residentials. For apartment rentals, I focus on section-8 gov't programs. Both are less management headaches.

Yup! Maintenance is pain! Still reeling from the pain of spending 3 grand on an apartment plumbing. I've got a few handymen who take care of my properties and hopefully will not rip me off. HVAC guys, I hate. They always overcharge me. The real solution is to start an HVAC servicing company to lower the costs. I take my handymen out drinking to make sure they don't screw me over. Now, only if I could take my TSLA straddles out drinking,

 

[sfwind]

NDX/SPX insurance is helping! I believe NDX will consolidate below 7000 till a month prior to next earnings. Hopefully by that time, I'll have completely liquidated. This market feels so overbought and with VIX rising the resistance is building up.

@ironchef
here's an example of NDX insurance trade
A PUT Bearish Butterfly Spread. Pick a strike 100 points below the current price of NDX. Sell 2 PUTS and buy a long PUT 150 points above and below the short strikes.

I had bought the following construct when NDX was at 7020

-2P NDX@6950
+1P NDX@6800
+1P NDX@7100

This is an insurance hedge for a bull market and ought be profitable if NDX drops from current price to 6900 or increases to 7100. Its expensive at $30 a slice, and if NDX pins at 6950, strike price of the short PUT, the slice will be worth $150 (or 5x profit). Close it at 100% to 150% loss.

Your other insurance hedge against a loss is to completely liquidate, :/

You may also write a bearish call spread further out of the money to finance the put side since it won't require additional margin.

 

[InTheMaking]

You may also write a bearish call spread further out of the money to finance the put side since it won't require additional margin.

I used to do bear call spreads when I first traded options and used to work pre-Trump, post-first-rate increase. Unless we get a true confirmation of a bear or neutral market, these things are dangerous in up markets. My personal observation of a slingshot move, can be painful. However, it's definitely something to be explored given yesterday's correction. I do have some call ratio backspreads on SPX, where i might make into bear call spreads if have another down day.

Regarding margin, during high VIX, my margin gets (negatively) impacted even with call spreads. IB hasn't been too forthcoming on how their PM calculations work. Makes it difficult to optimize position sizing.

 

[Mobh]

You are considerably more knowledgeable than I could ever claim. And more sophisticated. My strategy has been when Hull's moving average crosses from a sell to a buy, I purchase 5 ATM Call contracts. So on the 28th & the 2nd I bought 5 ATM for SPY, the last time I looked those purchases were ahead 113%. I also have been accumulating SPY calls since Oct. When Hull's moves from up to down, I'll either buy weekly puts or close all the positions-- I try to catch a flush with QQQ, so I close the calls.. I'm sure there will be people criticizing this, saying it's not going to work if we go into a bear market or get a crash. And that's probably true. But if the moving averages are heading down, I'm certainly visual enough to not go against it. I realize that having a 2 million dollar account is much different than having a 200 K account. So I can only offer my congratulation on your success in 2017.

New to the forum and learning option trading; may I ask do you buy long dated calls or shorter duration contracts like few months? Do you use a long term moving average like 200 days or shorter?
Thanks in advance

 

[julianantonio]

Hmm, savant? I doubt it. But, obsessive compulsive, yes!
Unlike most people on this forum, I trade options full-time. I've been glued to the monitors since April of 2016. Fortunately, I didn't have the the distraction of a J-O-B.

And my other businesses are based on rent-generating assets. So it doesn't take much time once the paperwork is done. I just have to acquire the asset for best discounted price (cheap long calls) and sign a customer with best possible rent that the market can give (high theta) for longest possible lease cycle (low gamma and low delta risk) to a candidate that's less likely to default (low vega). Once that is done, its just collecting rent (theta), protected by insurance (long put). Asset occasionally requires maintenance and service (fees). At the end of the day, its no different from trading options. The "permanency" of my other business, affords a certain level of security and thus more risk-taking on my trading side.

But, there's also something to be said about mindset in the field of options. First 6 months of trading, I was stuck in the 10 to 20% return mindset by selling premium. Then during a cocktail conversation with another option trader who wrote credit spreads on pharma stocks revealed to me that he got a 120% return (450k, i think) for 2015. This revelation changed my mindset. Although, I don't agree with his technique of selling credit spreads on pharma companies waiting for FDA approval, it goes to show you that once you come across a real-life person who can do triple digit returns, the whole new realm of possibilities just open up.

And lets not forget this. WE'RE IN A BULL MARKET! Most of those who took risks, have been favored by luck.

Hey I joined the forum to actually find other option traders, who are doing 'something interesting'.

I myself actually build spreads leg by leg, which a lag between completing the legs for more credit than the max assignment would be. I manage funds for an NY registered CTA. Are you on skype by any chance, would love a chat some time. Thanks, Jules.

 

[truetype]

I was once assigned 2000 shares of NFLX at 185 and for 1 week in December

A shame you didn't keep 'em!