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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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Following on from @datahogg comments on Vol this year, I thought this might interest people. It's an interesting discussion on the cyclical nature of Volatility and Treasury Curve Slope
CME:- VIX-Yield Curve: At the Door of High Volatility?
Awesome thread! I am new on this forum but have been trading options for awhile. Many credits to Ron and others for their massive contributions to provide value here.
Just wondering if anyone here experimented with /NQ compared to /ES? And would using the strategies mentioned here be not just suitable for /NQ, but also being able to provide a higher ROI%. As /NQ tend to give better premiums than /ES
Also, Ron mentioned that the short1 5delta and long2 1.5delta will be safe from a flash crash but is weak to a slow -20%+ drop. Has anyone considered other hedging strategies on that end?
I came across the Space Trip Trade (STT), by Ron Bertino. Which seems to be good at doing exactly that, benefiting from a black swan drop. Perhaps seasoned members can take a look and see if a variation of this hedge trade can compliment the strategies mentioned here?
I tried to do this trade on Dec 1 in ES. But it didn't work out because it had a negative value. The longs cost more than the shorts were worth. So I widened the spread on the put credit spread to 50 points.
When I entered all of the info into XLS-SPAN I got a ROI of 0.4% for his trade and 4.0% for my current version spread when exiting at 50% drop in net premium. The initial credit was $10 higher on my spread with $46 less IM.
One big difference is I had a 150 lower point where you started to lose money (Where the short of the credit spread went ITM).
So back Nov 28 I didn't reenter my ES spread trade because I was worried about the US Congress passing a tax cut bill that satisfied stock holders. I was also worried about the Dec 8 deadline for funding the gov or else there could be a gov shutdown which would cause ES to drop.
The tax cut passed and they have extended the deadline twice for funding the gov. It is now Jan 19.
So I am trying to decide whether to reenter new positions now or keep waiting until they finally fund the gov.
I am leaning towards reentering. Anybody else have an opinion on this?
If I had reentered ES spreads the day I exited I would have exited that position at 50% drop on Dec 15 (18 Days Held) with 64.40 net profit each. Ouch!
I would have then entered a new position that would be up $6.90 each now.
This is another lesson for myself to quit trying to be smarter than the market and to ignore almost everything and keep adding new positions when old ones are exited.
It's is impossible to time the market the majority of the time. It is impossible to predict where the market will be most of the time.
This is a quiet week. I am closing out some positions that are ready - time wise. A lot of volume will probably
begin the first week in January. I am going to wait to open anything to see what the first week looks like.
How did you determine that a 50% drop was the optimum time to close a position? Does the second 50% pose
a significant increase in risk?
I think your last thought summed it up. We just can't predict what's going to happen with this rally. Even Carley Garner kept predicting an end to it that hasn't happened. In the past 15 months I've completed 21 trades on ES puts (all winners) however I under-traded the quantities because I kept fearing this rally will end. At some point it will end and I'll likely take a loss however it will only be a small dent in my accumulated winnings because I won't let any losers get out of hand. So I'm starting to get braver and sell slightly larger quantities. This trade feels more like running a casino, a pure gamble but with the odds tilted in our favor.
Our studies have indicated that entering a trade 90-120 DTE that you hit 50% drop in an average of about 28 days. So it would take another 62 to 92 days to get the other 50%. ROI on the first 50% drop is far higher than the second 50%. So rather than get that low ROI on the second 50% drop it is far better to move to new positions.
The results of the exit point are informative; see below.
A couple things to note:
50% or maybe 60% appears to be optimal
Strategy #2 at 4x IM is more risky. Waiting until premium is 30% or 40% of initial could have you hit a margin …
In my opinion this trade does make sense until a stop signal in the chart is reached. Whereever this stop signal is defined - there are different opinions in this thread. But I think we agree that currently no stop signal is hit.
If I am not invested in this concept all year round it is because I see more profitable trades in the commodities. But I hold ES puts most of the time.
This is a really interesting piece! I mainly read it as a way to try and figure out wtf was going on in that chart, but they explain the concept really well and actually it's come at an interesting time when I've just started revisiting old notes on the yield curve - in particular 2s 10s and the consequences of an inverted yield curve. I guess we are coming into the late stage expansion but as with everything it could be difficult to tell when things might take a turn for the worse.
Perhaps if managing a retirement portfolio or any other conservative portfolio/fund, taking a more protective stance during this period would be a sensible choice. Sure you may lose up to 2 years of performance but you'll hopefully protect yourself from any shocks and have dry powder when favorable opportunities arise again?
