At one point last week every single position I had on was looking bad.
I ended up closing my JJC spread just before expiration. It was a winner at one point, but I held it to long, and when I went to get rid of it I realized there wasn't enough liquidity. This is a familiar pattern with my options trading thus far. The losers have been the ones where there wasn't enough liquidity. Duh.
So that's a lesson learned. Stick with the big names with lots of volume on the strikes I am trading.
I had another spread in USO, which is about as liquid as they get, bullish, and I managed that one at 50%. Good fishin'.
I've got a contrarian spread in SPY and one in TLT. I think I will just keep doing the contrarian thing until my FOMO behavior is well regulated.
As for my vol strategy, last week was good and I am up on my XIV and short UVXY spread. I will manage the both of those next week if the Greeks behave themselves. I have losing position in ZIV that I entered at the way wrong price, and I think I will close that one too, take the loss and reload at the next signal on VIX.
So the Vol trading has been a good proof of concept. Very good return on capital despite lousy execution. I need to work on the execution, enter at the right time. My indicator said go long XIV at 26 on Feb 9th, which would be up 18%. I sat on my hands.
Progress not perfection.
I need to get more mechanical. One means toward this end is that I am now trading a checklist, both for Vol ETFs and options. This is something I had wanted to do since day one, but could never figure out what I wanted the checklist to say.
Liquidity and execution are gonna be the focus for next week.
Trading by checklist this week. I like being locked in by the structure of the checklist.
First big win with options this past week, closed my UVYX short at 90% max profit, 11 days to expiration. I played this one really well. Maybe I could have managed it a day or two earlier is all. Then I promptly turned around and opened another UVXY directional play.
I closed out my JJC short copper position close to expiration for a small loss. This was a case of FOMO and poor liquidity. Bad trade, let's move on.
In the volatility long equity trading, I am holding fast until my indicators change. We had a remarkable 35% run in XIV since Feb 9, and though I was poorly positioned on that, having entered at 30, contrary to the indicators (FOMO, impatience), anyway, I am above water now, and this turns out to be the best trade I have made to date.
I also have a too-big ZIV equity position that I entered even more poorly, at 43 (FOMO, impatience), and that one is also about to come out of the water. Once I close that one, since it's in my options account, I am going to re-deploy the capital with VIX options. Going forward I may just focus on trading volatility products in the options account, really get that strategy down cold.
Patiently following the indicators mechanically is the antidote to FOMO. This is what I need to focus on.
Also, for my Long ETF Rotation strategy #1, from March I am shifting from global markets to a 50/50 mix of short SPXS and short TMF. This is the so-called convexity capture hedge -- it allows you to capture the roll yield on the leveraged ETFs (same strategy as with XIV and ZIV -- "contango always wins in the end").
Actually, I don't want to be long either of these at the moment, so I may sit on the sidelines for awhile longer. Going fishing until some of this froth in the market blows off a bit. Maybe I will just dial the size on this strategy way back and put the trade on, just so I can have some skin in the game.
A side note, I did some poking around on my Japanese brokerage account this week. I don't use it. I was delighted to discover, way down at the bottom of the ETF listing, that they are now, at last, offering a VIX based ETF on the TSE. I think this one shadows VXX. Anyway, it trades during the daytime here in Japan, has pretty decent volume, so that looks like it might be offer some fun scalping, give us something to do here during the daytime. Something for our kids to watch on the screen. Dunno yet if there are options on it.
Strategy #2, long equity vol products: still holding fast on my core XIV position. Not much upside possibility on that one, so I am very tempted to manage it 80/20, then sit around until vol picks up.
Strategy #1: Not rotation trading either SPY or TLT now. Time to go fishing.
Strategy #3 In my options learning account, I have been learning some things about money management. Decided to increase the capital in the account, duh. I have been mopping up the bad trades from the first month doing this. Today I closed my ZIV position for a small loss. Bad trade, OK, next. For now, I have only one bad position still on, a single contract bet on CBI. I say it's bad not because it's a loser but because it's the last of my FOMO trades. Bad thinking.
Meanwhile, with bonds moving down in Feb and then SPY moving on Friday, I have been learning a couple of things about delta neutrality. I am actually starting to look at the portfolio delta number on the platform. Golly gee, what a concept. I now have both bearish and bullish positions in UVXY.
In the volatility forum had a discussion yesterday about using SVXY options for hedging long equity positions in XIV. Feh. My perspective now is that for me SVXY is untradeable, just not enough liquidity. With UVXY we had a single point spread on Friday and 24 million shares traded. As long as you can keep it small and "tame the most savage beast" using defined risk, UVXY is the way to go. Selling a short put on UVXY monthlies when VIX is down like at present.
When I started out on my Strategy #2 trading volatility products, I reluctantly embraced the notion of long equity with the primary vehicles being XIV and ZIV, with a preference for ZIV. However, since I started trading options, I have begun to believe that the idea of position trading XIV is not the way to go. With options I can get the same result with much less risk and much less capital deployed. The tradeoff is that I really have to be a lot more active managing the options trades.
Hence the getting up at 5 am. I am already used to it. I wake up at five am to trade the close now even without an alarm clock!
Last edited by suko; March 7th, 2015 at 09:11 PM.
Closed my core XIV position after hours today at 31.65, based on a "high probability" of change in the VXX indicator I use. I eked this one out for a 7% win, so the portolio is now solidly in the black for the first time since the ILF disaster in September, up a hard-fought 5% YTD.
In self-criticism, XIV was a bad FOMO trade that turned out OK. The reason I say this is that I made decision to enter at 30 on my own discretion, out of impatience and a desire to get some action (FOMO), rather than waiting for the indicator to turn. As a result, I ended up suffering a lot of brain damage as the trade went way underwater for awhile, as XIV trended down to 25. All that drama involving Greece and the Germans. Then on Feb. 9 when XIV was at 26.5 we had a buy indicator. Followed by a remarkable little run bringing us to where we closed today.
Patience. This is the best single word takeaway from Jesse Livermore.
Since last Friday I have been long Vol, starting with a 10 contract short put in UVXY. Today I closed my core XIV and reloaded with a bunch of UVXY equity. In honor of this, here's a great little quote from "Fooled by Randomness," this maybe my only takeaway from the book but it's a good one (and it's a quote I need to keep above my desktop if I am going to trade Vol):
"One weekend Soros exhibited in his discussion a large amount of bearishness, with a complicated series of arguments that the narrator could not follow. He was obviously short the market. A few days later, the market rallied violently, making record highs. The protagonist worried about Soros, asking him at their subsequent tennis encounter if he was hurt. 'We made a killing.' Soros said. 'I changed my mind. We covered and we went very long.'
"What characterizes speculators like Soros from the rest is that their activities are devoid of path dependence. They are totally free from their past actions. Every day is a clean slate.
"There is a simple test to define path dependence of beliefs. Say you own a painting you bought for $20,000, and owing to rosy conditions in the market, it is now worth $40,000. If you owned no painting, would you still acquire it at the current price? If you would not, you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate ó only an emotional investment. Many people get married to ideas al the way to the graveÖ.Some medical researchers find that purely rational behavior on a part of humans is a sign of a defect in the amygdala, that the subject is, literally, a psychopath. Could Soros have a genetic flaw that makes him rational as a decision maker?"
Closed a little credit spread in GOOG this week at 90% max profit. Now short FXI, IWM, TLT and SBUX.
I have a couple spreads long UXVY and VXX that are kicking my ass. Rolled to May.
Didn't follow my vol indicators, too early to be long Vol. Same story in my equity account. Sold my core XIV position way, way too early on a false signal at 31.6, now I a raging with FOMO as XIV flirts with 40.
Looking at PL thus far on my options account, win ratio is about 50/50 on 20 trades. Account was actually in the black at one point last month, a pleasant surprise. (I don't actually expect to be in the black as an options newbie in a low volatility environment.) Now we are back underwater due to the long Vol positions, and I guess I will just have to wait for some mean reversion.
Amazing how long/short delta status affects political views. Last month when I was short I was praying for the Greeks to behave themselves and pay their debts, lazy fucks, and hoping for Vlad the Impaler to grease his tanktreads with some guts. Now that I am long delta I am all pissed off that Greece and Russia are all kissy kissy.