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Got my ass kicked by Lady Vol, trying to be a contrarian. What did I learn?
1. contango always wins in the end
2. keep calm and trade on
3. if something isn't working, modify it.
So, I am going to tweak the trading plan for the Vol product trading to "rule based". Going to trade a combination of indicators strictly. The reason being that over the past 8 months I have seen unbelievable gains in the paper trading based on strict rules. Just letting the contango lumber on most of the time and then pulling back when Lady Vol gets a little crazy.
On the Options trading learning account, I have about a 50-something win ratio. I am going to strictly limit the size of all trades going forward to 1-contract and focus on getting the win rate up to 60%. I now realize that I really need much more capital to do better than about 60%, because the small account really limits you to relatively low probability trades.
Tweaked the trading plan this week. Following my Vol indicators now with hard rules.
Sold my XIV position and now sitting in cash until the indicators line up again. What I would
like to see is for this Greece thing to kick up a bunch of dust over the next week so that we can
put on a long Vol trade.
This year thus far the correctness of this Vol trading strategy with hard rules has been proven out.
We have basically been long XIV since 25 over the entire run up to 47 since February.
As for the options trading, I am going to re-orient to having UVXY as the core strategy. I've understand
that I've got some edge as to the directional assumption with UVXY, so I think I can just put on one
trade of a few contracts for each expiration cycle and let contango do its work. I am also going to continue
to add one more single contract trade at a time some highly liquid product like TLT. TLT been very good
to me this year. But I am going to try to keep it very simple and see if I can get the win rate and PL up some.
I am still trying to re-train/unlearn so that I can be more contrarian, mean-reversion oriented. My kneejerk
reaction in all situations is still FOMO. It's like my native language. I speak FOMO.
There is even some guy who fishes for blue fin tuna off Nantucket with a rod and reel -- out of a kayak.
The Greek Vol spike is over, so I went ahead and sold the 1552.t (VXX) shares for a profit. This was in the kids' accounts, and I made the trade more or less as a teaching point about crisis alpha and blood in the streets, so I am very happy that it turned out as a win.
These Vol spikes could be just regarded as "back up the truck" moments for the short Vol trade. UVXY will open at around 40 this morning with a fairly high vol percentile, so I will put on a call spread at the open in the August options.
Put my core position in XIV stock back on at 47.25. I don't like this setup all. I wanted to get in at 37 a week ago. But I am trading this account according to hard rules, and it took until today for my Vol indicators to signal a buy.
So it doesn't matter how I feel about the trade. We have already established that my feelings are irrelevant to setting up a trade.
Now, as for my options trading account....again, this account is for study purposes. I came close to blowing it up. Technically I did blow up, getting down to 48% of the starting balance recently during the Greece thing when UVXY spiked. Anyway, now that the UVXY trade has gone my way, the account is back to a viable level. I am going to take the position off on Monday morning at about 75% of max profit, then reload with another short Vol trade. So, the strategy for this account until I get it totally back into the black (which I am now confident I can do) is core position short Vol and then some one lot positions in things like TLT and FXI.
As a side note, I set up accounts for our kids and started trading them this month. The purpose is education on the one hand and saving for college, etc. on the other. Core strategy for these accounts, again, is short Vol. I found some re-branded vol ETFs traded on TSE -- 1553.T is VXX and 2049.T is XIV. With the kids we traded the first weekend of the Greek vol spike via VXX, then later put on XIV at 13,150 yen. Now the accounts are up 15%. Kids are also going to research and put on some small positions in Japanese stocks, probably retailers, for educational purposes.
My UVXY credit spread took some heat on Monday with the crash in Shanghai and I closed it at about 40%, then turned around and redeployed with a SEP 20 34 credit spread for 6.23 cr. in UVXY at 31.73 and an IVR of 46. UVXY immediately crushed back to 26 level, for a nice little overnight gain. I set the software to automatically close at 60%. So, that was deftly done, and I am now considerably ahead of where I was a week ago. I am now positioned with UVXY to cruise right into September.
I also sold a FCX SEP 11 14 call spread for 1.23 cr at an IVR of 90. I see this as a China play, and I am bearish on metals. Readers of this journal will recall that the last time I played copper was with JJC back in January, and I got killed, partly due to liquidity. Now I only trade liquid names.
Account balance is now looking a lot better an I am becoming more hopeful of pulling it off with the options trading. I am going to redeploy some capital from elsewhere and get this small account upgraded, as I am currently very limited in terms of strategies.
I see my playbook going forward as putting on monthly bread-and-butter core positions with strangles in SPY and credit spreads with UVXY, and then doing a lot of small miscellaneous trades like the FCX one above for learning purposes. I have a lot to learn.
As for my core equity position in XIV, I had a signal change on Monday after the Shanghai crash but I decided to just leave it on an extra day, because I foresaw myself getting whipsawn. It was a judgment call and I was right and now we are back. I am adding some refinements to my rules, hopefully avoid a bit more of this whipsaw.
Likewise, I left on the kids accounts positions in 2049.T (Tokyo market XIV) and the name broke through the 15000 yen level on Friday. I have the kids here with me in the cabin for the summer, and the market action is creating some engagement.
Took a bit of heat today with my long deltas. But I am still here, and still have lots of dry powder.
So I am going to focus on the opportunities that present themselves.
I had a big UVXY short call position on that I closed last week, perfect execution. Sold the 2049.T (XIV) positions in the kids' accounts. We bought a whole bunch of 1552.T (VXX) on Friday, Tuesday will take a profit. Pretty good execution so far.