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Posted

Thanks Yowster, very good analysis as usual.

 

My comments:

 

Overall, I'm very pleased with the results. We are getting more selective, and it shows up.

 

Straddles produced 4.26%, which some will call "mediocre gains", but we need to put things in perspective. First, average holding period of those trades is usually around 6 days, so 4.25% average return is 258% annualized return. Doesn't look so mediocre all the sudden. Second, it hedges our theta positive trades very nicely. To me, this is very decent result. Could be better, but I will take it. The performance was also impacted by big QIHU loss, which was completely unnecessary.

 

SPY/TLT combo is a new strategy introduced this year. The results could probably be slightly improved with better management, but on a year when both SPY and TLT were down, this is an acceptable result, especially considering that TLT volatility was much higher than usual, which is not good for this trade.

 

VIX trades: I agree regarding the broker, but most of those trades can be done with other brokers with slight variations. For example, the put calendar could be replaced with put credit spread. The only trade that was problematic executing with other brokers is the VIX call calendar.

 

The theta positive index trades is where I see room for improvement. The SPX calendar and fly big losses impacted the overall performance negatively.

Posted (edited)

Kim,

 

Sorry about using the term "mediocre" when referring to the straddle/strangle gains, "modest" would have been a more appropriate term to use.  The year to year increase in avg gain is also very good as you've gotten more selective.  You are certainly correct when calculating the annualized gain, although annualized gains of some of the other SO strategies are also high.  From my personal trading perspective, my biggest issue with the straddles is the amount of trade management involved with the rolls relative to the potential gain and not being available at all times during the trading day to react (darn "real job").  With my limited trading time, I only play a few of the straddles and spend more on strategies with higher potential gains and look to other vehicles for hedges to our theta positive trades.  When I'm finally able to retire and have more trading time, I may very well place more of these trades.

 

I just noticed that the QIHU trade you refer to is not yet in the "performance" tab, looks like the trades closed in December are not there yet.  I'll update the main post when those results show up in the performance tab but the straddle numbers will likely go down some because of QIHU and the index trades will go up a bit based on the profitable SPX butterfly closed in December.

Edited by Yowster
  • Upvote 1
Posted

Great Analysis. You are spot on.

My performance matches the results. I dont trade SPX strategies. I have traded only calendars and straddles and lately vix calendars as I opened IB account only for that purpose.

Of all the strategies, for sure VIX call calendars have the best returns/ lowest days in market and consistency.

Among straddles or calendars, my results are mixed. There have been periods of very high returns on straddles and periods of those consistent losses.

Calendars have been winners , but stocks did move causing gains to disappear in some cases.

 

There is place for both strategies and our choice based on IV  is the right thing to do. The results cannot be expected to be 100% , so even 80% winning is good enough to gain overall.

I am more biased to calendars as it has more winning % than straddles and gains are high enough to warrant a chance trade.

 

But straddle is a tough trade. Sometimes IV collapses like FDX, where gains just disappear in front of your eyes and helplessly we have to watch as we dont stop it out.

Straddle is extremely sensitive to IV and entry has to be more accurate than a calendar as well as both strike price / IV / timing has to considered. Also the problem of roll or not roll is another decision to constantly make.

With calendar the entry can be less accurate. Of course this is true with high priced stocks where calendar has wide range to prices to move. 

For low priced stocks, the range is very low and every tick is 10% of the trade or more.

 

Barring qihu trade, I had a tremendous year and I am getting better with entries and weighing risk/rewards of entries. 

Posted

Kim,

 

Sorry about using the term "mediocre" when referring to the straddle/strangle gains, "modest" would have been a more appropriate term to use.  The year to year increase in avg gain is also very good as you've gotten more selective.  You are certainly correct when calculating the annualized gain, although annualized gains of some of the other SO strategies are also high.  From my personal trading perspective, my biggest issue with the straddles is the amount of trade management involved with the rolls relative to the potential gain and not being available at all times during the trading day to react (darn "real job").  With my limited trading time, I only play a few of the straddles and spend more on strategies with higher potential gains and look to other vehicles for hedges to our theta positive trades.  When I'm finally able to retire and have more trading time, I may very well place more of these trades.

 

I just noticed that the QIHU trade you refer to is not yet in the "performance" tab, looks like the trades closed in December are not there yet.  I'll update the main post when those results show up in the performance tab but the straddle numbers will likely go down some because of QIHU and the index trades will go up a bit based on the profitable SPX butterfly closed in December.

I see your point regarding trade management. But there are ways to automate the rolling by setting GTC orders at our usual credits. And even if you miss some of the rolls, it's not ctitical and sometimes it can work in your favor. But considering short holding time and low risk, I think it is still worth to do those trades.

 

Also, remember that they can be very profitable during IV spikes. We missed the August spike, and things would look much better if we held 2-3 trades in August and got 25-30% gains on each.

  • Upvote 1
Posted

Note that I updated the main post in this thread today to reflect the December trades that Kim just added to the Performance Tab, the significant changes were:

  • Straddle/Strangle numbers went down, largely a result of the big QIHU loss (I did note the avg gain for the straddles/strangles if QIHU was excluded).
  • Index trade numbers improved as a result of successful SPX butterflies and SPY/TLT combo closed in December.
Posted

Since beginning to trade the Steady Options (SO) Alerts there have been 54 trades in the model SO portfolio for a net equity gain of 44.96%.  My parallel portfolio had net gain of 26.32% (a discrepancy of -18.44%.

 

25% of the discrepancy is explained by 8 non-SO trades I took with 5 winners and 3 losers but the 3 losers wiped out the gains on the winners.

The remaining 75% of my underperformance is explained by the following:   I managed to  gain entry and participate in all but 1 of the LOSING SO trades.  BUT  I was not able to enter 39% of the WINNING SO trades because the entry prices "ran away" from me after the SO alert.   All of the failed entries were on earnings trades of individual stocks.

 

Statistically, if I got a good entry price immediately this signaled that the trade was likely to be a loser.  If I was unable to get a good entry price (within 1% of official alert entry) it was likely to be a winning trade. 

 

Once in a trade I outperformed the SO trades by having better exits.  I had slightly smaller average losses on the losing trades and slightly higher gains on the winning trades.    On the pairs trades I did consistently better on every trade. 

 

The challenge, therefore, is to not have to wait for the SO alerts, particularly in stocks where the targeted strike prices have low liquidity.  Be quick on entry for earnings trades and patient to enter on non-earnings trades.

  • 5 weeks later...
Posted

Is there any separate forum where we can discuss monthly performance. Looks like 4 butterflies were able to balance loss on VIX calender.  we need one good trade so we can be in profit for this month. Hope AMZN helps on this.

 

  INTC 11% $110   4 butterlies 110% $1,100   Combo Loss -6.25% -$62.50   NFLX Loss -44% -$440         Unrealized Vix Strangle -12% -$120 Unrealized Vix Calender -100% -$1,000   1.8% commison on 10 trades -18% -$180       -$593
Posted

Yes, the only way to accurately measure a trade is when it closes. How many times have we had an negative trade eventually go positive? Also, if we happen to have a losing month or two, then we are traders in the market. Anybody who does not expect an occasional losing month or two is living in a fantasy world.

  • Upvote 1
Posted

Especially the RIC's which aren't really designed to show any profit until after earnings. The two we have open and the possible AMZN trade could completely swing the month in the next week.

Posted

 

Here is the performance so far.
INTC 11% $110
4 butterlies 110% $1,100
Combo Loss -6.25% -$62.50
NFLX Loss -44% -$440
 
Unrealized Vix Strangle -12% -$120
Unrealized Vix Calender -100% -$1,000
1.8% commison on 10 trades -18% -$180
 
 
Total Loss = -$593

 

Steadyabc,
 
As you mention, I'm not sure this is the proper thread for performance discussion, but here goes:
 
It's discouraging - I want to offer some empathy because I've had a bad losing month too. But that doesn't mean Kim's system doesn't work. I've missed a few of the SPX butterflies, and have experienced BAD losses on the trades I have gotten into. January has been a bad month for me. I admit that I myself have not been satisfied yet with my own consistency using Kim's system, but that's due to two reasons:
1.) I haven't yet matched his performance - I've come to believe simply following his alerts, you will NEVER match his performance - you must learn to anticipate and make this system your own (and the folks in this community are more than happy to help you do that)
2.) Losing streaks are expected (which is what I'll discuss for now)

Others have noted that the positions you listed aren't even closed yet - but for the sake of discussion, let's say they are.

 

Let's assume you're matching Kim's performance, and talk about losing streaks:
Even in the BEST systems, statistically, losing streaks are bound to happen. In fact, they can even be mathematically quantified by the following equation:
LS=ln(TS)/-ln(1-PW/100)
Where LS is the worst potential losing streak, TS is the trade sample, and PW is the probability of winning (ln is the natural log). 
 
Since inception, SO has experienced 831 trades, with a win ratio of 62.1%. This STATISTICALLY allows a worst-case losing streak of about 7. That means, that on ocassion, this strategy will experience 7 losers in a row. That's IF you match how well Kim does (and that's a big IF!). That's also assuming Gaussian distribution (which isn't the best assumption - meaning statistical anomalies are more likely than given in normality).
 
But the system works. The VAMI speaks for itself. It just needs time and consistency. 
 
Drawdowns can be pyschologically devastating though. If you have the time, I cannot recommend this talk highly enough (about 21 minutes in is where he talks about losing streaks):
 
Ask yourself - can you handle 7 losers in a row with a 10% allocation? To be conservative, let's assume each loser loses 50% - that's nearly a 35% draw-down on the account. If you require a lower risk tolerance, you should lower your allocation.
  • Upvote 1
Posted

"1.) I haven't yet matched his performance - I've come to believe simply following his alerts, you will NEVER match his performance - you must learn to anticipate and make this system your own (and the folks in this community are more than happy to help you do that)

2.) Losing streaks are expected (which is what I'll discuss for now)"
 
Absolutely agree on both. But to make this system your own, you need more than few weeks or even months. Those articles might help:
 

Why Retail Investors Lose Money In The Stock Market
Are You Ready For The Learning Curve?
Can you double your account every six months?
How to Calculate ROI in Options Trading
Performance Reporting: The Myths and The Reality
Are You EMOTIONALLY Ready To Lose?

 
"This STATISTICALLY allows a worst-case losing streak of about 7."
 
Agree. 
 
"To be conservative, let's assume each loser loses 50% - that's nearly a 35% draw-down on the account."
 
This is where I would have to disagree.
While we did have one 7 losers streak since inception - https://steadyoptions.com/performance_2013 (January 2013), it was nowhere near 35% drawdown. Our average loser is around 13%, so 7 13% losers with 10% allocation gives you 9% drawdown. We had few 5 losing streaks, and I believe the largest drawdown since inception was around 20%. For a system that produces triple digit gains year after year, that's completely acceptable. Does it mean that 7 50% losers is impossible? No, it is possible, just extremely unlikely. But if you are still not ready, then yes, reduce the allocation.
 
To demonstrate my point, I will use the Steady Condors strategy. The reason is that this is a simple and totally reproducible system (so there is no question of missing some good trades), and we also report performance on the whole account including commission.
 
SC produced 24% average annual return since 2008. But it had pretty bad year in 2014, producing almost 19% drawdown. Guess what? In 2015, it produced 47% return (best year ever). First 2 months of 2016 have been tough so far. Imagine someone who joined in 2014, lost 15-20% (depending on timing), cancelled just to see the system producing 47% return in 2015, then rejoined just to be down another 10%+ in 2016.. Not a pretty experience. But if you believe in a system in general and it suits your trading style, you should stick through good times and bad.
  • Upvote 2
Posted

Appreciate your thoughts Kim!

I think I use the 50% loss for losers mentally, not as being representative of typical SO losses, but rather what's in the realm of possibility. I might be erring on the side of caution (maybe even ridiculously so), but it helps me set my risk tolerance. I figure commissions plus my typical rookie mistakes could of course play a role as well.

I also completely agree with the SC example... any trading system needs enough time to turn a profit and work as expected. 

Posted

My only objective is to get valuable suggestions to fine tune from your vast experience and other senior traders with "SO" experience and results will be in place. I have been trading options for a while with other news letters and on my own with different style and strategies. I like "SO" trades as they nicely blend for all market situations. I am trading with the amount that's way below my risk tolerance. When we hedge vix ($1000)  trade with butterfly trade, like the last one the contract amount was $575, in that case is it better to open two contracts ($1150) or just one contract??

Posted

The number of contracts is usually to fit into 10% allocation. If you have slightly more than 10k, it is reasonable to do 2 contracts on trades that cost around $6.

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