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2 hours ago, lrfsdad said:

Nice to see overnight gains in the grains offsetting some stock losses this am.  

Soybeans in particular has been trending well.  We caught that one almost perfectly

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Plus ~$1800 on the month of April.  7.5% return.  Grains seem to be trending well after a choppy first couple of months with them.  Update is posted in the monthly performance discussions.

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Maybe my question is not in the right place here, but I would like to ask you what do you think about calendar or butterfly or ratio strategy with futures options? Maybe before FOMC in crude oil? Is it a good idea or those strategys dont working futures? 

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8 hours ago, Tamas said:

Maybe my question is not in the right place here, but I would like to ask you what do you think about calendar or butterfly or ratio strategy with futures options? Maybe before FOMC in crude oil? Is it a good idea or those strategys dont working futures? 

I tend to think of those as volatility strategies.  There's no reason they couldn't work on futures options.  In particular I've seen some strange vol curves on futures contracts that leads me to believe a ratio could work but I haven't done a ton of work on it.  Calendars might be tough because of liquidity issues on longer dated futures options. 

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6 hours ago, Jjapp said:

I tend to think of those as volatility strategies.  There's no reason they couldn't work on futures options.  In particular I've seen some strange vol curves on futures contracts that leads me to believe a ratio could work but I haven't done a ton of work on it.  Calendars might be tough because of liquidity issues on longer dated futures options. 

Thanks @Jjapp maybe I will test those strategies on futures options and I will reoport it if I found edge.

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interesting quote from the end of the article i posted the other day

 

" Despite the poor performance of CTAs in 2018, investors should keep in mind that over the past 20 years, CTAs outperformed equities with (a) a low correlation to global stock indices; (b) a lower volatility in returns (8% versus 14%); and (c) a lower maximum drawdown (23% versus 55%). Based on historical evidence, the strategy deserves to be reconsidered in our view. "

 

I hope those of you that stuck with us after the tough first month are enjoying this recent run  :)

 

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Hi guys, two quick questions. First, when will the May performance summary be up?

 

Second and more importantly: I'm wondering how the decision to keep positions open from week to week (as opposed to rolling) if the trend hasn't changed is made. I notice we often haven't been rolling positions even when their deltas drop drastically. For example: our CL position is the 73 Aug calls which currently have a delta of just 0.020, effectively meaning we have virtually no exposure to CL barring some huge upside reversal. The spreadsheet says our delta for CL should instead be 0.12. Why do we keep positions open in these cases instead of rolling to a closer strike to stay closer to the desired delta?

Edited by ex3y7s

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The CL position is not really a normal example.  There are no instances i can think of in which the disparity has been that significant.  

 

CL positions have been losing in some cases even when trend is in our favor.  Most of these CL options are so far otm that we are having issues with vol and trade performance relative to the trend.  John and I are discussing what to do.

 

you can certainly open a new position this am.  

 

Summary should be up this week. 

 

Edit:  spelling error 

Edited by RapperT

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5 minutes ago, RapperT said:

The CL position is not really a normal example.  There are no instances i can think of in which the disparity has been that significant.  

 

CL positions have been losing in some cases even when trend is in our favor.  Most of these CL options are so far otm that we are having issues with vol and trade performance relative to the trend.  John and I are discussing what to do.

 

you can certainly open a new position this am.  

 

Summary shluld be up this week. 

Gotcha--thanks for the reply. I thought we were in this scenario for NG at one point and a few other contracts, but I haven't kept detailed notes of the deltas at the time of each roll so I may be misremembering.

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Just now, ex3y7s said:

Gotcha--thanks for the reply. I thought we were in this scenario for NG at one point and a few other contracts, but I haven't kept detailed notes of the deltas at the time of each roll so I may be misremembering.

There have been some others where we could’ve gone either way, but none I can think of in which the option was basically worthless and we kept it open without adding exposure.

 

There were a couple instances in which we left the low delta position open and opened a new one as well. 

 

It’s a good question.

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The out of the money nature of some of these positions really hurts the system performance and increases volatility drastically versus trading at the money.  Unfortunately trading at the money on a $25K account size is too big for many of these contracts. 

I'll give you an example from one of the contracts we publish signals on but don't trade, ES.  The system signaled ES long on February 3rd and switched directions to short on May 26th.  This captured the trend in ES almost perfectly.  But based on our risk parameters you would have bought something like a 7 delta call in February and experienced a 100% loss on the position even though the direction was right.  ATM would have booked a solid win but would have required roughly 7X the risk we would normally take.

 

We're actively trying to figure out a way to solve for this now.  That may mean starting with a longer term trend system layered on top of the current signals and requiring both systems to be in agreement to take a position.  This doesn't address the size issue but would cut weekly vol pretty drastically (while also causing us to miss some wins).  If we got the vol down enough though we may be able to look at bigger position sizes.  We're just not sure yet. 

Another answer could be to raise our delta threshold for trading a contract to something closer to ATM.  This would reduce diversification but improve signals results. 

As Rich said we're actively looking at improvements for this problem now.

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1 minute ago, Jjapp said:

The out of the money nature of some of these positions really hurts the system performance and increases volatility drastically versus trading at the money.  Unfortunately trading at the money on a $25K account size is too big for many of these contracts. 

I'll give you an example from one of the contracts we publish signals on but don't trade, ES.  The system signaled ES long on February 3rd and switched directions to short on May 26th.  This captured the trend in ES almost perfectly.  But based on our risk parameters you would have bought something like a 7 delta call in February and experienced a 100% loss on the position even though the direction was right.  ATM would have booked a solid win but would have required roughly 7X the risk we would normally take.

 

We're actively trying to figure out a way to solve for this now.  That may mean starting with a longer term trend system layered on top of the current signals and requiring both systems to be in agreement to take a position.  This doesn't address the size issue but would cut weekly vol pretty drastically (while also causing us to miss some wins).  If we got the vol down enough though we may be able to look at bigger position sizes.  We're just not sure yet. 

Another answer could be to raise our delta threshold for trading a contract to something closer to ATM.  This would reduce diversification but improve signals results. 

As Rich said we're actively looking at improvements for this problem now.

Yeah, this makes a lot of sense. Is it accurate to say we are fighting the fact that options are far from an ideal vehicle for this sort of strategy? Obviously we can't just buy/sell the futures directly unless we revise our account size to include at least a few more zeroes. 😉

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9 minutes ago, ex3y7s said:

Yeah, this makes a lot of sense. Is it accurate to say we are fighting the fact that options are far from an ideal vehicle for this sort of strategy? Obviously we can't just buy/sell the futures directly unless we revise our account size to include at least a few more zeroes. 😉

Probably.  I think options work on a slightly bigger account with no modifications.  ATM really does solve a lot of problems.  We could also start using synthetic positions which solves some of it but opens us up to all the problems with a short option in the portfolio. 

 

I suppose another method would be to trade these as spreads.  I'm not sure what that would look like when we pull big wins out of the system but it might work ok especially if we actively close winning trades once their upside diminishes and reopen on a Friday.  I'd have to think about that some more.  Transaction costs might get steep too with that.

 

Ideally I would just trade the underlying though.  When I did the math for myself I estimated that you would need at least low 7 figures in your trading account to do that at the right size with diversification though. 

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Good points, thank you. I wonder if it makes the most sense to simply use the slightly bigger account. Trying to fit a round peg into a square hole is just going to be an exercise in frustration/bleeding money.

 

Edit: I mean the bigger account with options for the official Steady Futures portfolio so that the options could be ATM or closer to it.

Edited by ex3y7s

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We could get closer to ATM and similar delta  with spreads right? Or closer expiration?

Some of the drawbacks mentioned to trading these options are the reasons some argue selling them is  better.  Till there is a move that cordier went through recently.  I guess there is trade offs to everything. 

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Just now, lrfsdad said:

We could get closer to ATM and similar delta  with spreads right? Or closer expiration?

Some of the drawbacks mentioned to trading these options are the reasons some argue selling them is  better.  Till there is a move that cordier went through recently.  I guess there is trade offs to everything. 

Closer expiration could hurt us with theta though. My sense is we should just increase the model portfolio to 50k and continue using puts, provided that would largely solve the issues we're seeing.

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17 hours ago, ex3y7s said:

Closer expiration could hurt us with theta though. My sense is we should just increase the model portfolio to 50k and continue using puts, provided that would largely solve the issues we're seeing.

All good points.  I'll try and put together a table of pluses and minuses for a few different approaches.  Single puts and calls are nice because of simplicity and trading costs.  I think debit spreads could be helpful because they eliminate any variation for distance out of the money and probably allow more diversification.  The problem is that we lose some of the really big wins.  At 50K we would still be trading gold and oil at around 20-25 delta I think so some options would still be relatively far otm in the single options/larger portfolio scenario. 

 

I'd be really nervous about trading credit spreads with this system, especially anything far otm. 

 

If it makes sense I could potentially test one of these in parallel with the core system for a couple of months and we could compare weekly volatility and results pretty easily. 

 

Rich and I have both been travelling a lot for work and we need to get the May results posted but we might be able to get something outlined in the next day or so if people are interested.

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I started trading debit spreads in my account (not the official trades) last week to start to get a feel for how they perform vs outright calls/puts. 

 

A few observations:

 

1.  Trading the spread puts the long strike always at the money.  This seems to standardize performance a bit as we're not dealing with the leverage effect of differing distances from ATM.

 

2.  Theta decay in general is lower.

 

3.  Slow steady trends should result in better gains.  We've found in the past few months that we often get the signal right but we are so far OTM that we still lose money.

 

4.  It opens up the door to trading more instruments.  For example, trading ES becomes feasible.  We can also potentially trade more instruments at lower risk increasing diversification without having very low delta options.

 

5.  Margin requirements actually go up for some of the positions (technically it isn't margin but capital required per trade).  This isn't really an issue for us but it was something I hadn't thought of. 

 

6.  We will lose out on some real explosive moves.  I'm still working on how much of an impact that really will be.

 

Once we close some trades with spreads and official straight long options I'll do a more quantitative comparison. 

 

 

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A quick note on spreads, signal accuracy and the importance of being ATM.  The official trade last week in Gold got the signal right but is flat.  The debit spread opened on the same signal, at the same position delta, is up $215 right now.  This is exactly what we were talking about with the impact of being OTM. 

 

We're working on overall rules for the spreads but the basic idea is that we always want our long to be at the money. 

 

 

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45 minutes ago, RapperT said:

Yeah it’s been a tough one.  

 

We we are moving to larger account size for next week.. announcement coming soon 

Cool, will it be doubling or can you share the new size? I want to make sure if I need to shuffle funds around to accommodate things I do it beforehand. Thanks!

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9 hours ago, ex3y7s said:

Cool, will it be doubling or can you share the new size? I want to make sure if I need to shuffle funds around to accommodate things I do it beforehand. Thanks!

In general we're thinking something like the following:

1.  Double the account size.

2.  Reduce risk per position to 1% versus 2%.  Practically this means the deltas stay the same.

3.  Trade the long option atm and offset with short otm to achieve the correct delta (debit spread).

4.  Add additional instruments that were too big previously but are now in reach with spreads (ES for example). 

Our goal is to reduce volatility, make sure that when the signal is correct we don't lose money from being too far OTM to capture the move, and increase our diversification. 

I'm sure that will generate some questions and we're working on a longer post explaining the reasoning but that is the cliff notes on what we're thinking. 

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19 minutes ago, Jjapp said:

Week turned around today so far.  Grains are still down but most other contracts seem to be up a fair bit.

Yep, mercifully we had a partial rebound today. Looking forward to the upcoming changes and continuing tweaks.

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Tomorrow we begin trading Steady Futures on a 50k model account, a few notes:

  • we will limit risk to 1% or less per trade
  • to solve for the issue with OTM options, we will be trading spreads in some cases with the long leg ATM.  The shorts will vary depending on the delta we are targeting.
  • We will likely add a few new contracts over the upcoming weeks.
  • we will continue to work to get the signals up early in the day, but our official trades may not always be right at open. 
  • Beginning with July, our monthly performance will be based on this account size

 

John will be posting the new trades tomorrow as I have a terrible travel day.  We are working on a solution for that too as we both spend a lot of time on the road....more to come

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You are no doubt aware but IB confusingly has two ways to describe futures options, either just by contract month, or by expiration month/underlying futures contract. Additionally, the contract month is the same as the expiration month for some symbols, but not for others (see image below for KC).

 

 

Depending on your individual IB configuration and what screen you're on, you may see one or the other. I just wanted to give people a heads up and also verify that you guys are just copying the description from IB for the alerts. That means if we see just one month (like "Bought Oct 0.1275 Put" from today's alerts) we'll know that means the contract month, and if wee see month/month we'll know that means expiration/futures expiration (so Sep/Dec here, not Oct/Dec).

 

 

image.png

Edited by ex3y7s

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I was updating my spreadsheet with Friday's trades and noticed two very small issues with the silver alert for anyone playing along at home:

  • It lists total debit of $207 but since SI trades at $5 per 0.001 tick I believe it should actually be a debit of $1035.
  • It doesn't indicate call/put but obviously it's a put spread (signal is down)

 

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On 7/5/2019 at 10:05 AM, lrfsdad said:

If we're unable to trade the larger account size how would you recommend treating current positions?

If you're willing to deal with the volatility, you could keep trading it.  The other option is to close and wait until you have a bit more capital.  This is probably what I would recommend to be honest.

 

Our initial target minimum was 50k but we really wanted to make it accessible to more members if possible.  On a 100k account we are down a few percent this year which is in line with most of the big shops.  2% is most likely too hot for this type of system but the recent struggles were compounded by trading far OTM options as mentioned above.  The latter issue is one that became more apparent to us over the last couple of months.

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On 7/6/2019 at 7:33 AM, ex3y7s said:

I was updating my spreadsheet with Friday's trades and noticed two very small issues with the silver alert for anyone playing along at home:

  • It lists total debit of $207 but since SI trades at $5 per 0.001 tick I believe it should actually be a debit of $1035.
  • It doesn't indicate call/put but obviously it's a put spread (signal is down)

 

@Jjapp and I will take a look

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On 7/6/2019 at 8:33 AM, ex3y7s said:

I was updating my spreadsheet with Friday's trades and noticed two very small issues with the silver alert for anyone playing along at home:

  • It lists total debit of $207 but since SI trades at $5 per 0.001 tick I believe it should actually be a debit of $1035.
  • It doesn't indicate call/put but obviously it's a put spread (signal is down) 

Good call.  Had the wrong multiplier in my spreadsheet.

 

 

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I'm confused--are we adding to the gold position this week (keeping the old call open and adding a spread)? Also looks like @Jjapp's prior KC position was different? Is that prior put spread closed now?

 

Edit: I see the KC spread is shown closed as two separate legs. Still confused on the GC though.

Edited by ex3y7s

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1 minute ago, RapperT said:

I will be closing my position and the official trade will be the spread.  We decided to go this route after I boarded a flight.

Thank you--I had closed mine but was unclear on what the "official" stance was. Also while I'm here typo on this week's KC alert: should be calls and 1.175 not 1.75.

 

 

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9 hours ago, ex3y7s said:

I'm confused--are we adding to the gold position this week (keeping the old call open and adding a spread)? Also looks like @Jjapp's prior KC position was different? Is that prior put spread closed now?

 

Edit: I see the KC spread is shown closed as two separate legs. Still confused on the GC though.

KC was one of those weird IB things where it stopped treating my position as a spread randomly.  I think it is just a software glitch with them but I've had it happen more than once.  I am running their linux version of TWS though so I think I sometimes see more bugs than people on other OSs.

 I started using the spreads a couple of weeks before we made the transition.  We've been trying to just let most of the old positions trade off like normal and then reposition them with spreads for the new trade.  Gold was one where it made sense to roll early just from an administrative standpoint. 

 

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