2012 - Year In Review

[Kim 7,943]

Happy New Year everyone! Wishing you and your families a lot of health and happiness in 2013.

It's hard to believe that it has been a full year since SteadyOptions (SO) started as a public service. Overall, we had an excellent year. We did 271 trades which produced a $9,149 gain, based on fixed $1,000 allocation per trade (non-compounded). Assuming maximum of 6 trades open (the average number is much lower), that translates to 152.5% ROI. We had only two losing months and the maximum drawdown was around 10%. Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance.

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[Guest Corto]

Kim,

 

Great results we are all striving for.  It got me thinking and calculating why I am not anywhere in the ballpark.  Quick answer:  commissions.  Details follow.  And, as a cost of doing business, all of us would have paid $1188 during those 12 months for the subscription.  This is another real world subtraction as a business person has to be accounted for.  It is not trivial.

 

I am just trying to get to the real world subscriber best case number return.  Most of my trades with IB are 0.5-2% commission of the total each way, To verify this, I added up all my SO trades for the past quarter Oct-Dec.  Numbers are approximate, but pretty close.  72 total trades, $1107 in commissions (averages to 1.5% as a triple check).  Most of that time I was doing the $1000 per trade level.

 

72 trades for the quarter jives pretty well with your 271 for the year (72*4=288).

 

Assuming I was in SO for the year, and I followed your trades exactly and got in and out exactly as you did, my maximum gain would have approximately been $9149-commissions-subscription = $9149-(4*$1107)-$1188 = $3533

 

I have to ask you upfront if you take issue with this number.  I hope you don't because I believe it is the best case real world result that any sub could hope for.  This is a 58.8% return for the year vs. 152.5%.

 

Still a great return, but at least the vocal subs on the boards are pretty open about being in a loss position in their overall accounts and/or on trades where you are positive.  Sure there are reverse cases as well.  But we've had discussions where people state they would be more than happy to get only a percentage of your result which I think in general is doable.

 

What this has opened my eyes to is this is a very commissions intensive trading system, especially when you put on double calendars and RICs and anything with more than just two legs.  And I think people need to realize your returns are unachievable.  Yes, your fills are real, but you don't take in the biggest drag on performance which is commissions.  It looks great as a headline but no one can get there because of the commissions cost.  And I can't even bear to think of people trading this outside of IB's low commissions getting hit with large per contract costs and minimums!

 

Kim, and anyone and everyone, please feel free to flame me to high heaven for these comments.  Again, a 58% return is absolutely great.  And let's conservatively assume that people only get 75% of the profit levels you do.  That would knock the system down to 44.1% return. 

 

I think I can achieve that.  For me, assuming 4k per trade and 44% return, that is a $10,560 return on $24,000.  I will absolutely take that if I can get it.  But I nor any other sub will ever be able to hit that headline 152% and I think you are possibly doing a disservice to yourself and us by not stating more clearly how much commissions will eat into that number.  If we do 250 trades in 2013 and I do 4k per trade, I (and everyone else) needs to realize that 1.5%*4000*250 trades=$15,000 (yes, that actually shocks me when I calculate it!) will get burned in commissions and there is nothing that can be done about that. 

 

If I am incorrect in any of this analysis, please correct me!!

 

FYI, this doesn't mean I want to drop the service.  I just finally needed to figure out why my numbers have not been working.

 

Sincerely,

 

Mike

[Kim 7,943]

Mike,

 

First of all, you are absolutely correct that any strategy which involves multi leg trades is commissions consuming. This is part of doing business. Once other services will include commissions in their results, I will do it as well. 

 

Now, I have two comments about your numbers.

 

First, the subscription fee. You calculate percentage returns, but you forget the fact that subscription fee as percentage of the portfolio becomes much smaller as portfolio grows beyond 10k. So for 10k, it is 12%, but for 40k, it drops to 3%.

 

Second, your commissions calculation is not completely accurate. Our average trade size is around $350. Most of the trades are 2 leg transactions, double calendars and iron condors are maybe 10%. Lets be conservative and assume $300 average size to account for 4 leg trades. With IB commissions of ~0.75, that's $3 or 1% of the trade value. In dollar terms, that's $10 per trade or $2,700 for 271 trades. So the net return for 10k portfolio becomes 9149-2700-1188=5261 or 87.7%. If you do the math for 40k portfolio, then it is 24608 or 100% ROI.

 

I might be slightly off, but I believe that the commissions are much closer to 1% than 1.5%. Why the discrepancy? Might be several reasons. You mentioned that at some point you switched to 2k per trades. Also, with 1k per trade, some trades are only 1 contract which means $1 minimum commissions and not $0.75. Compare that to some services which do iron condors on $2 spreads. With IB commissions, the commissions will take $6 or 3% out of each trade. Or to a service mentioned here a while ago which does mostly a $1 calendars.

 

Another reason why you don't duplicate my results is that in many cases, you are chasing. I believe that with some patience and no chasing, you can replicate those results. Just look at many fills that members post. And I can see that your becoming better as well as you gain more experience.

[Marco 223]

As I put every trade I do in a spreadsheet I was curious how my no's stack up.

 

* I did 134 earnings trades since joining SO (thats not counting calendars, IC's etc.)

* 24 or ~18% are RICs

* average (entry) premium 3.34 (that's probably a bit higher than SO average as I have some 20$ straddles in there on say AMZN or AZO when Kim goes for a 5$ strangle to make it tradeable for smaller accounts)

* assuming 0.75/lot on IB (which is roughly my avg. whenever I check it) I get an average comm of ~1% (inline with what Kim says)

 

while the calendar trades with many rolls (that I didn't include in that statistic as I often stray from SO strategies there) will push that ratio up I don't think you'll get to 1.5% (with IB commissions)

I would agree that commissions are a major factor in the strategy. I have the average return per earnings trade (again no calendars etc) from Kim at about 3.5% before commission. So comms will take almost 1/3 off that performance and I'm not sure how aware the average subscriber is of that at a) when joining b ) even a few month in.

Kims, while I can see your point that no other service takes comms into account for their performance caculation, I guess for a subscriber that argument (everyone else is a bit intransparent, so I am as well) is not great and considering that you aren't using any of the other more or less dirty tricks to massage your performance figures up I'm not quite sure why you draw the line there. (would less people subscribe to a newsletter that 'only' delivers 100% p.a. rather than 150%?)

Having said that I would say Kims performance calculation (real fills, portfolio approach, non compounding etc.) is by far the best and most realistic I've seen across a number of newsletters that I looked at.

Edited January 5, 2013 by Marco

[Guest Corto]

Kim, Marco:

 

I really think Marco hit it on the head.  Your fills are realistic and totally achievable.  So why not be more transparent and factor in commissions into the results?  By not doing so, you have me and others questioning why we are having trouble hitting your numbers, and finding out commissions are a large factor in the lower performance.

 

You have all the great bullet points on your performance page.  I think to be completely open there should at least be one line added discussing average commissions on these trades, or that the final number you will achieve will be less because of commissions cost or something like that.  It would be a plus to your system that you show everything up front.

 

I did find it, in disclaimer point 8:

 

8. Performance figures are based on real fills, not hypothetical performance. Due to the time-critical nature of stock and options trading, brokerage fees, and the activity of other subscribers, SteadyOptions cannot guarantee that subscribers will experience the same or similar performance results as stated on our track records or promotions. Performance figures do not reflect the deduction fees, brokerage or other commissions, and any other expenses that a client would have paid or actually paid. Past results are not necessarily indicative of future performance.

 

So you do put it out there, but not in plain sight.  Again, while the performance number you put out there is technically true, it is misleading.

 

Going forward I will track my commissions more closely to verify I am closer to 1%.

 

Mike

[Kim 7,943]

The performance page mentions commissions TWICE, not once.

[Guest Corto]

Sorry, Kim, you are right.  Not being careful enough on my part.

[Stephen 4]

Thanks Kim, Marco and Corto really great open honest information.  That is why I am sticking with this systems for at least another year so see if I can match the performance. All best to everyone for 2013.