Leaderboard

I just received this email addressing some issues SO was facing in the past. I’m not a member anymore but I was and I’m familiar with the strategies. I’m a vol trader since over 20 years so here my 5 cents. There is no fundamental change in volatility. Volatility is behaving as it always does. Volatility reflects the future expectation of movement of an underlying during a certain time frame. One important driver of Volatility are events. The bread and butter of SO, earnings events. Since Trump took office, single stock volatility also incorporates a lot of Macro Event vol and there are a lot more than normal. Best example is the one you used: SOFI. Expiry is 1st of August. Thats Trump’s Tarif deadline and that’s something effecting all businesses. Hence to the normal earnings expectations you got additional macro risk that is specifically fixed on one date. But Trump started taking some expectations out of the deadline by announcing the sending out of letters with deals about two weeks ago and about one week ago announcement of a deal with Japan and on Monday the deal with EU. Hence 1st of August premium got priced out after several parts of the big event got communicated down the road. Thats like pre earning releases. There are a lot of these Macro Events around. Hence, if you trade volatility, you need to be aware of these (extra)events and what the additional premium for these events are on top of the normal micro events. It’s ok trading on backtesting but you need to be aware of the future, hence if the future has addition risk that isn’t replicate in past comparisons. I can clearly say, the SO edge isn’t lost, you just need to be aware what expiry vols you are buying/selling and what (additional) risk they incorporate.

In the name of full transparency, I would like to address some issues regarding SteadyOptions recent performance. I will separate the analysis into several separate posts. Our performance in the recent months is not in line with our long term returns, as everyone can see on the performance page. The main reasons for the recent underperformance: We are struggling with a change in the fundamental behavior of volatility at the moment. Our trades rely on RV and therefore also IV and this has not been acting as expected. Periods of extended VIX decline have always been some of our worst performers. The main problem now is that we have been in a long period of VIX decline that’s been going for months - there have been a few spikes but in general VIX has gone from 30+ to the 20’s to the mid teens (and making things worse is many periods of minimal stock price movement during this timeframe). Our core trades do well when volatility is stable or rises. When volatility started to drop, it created some large percentage losers on a few trades that had an oversized negative impact on the portfolio performance. We had much less trades in 2025, which made the impact of those larger losses bigger. We had less trades because some options became very expensive, so it became difficult for many trades to fit into a $1K allocation, and for many stocks with moderate liquidity in normal times, now had less liquidity and very wide bid/ask spreads. This made them much more risky to use for options trades as slippage was a big concern. We used some directional trades, and the stocks did not follow historical patterns in those trades. When a directional trade goes against you, losses can grow very quickly. This is what happened with TTD, XYZ, KO, FL etc. Some of the non directional trades also experienced outsized losses. We will reduce the number of directional trades going forward. We used less calendars than usual because many of them were way too expensive compared to previous cycles. Now with VIX in the mid teens, we expect to trade more calendars, which is one of our best performing strategies. We are having extensive internal discussions on how to adapt to the current environment. Our strategies are designed to make money in any market. They are not guaranteed to make money, but our long term objectives are still in place. No strategy works all the time. There’s no room for ‘never’ or ‘always’ in the financial markets.

Yes, IV still reflects future expectations. But for many stocks, those future expectations have been very different from the previous cycles. Macro events like tariffs can add or remove uncertainty to the global markets. This is why VIX jumped to 30+ when Trump first announced the tariffs, and this is why it kept going down gradually when the markets realized that things are not as bad as initially thought. And now it's back to the mid teens after few major deals have been announced. But even when this macro uncertainty is removed (or significantly reduced), there is still specific event risk like earnings. In case of SOFI, all previous cycles priced at least 14-15% move. So why this cycle would price only 10% move, even with reduced macro risk? The earnings are still there. And btw, if you look at the morning of earnings, SOFI moved 17% at the open (it retreated later, but this is not the point). So the market was very wrong in pricing earnings so low. Also, when you enter a straddle during periods of high VIX and VIX goes down during the life of the straddle, it has a negative effect on the straddle price. This kind of "mispricing" happened a lot in the last few months, and this was the main challenge.

Great analysis, and with candor and transparency, too. Thank, Kim. The comment about directional trades did resonate with me, as I have been watching them from the sidelines, or had modified my own trade away from the official. Directional trades probably have their place in a basket of strategies. However when they deviate from the core thesis, it's a red flag for me. Many such trades started out delta positive right off the bat, with no (or not enough) room for error - just the hope that the stock would revert if it went south (pun intended). Somewhere in my basket of wisecracks is a saying that goes "Hope is not a strategy". In such cases I tended to stick with the original thesis, which worked better, or at least add a simple hedge - one that is understandable by the lay person - kind of like like we do with our Double Diagonals, where a calendar is added to mitigate the non-movement of the stock. Taking the loss on a bad trade and moving on is another thing that traders tend to postpone, and then find themselves in trouble. The persistent red values in the daily trade log that present themselves hour after hour and day after day tend to make traders obsess over recovering from them which takes away time from finding potentially successful new trades. Someone had mentioned a while ago, and I agree whole-heartedly, that there is a psychological cost to staring at ugly red losses on a continuous basis. I personally tried this "different" discipline earlier - that is, mostly sticking to the defined max loss and/or profit targets - and my trading became more fulfilling, the losses smaller in number and value, and profitable trades more numerous. Even the moments of depression were fleeting when the closed losing trades were put aside in the cumulative trade log, leaving the active log looking a whole lot healthier. The wonderful thing about SO is the thinking, back-testing, discussion and evolution that have formed all the core strategies, and this time is no exception, I'm sure.