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2 months back at trading (update) and some new questions
Hi all, I posted a thread back a few months ago when I started getting seriously back into trading after 20 years away. I thought I'd post an update with some notes on how I'm progressing. I like to type, so settle in. Maybe it'll help new traders who are exactly where I was 2 months ago, I dunno. Or maybe you'll wonder why you spent 3 minutes reading this. Risk/reward, yo. I'm trading 5k on TastyWorks. I'm a newcomer to theta positive strategies and have done about two thirds of my overall trades in this style. However, most of my experience in trading in the past has been intraday timeframe oriented chart reading and momentum stuff. I learned almost everything "new" that I'm doing from TastyTrade, /options, /thetagang, and Option Alpha. I've enjoyed the material coming from esinvests YouTube channel quite a bit as well. The theta gang type strategies I've done have been almost entirely around binary event IV contraction (mostly earnings, but not always) and in most cases, capped to about $250 in risk per position. The raw numbers: Net PnL : +247 Commissions paid: -155 Fees: -42 Right away what jumps out is something that was indicated by realdeal43 and PapaCharlie9 in my previous thread. This is a tough, grindy way to trade a small account. It reminds me a little bit of when I was rising through the stakes in online poker, playing $2/4 limit holdem. Even if you're a profitable player in that game, beating the rake over the long term is very, very hard. Here, over 3 months of trading a conservative style with mostly defined risk strategies, my commissions are roughly equal to my net PnL. That is just insane, and I don't even think I've been overtrading. 55 trades total, win rate of 60%
33 purely directional trades - 57.5% win
18 long call or long put positions, +692, 55% win
15 call or put verticals, -121, 60% win
22 neutral / other trades
13 iron condors, +345, 77% win rate
7 strangles, -163, 71% win rate
1 straddle, -310, 0% win rate
1 butterfly, -83, 0% win rate
PTON call purchased and held through earnings, sold the morning of announcement +410
Trading the range on the daily chart in GLD from 158 up to 165, a mix of various calls +245
NKLA 30 put purchased before the close on the day it went north of 100, just a pure fade +215
EWZ 22/26 strangle that I held just way too long as it beat me up day after day from May 20-Jun 3, -316
ZM pre earnings vertical, fading another 2 SD move (the day it hit 200 for the first time). Was expecting a post-earnings selloff given the magnitude of the up move. Stock basically hasn't had a down tick since. Max loss -247
EWW 29 straddle, put on around the same time as the EWZ strangle. Rolled from Jun to Jul to no avail. Out at a -310 loss.
This is pretty much where I expected to be while learning a bunch of new trading techniques. And no, this is not a large sample size so I have no idea whether or not I can be profitable trading this way (yet). I am heartened by the fact that I seem to be hitting my earnings trades and selling quick spikes in IV (like weed cures Corona day). I'm disheartened that I've went against my principles several times, holding trades for longer than I originally intended, or letting losses mount, believing that I could roll or manage my way out of trouble. I still feel like I am going against my nature to some degree. My trading in years past was scalping oriented and simple. I was taught that a good trade was right almost immediately. If it went against me, I'd cut it immediately and look for a better entry. This is absolutely nothing like that. A good trade may take weeks to develop. It's been really hard for me to sit through the troughs and it's been even harder to watch an okay profit get taken out by a big swing in delta. Part of me wonders if I am cut out for this style at all and if I shouldn't just take my 5k and start trading micro futures. But that's a different post... I'll share a couple of my meager learnings:
Larger bid/ask spreads make it almost impossible to trade the higher priced names, even if you have a correct assumption. I have traded some bigger underlyings during this time like LULU and NVDA. They are just tough fills, both getting in and getting out. I almost want to say that you shouldn't even bother trading underlyings bigger than a 10 cent bid/ask spread with a small account.
Get an idea of the timeframe you're interested in holding before putting anything on. Have a plan for entering and exiting everything that goes beyond "I'll take this trade off at 50%". You can use TA, you can use a news catalyst, a binary event, just have something. Countless sources out there talk about trading a plan. It doesn't have to be the perfect plan, it just has to be "a" plan.
Undefined risk trades in tiny accounts need hard stops. Yes, some of the studies say that you'll do better without having fixed stop loss rules (50% of max loss, 100% of max loss) -- but what the studies don't say is the effect that it will have on you, mentally. I got pretty bent out of shape over how badly EWZ and EWW went against me -- much more than I expected. It made no sense, as I've lost way more on the turn of a card in .5 seconds and been unfazed. I was unprepared for the mental toll that it took waking up day after day, watching positions move further and further against me. Great time to be short calls during the mother of all rallies.
My initial plan for undefined risk trades in my account was that I would only do them in ETFs. Logic being that I'm just not going to wake up to an accounting scandal or a buyout and take a $1k loss on the chin. I later expanded my range into lower priced underlyings like BBBY, TLRY, and yes, AAL. But these ETFs can and do move (I learned the hard way) and can soak up a surprising amount of BP. It might be better to have 5 iron condors taking up $1000 of BP @ 200 each instead of 2 strangles @ 500 each.
My new questions :
My big wins felt like I simply leaned on my TA background or got lucky. My big losses, I sure felt like I earned those, through mistakes I've definitely since identified. The stuff in the middle, I'm just not sure. I'm up money, but it feels like I'm just spinning my wheels. My win rate is good, but I still struggle with expectations about how quickly a trade should progress. What is the next step of the process for a newer options trader? I've read some stuff on narrower spreads + more contracts vs. wider spreads and fewer contracts. Is there a number where I should just keep doing what I'm doing until I reach a specific # of occurrences? Should I even think about branching out into different strategies yet (ratio spreads, jade lizards, etc) or continue to work on these basics?
I still feel like I am super weak in delta management. In some cases I feel like I've taken a loss simply because I didn't know what the proper management techniques were. I understand the concept of rolling out in time for a credit, but I just don't think it's in my nature to hold trades for longer than a month, and even that is hard for me. At what delta is it appropriate to start thinking about hedging?
Every time I put on a credit spread for a 2-3 day move and am directionally correct, I often wish that I had just bought a naked option. I've caught several big moves this way in things like AAPL; most recently I bought the FB dip to the 50 day MA around 215 and took it off today at 225 (which was always my plan) -- it leads me to wonder if my expectations for credit spreads are completely out of line. I can't lie, it feels bad to catch a 10 point move and only make $40, haha. What is the ideal timeframe for a credit spread to be left on? Is it better to just buy premium with a stop loss and have a more profitable risk/reward equation for situations like the above where the only intent is to hold for a couple days?
Here's a random question -- other than when the BPR hit is too much (ie names over $50) for undefined risk, would you rather hold 1) a strangle for 10-14 days or 2) an iron condor for 25-30 days? So far my criteria for IC vs strangle has largely been driven by the risk profile and BPR and not so much profit potential in X number of days. If you're collecting the standard 1/3rd on the IC and taking the trade off at 50% (if you're lucky) , it seems like it takes about a month to get there, most of the time.
That's enough of this wall of text for now. If you made it this far, I salute you, because this shit was even longer than my last post.
Hi, i saw this IQ Option site, and would like to give it a try, but i heard stories about how people cant withdraw or chart magically changes itself when you start trading with real money, that IQ Options is manipulating chart so you lose. i plan to invest only 40 $, no more and no less. should i proceed? if i make some money, i plan to quickly withdraw, so i can feel it is real thing. i heard a lot that this binary trading is risky, but i saw somewhere how to earn ever if you lose once. this is how they described: i deposit 40 $ on account, and i start trading only with 1$, because it supports that low. and if i lose 1 $ , next time, i multiply it with 2.5 so i could cover my first try and this secod try, so i can earn from both. so if i lose 1$ by putting on BUY, i invest 2.5$ and choose SELL, and if i lose again, i invest 6.25$ and choose BUY, and if i lose again i invest 15.62$ and choose SELL, and if i loose again i invest 39.06$ and choose BUY. those who explained this method say, that you will always win on this, it maybe dont have to be first try, but definitely you will not go more than 4 tries, you will always win this way and get money. so basically strategy is to chose opposite from what i choosed and to multiply by 2.5, so i can cover previous, and earn from all those. is IQ Options a scam, do they allow you to withdraw money without any problems, because i read that thay cant withdraw more money than how much you gave deposit if you payed with visa card, you need to use like skrill or similar ebanking in order to get money on visa card. and what other would you reccomend, because i needwithdraw to work every time.
Wall Street Week Ahead for the trading week beginning March 9th, 2020
Good Saturday morning to all of you here on wallstreetbets. I hope everyone on this sub made out pretty nicely in the market this past week, and is ready for the new trading week and month ahead. Here is everything you need to know to get you ready for the trading week beginning March 9th, 2020.
Wall Street braces for more market volatility as wild swings become the ‘new normal’ amid coronavirus - (Source)
The S&P 500 has never behaved like this, but Wall Street strategists say get used to it. Investors just witnessed the equity benchmark swinging up or down 2% for four days straight in the face of the coronavirus panic. In the index’s history dating back to 1927, this is the first time the S&P 500 had a week of alternating gains and losses of more than 2% from Monday through Thursday, according to Bespoke Investment Group. Daily swings like this over a two-week period were only seen at the peak of the financial crisis and in 2011 when U.S. sovereign debt got its first-ever downgrade, the firm said. “The message to all investors is that they should expect this volatility to continue. This should be considered the new normal going forward,” said Mike Loewengart, managing director of investment strategy at E-Trade. The Dow Jones Industrial Average jumped north of 1,000 points twice in the past week, only to erase the quadruple-digit gains in the subsequent sessions. The coronavirus outbreak kept investors on edge as global cases of the infections surpassed 100,000. It’s also spreading rapidly in the U.S. California has declared a state of emergency, while the number of cases in New York reached 33. “Uncertainty breeds greater market volatility,” Keith Lerner, SunTrust’s chief market strategist, said in a note. “Much is still unknown about how severe and widespread the coronavirus will become. From a market perspective, what we are seeing is uncomfortable but somewhat typical after shock periods.”
So far, the actions from global central banks and governments in response to the outbreak haven’t triggered a sustainable rebound. The Federal Reserve’s first emergency rate cut since the financial crisis did little to calm investor anxiety. President Donald Trump on Friday signed a sweeping spending bill with an$8.3 billion packageto aid prevention efforts to produce a vaccine for the deadly disease, but stocks extended their heavy rout that day. “The market is recognizing the global authorities are responding to this,” said Tom Essaye, founder of the Sevens Report. “If the market begins to worry they are not doing that sufficiently, then I think we are going to go down ugly. It is helping stocks hold up.” Essaye said any further stimulus from China and a decent-sized fiscal package from Germany would be positive to the market, but he doesn’t expect the moves to create a huge rebound. The fed funds future market is now pricing in the possibility of the U.S. central bank cutting by 75 basis points at its March 17-18 meeting.
Where is the bottom?
Many on Wall Street expect the market to fall further before recovering as the health crisis unfolds. Binky Chadha, Deutsche Bank’s chief equity strategist, sees a bottom for the S&P 500 in the second quarter after stocks falling as much as 20% from their recent peak. “The magnitude of the selloff in the S&P 500 so far has further to go; and in terms of duration, just two weeks in, it is much too early to declare this episode as being done,” Chadha said in a note. “We do view the impacts on macro and earnings growth as being relatively short-lived and the market eventually looking through them.” Deutsche Bank maintained its year-end target of 3,250 for the S&P 500, which would represent a 10% gain from here and a flat return for 2020. Strategists are also urging patience during this heightened volatility, cautioning against panic selling. “It is during times like these that investors need to maintain a longer-term perspective and stick to their investment process rather than making knee-jerk, binary decisions,” Brian Belski, chief investment strategist at BMO Capital Markets, said in a note.
This past week saw the following moves in the S&P:
If you're like us, you've heard a lot of people reference the recent equity declines as a sign that the market is pricing in some sort of Armageddon in the US economy. While comments like that make for great soundbites, a little perspective is in order. Since the S&P 500's high on February 19th, the S&P 500 is down 12.8%. In the chart below, we show the S&P 500's annual maximum drawdown by year going back to 1928. In the entire history of the index, the median maximum drawdown from a YTD high is 13.05%. In other words, this year's decline is actually less than normal. Perhaps due to the fact that we have only seen one larger-than-average drawdown in the last eight years is why this one feels so bad. The fact that the current decline has only been inline with the historical norm raises a number of questions. For example, if the market has already priced in the worst-case scenario, going out and adding some equity exposure would be a no brainer. However, if we're only in the midst of a 'normal' drawdown in the equity market as the coronavirus outbreak threatens to put the economy into a recession, one could argue that things for the stock market could get worse before they get better, especially when we know that the market can be prone to over-reaction in both directions. The fact is that nobody knows right now how this entire outbreak will play out. If it really is a black swan, the market definitely has further to fall and now would present a great opportunity to sell more equities. However, if it proves to be temporary and after a quarter or two resolves itself and the economy gets back on the path it was on at the start of the year, then the magnitude of the current decline is probably appropriate. As they say, that's what makes a market!
Take a good luck at today's moves in long-term US Treasury yields, because chances are you won't see moves of this magnitude again soon. Let's start with the yield on the 30-year US Treasury. Today's decline of 29 basis points in the yield will go down as the largest one-day decline in the yield on the 30-year since 2009. For some perspective, there have only been 25 other days since 1977 where the yield saw a larger one day decline.
That doesn't even tell the whole story, though. As shown in the chart below, every other time the yield saw a sharper one-day decline, the actual yield of the 30-year was much higher, and in most other cases it was much, much higher.
To show this another way, the percentage change in the yield on the 30-year has never been seen before, and it's not even close. Now, before the chart crime police come calling, we realize showing a percentage change of a percentage is not the most accurate representation, but we wanted to show this for illustrative purposes only.
Finally, with long-term interest rates plummetting we wanted to provide an update on the performance of the Austrian 100-year bond. That's now back at record highs, begging the question, why is the US not flooding the market with long-term debt?
Today's decline is pretty much a continuation of what has been a one-way trade for the commodity ever since the US drone strike on Iranian general Soleimani. The last time prices were this low was around Christmas 2018.
With today's decline, crude oil is now off to its worst start to a year in a generation falling 32%. Since 1984, the only other year that was worse was 1986 when the year started out with a decline of 50% through March 6th. If you're looking for a bright spot, in 1986, prices rose 36% over the remainder of the year. The only other year where crude oil kicked off the year with a 30% decline was in 1991 after the first Iraq war. Over the remainder of that year, prices rose a more modest 5%.
Despite strong market gains on Wednesday, March 4, 2020, the on-the-run 10-year Treasury yield ended the day below 1% for the first time ever and has posted additional declines in real time, sitting at 0.92% intraday as this blog is being written. “The decline in yields has been remarkable,” said LPL Research Senior Market Strategist Ryan Detrick. “The 10-year Treasury yield has dipped below 1%, and today’s declines are likely to make the recent run lower the largest decline of the cycle.” As shown in LPL Research’s chart of the day, the current decline in the 10-year Treasury yield without a meaningful reversal (defined as at least 0.75%) is approaching the decline seen in 2011 and 2012 and would need about another two months to be the longest decline in length of time. At the same time, no prior decline has lasted forever and a pattern of declines and increases has been normal.