Life's a gamble, improve your odds

As this year is winding down and as I can barely move because I’m so stuffed from the Christmas turkey, it’s time to reflect on the last four month of trading to close out 2011.

Interestingly after having a really tough time in August (see previous posts) I’ve had a really good recovery.

Work wise was interesting; I went to several places I’ve never been before (Australia, India) and still managed to stay home quite a bit. I hope to be able to continue this stay @ home trend and hope that I won’t hit Premier 1k for the first time in ten years (goal for 2012, I still collected 120k status miles this year).

Trading wise was also quite interesting.

In October I’ve had a business trip to Chicago and met with two former floor/prop traders for dinner. While they did not show me “the holy grail” they did point out some of my mistakes (mostly that I’m trading too big in most of my positions). Since then I’ve had quite the roller coaster. I’ve had about 12% return on my account by mid November, had a really bad week @ Thanksgiving (anyone remember those big down days) and almost gave back all my profits. Then in December I’ve been positioned perfectly, short volatility and ultra long deltas and managed to make about 20% in December (21% for the year). If I know anything I know that I need access to capital a lot during times when the market does not cooperate. For 2012 I’ll reduce my account and will try to go for a 40% return. Confidence is at an all time high right now and has been like that for the last two weeks. After my rough spot in August I’ve completely ignored my account balance, didn’t do weekly or daily P&L, stopped tracking the various strategies and just focused on doing the right thing. It actually worked and helped my trading quite a bit; I didn’t get lost in the daily details and ended up higher for the most part.

I hope that most of you guys did well also, let’s enjoy the remainder of this dull trading period and get in shape (physically and trading wise) for 2012.

Man, when it rains it pours. My grandmother died two days ago. Second death this year and will result in another trip back to Europe.

On the fun side, I was in Chicago and met with the producers of tastytrade. Had an awesome time there and hopefully learned a lot too

Got upgraded on my flight to Australia !!!!! Very lucky because I’ve had a fare that didn’t qualify for upgrades but I sweet talked the gate agent into it. What a difference that makes. Already visited the Australian Stock exchange (not impressive) and the Sydney opera house (very impressive). So tomorrow I’ll try to take a tour there, do the harbor bridge walk and a harbor cruise. Looking forward to it.

I’m @ the airport in SFO right now, going to Sydney for a couple of weeks for work. This is the first time I’m going to Australia, so I’m definitely looking forward to it.

As far as my trading goes, I’ve been trading really small the last several weeks with barely any activity @ all. Somehow I still managed to make about 4 grand though, so I must have gotten very lucky. I also fell over this website from one of the thinkorswim founders. I love their morning show and signed up for the vouchers to reduce some of my commission cost. I’ll still stay low until the end of September, at that time I’ll re-evaluate my progress and the overall market.

Finally flat and able to get my finances back in order. I tried the “close all positions” feature of Interactive Brokers and I’ve to say it worked like a charm in a real live trading account. I got filled on all trades at the limit price (obviously on the bid for the positions I was long, on the ask for the positions I had to buy back). My final account balance was 250705 (+107k that are excluded from this calculation that I’ve had to deposit to cover the margin today), the S&P performance of the same funds would have resulted in 227920 (including dividends on commissions on both ends). I pretty much failed on all my trading goals and took quite a hit in my trading confidence. I did however manage to preserve my capital, so that’s about the only good thing about this experience (Q1/Q2/Q3 – 2011). I’ll obviously get started again, I’m itching to get back into the market, but I’ll take at least a couple of days off looking at the S&P right now. I also went through a technology refresh (switched my Dell laptop for an Apple, upgraded my trading backtesting server, operating systems and execution environment) and will take more and more advantage of cloud technologies where ever it makes sense.

As far as this journal goes, consider this my “going off the grid” post. I’m not sure what I was looking for but I’m positive I didn’t find it. I’m sure it was somehow related to bragging rights (a couple of month ago I’ve had a decent return and nice smooth equity curve, so back then it was “look how great I’m doing”), then probably some basic sanity checks (does it really make sense to take 100k of my home equity line to make sure I can cover my margin requirement), overall I don’t think it really helped my trading results. Thanks a ton to the folks contributing (jedwards, dgunz, mike805,etile), I really appreciated your input, there’s not a lot of sanity in this community, so being able to bounce some ideas off people is always very valuable. I’ll continue to responsd to questions or messages but I won’t post P&L, strategy performance or other content in my journal or in my blog.
I’m still advancing towards my goal to trade for a living, set backs like these are a necessary evil I suppose and compared to my 401k fund manager I kicked butt. I’ll continue my quest and 250k seems like a great starting balance for my next iteration, however after talking to several others who do this for a living I’ll be less focused on beating the
S&P 500 benchmark index and will be more focused on other goals that I completely missed in this attempt.
This is still the best game in the world, good luck beating it, I’m sure our trades will cross paths from time to time.
Final Performance: 3815
Final S&P 500 Performance: -20934
Final Saving Account Performance: 1447

Not sure if my hedge went wrong or what the deal is right now. Just hoping to get out of this alive

And back to break even for the week . I think it has to do with strange option pricing. If I get out at these levels next week after expiration I’ll be happy.

Sucks to sit on the sidelines on days like today

I think my hedging works well though, so as long as we stay around this range I should be fine and should be able to be completely flat by next week. Then it’ll start all over again

I like these days, when the SPY moves sideways or down and I’m still well hedged

Monday or Tuesday next week and I should be flat.

9 minutes (the time is in US Mountain time) before the market closes, the SPY is trading @ 118. So the 118 put options are basically worthless. However the sellers (initially they probably bought options) still want 16 cents per contract. That’s close to two Dollar per minute in time decay. Quite frankly I’m not in the mood to pay this extra premium, so I’ve let them run out. The 2nd option position (short 8 126 puts) they should be worth 8 bucks (126-8=118) Now the mid price is close to that (8.02) but the execution risk in this market is crazy (look at the bid/ask spread). So again, two options to close this trade. I can hope for the best which would be a mid-price execution, pay 16 bucks premium and close the trade (probably wouldn’t get filled @ the mid-price anyway) or I can just pay the 15 bucks and get assigned without the risk but with a significant margin hit.