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Engine99
Registered: Jul 2007
Posts: 266 |
02-23-11 10:37 PM
I've had my worst trading day since May 6th 2010 (aka Flash Crash).
It all started out very innocent and I made a couple of UI changes to incorporate a control that forces a confirmation click before orders get executed based on this thread
http://www.elitetrader.com/vb/showt...threadid=215749
Then i tested it and had a little bug, so I ended up with some unwanted options. I closed the trade manually and somehow watched the S&P 500 futures drop and drop, so based on recent action I bought some and bought more. Before you knew it, I had 60 contracts in two different accounts (basically maxed out my buying power in both) and was 12 grand in the hole on this trade.
I'm not sure if some degenerated gambling instincts came to light today or what the issue was but 1. this is the reason I trade automated, and 2nd, I don't think I've ever had such a discipline problem.
Only good news is that I didn't barf the position out at the low point but watched it recover some. I still blew 1800 bucks today 600 in commission, about 900 in my discretionary trade gone bad, my automated systems would have done ok (-300) today considering the S&P took at beating as well.
Not sure what the message here is other than know your trading style. If you're an auto-trader who enjoys building algos and backtesting, don't think you can be cocky and kick butt at discretionary trading, just cause you did well automated in the past. Not sure if this goes the other way as well but I hope this was a one time lesson for me.
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jedwards
Registered: Jul 2009
Posts: 312 |
02-25-11 03:21 PM
Quote from Engine99:
I've had my worst trading day since May 6th 2010 (aka Flash Crash).
It all started out very innocent and I made a couple of UI changes to incorporate a control that forces a confirmation click before orders get executed based on this thread
http://www.elitetrader.com/vb/showt...threadid=215749
Then i tested it and had a little bug, so I ended up with some unwanted options. I closed the trade manually and somehow watched the S&P 500 futures drop and drop, so based on recent action I bought some and bought more. Before you knew it, I had 60 contracts in two different accounts (basically maxed out my buying power in both) and was 12 grand in the hole on this trade.
I'm not sure if some degenerated gambling instincts came to light today or what the issue was but 1. this is the reason I trade automated, and 2nd, I don't think I've ever had such a discipline problem.
Only good news is that I didn't barf the position out at the low point but watched it recover some. I still blew 1800 bucks today 600 in commission, about 900 in my discretionary trade gone bad, my automated systems would have done ok (-300) today considering the S&P took at beating as well.
Not sure what the message here is other than know your trading style. If you're an auto-trader who enjoys building algos and backtesting, don't think you can be cocky and kick butt at discretionary trading, just cause you did well automated in the past. Not sure if this goes the other way as well but I hope this was a one time lesson for me.
I feel your pain. I just screwed my account last night by trading the DAX, which I rarely do, and then adding onto my losing positions and watching it go totally against me. I went absolutely crazy for around 30 mins, doing things I *never* do, and lost almost $2000 in a single trade. Trading every day appears to have me blow up once every 3 months or so, it's stupid and frustrating.
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DGunz
Registered: May 2007
Posts: 77 |
02-25-11 06:12 PM
Engine,
With out needing to know all the details for all your models, would you say that a majority of all your positions are net short premium/short volatility? For example credit spreads/naked premium?
I wanted to comment for a while now about your benchmark performance comparisons. I think you should really add, whether publicly or privately, another performance metric; you should determine your edge as alpha vs similar strategies. For example if you have a self adjusting iron condor as a "system" then you should really compare your performance to an iron condor on the spx.
The reasoning is simple, because short premium strategies inherently produce long consecutive wins before large losses, if you indeed have an edge, you should out perform the same type of strategy.
Trader performance needs to seek alpha not baseline. And short volatility from when you started mid last year has performed nicely, but the question is, have you out performed an equivalent benchmark. As you know with options, not only are we specuilating on direction but we are speculating on IV as well. So doesnt it make sense to compare your performance to some sort of volatility indicator. Like the (Volatility Arbitrage index) Depending if you are net long or short volatiltiy you can compare it to the index. If you are not getting alpha vs the Vol Arb Index, then basically there is no edge.
What is your portfolio vega? This whole posts is only relevant if you are net short premium. If not then I think your doing fine, and perhaps this can help someone else. The results you achieved is no less than absolutely amazing, provided that your portfolio was delta and vega neutral, was it???
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Engine99
Registered: Jul 2007
Posts: 266 |
02-25-11 08:15 PM
DG, great input, I need more of this !!!! ;)
The problem is I don't have historical data to compare that against.
e.g. right now if I beta weigh my portfolio (the majority of it) against the SPY, I have about 900 Deltas and about 3500 Vega compared to the spy (both long across all strategies).
Is there an easy way to compare that against the Volatility Arbitrage Index (or a call write or iron condor benchmark).
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Engine99
Registered: Jul 2007
Posts: 266 |
02-25-11 08:18 PM
Quote from jedwards:
I feel your pain. I just screwed my account last night by trading the DAX, which I rarely do, and then adding onto my losing positions and watching it go totally against me. I went absolutely crazy for around 30 mins, doing things I *never* do, and lost almost $2000 in a single trade. Trading every day appears to have me blow up once every 3 months or so, it's stupid and frustrating.
jed, good luck getting back on track. For me the "screwing around" as much fun as it was, wasn't any different than Vegas and the fun was over once I looked at my P&L. 12 grand is about 5% of my portfolio, but it's also a month worth of day job for 30 minutes of excitement. Worst of all I was backed into a corner, it's not fun if you're out of buying power and your only move left is to hope for a miracle (which eventually came). I have a feeling I'm cured screwing around for a while now, I hope you felt the same way in your case and are ready to move on.
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DGunz
Registered: May 2007
Posts: 77 |
02-25-11 11:13 PM
Quote from Engine99:
DG, great input, I need more of this !!!! ;)
The problem is I don't have historical data to compare that against.
e.g. right now if I beta weigh my portfolio (the majority of it) against the SPY, I have about 900 Deltas and about 3500 Vega compared to the spy (both long across all strategies).
Is there an easy way to compare that against the Volatility Arbitrage Index (or a call write or iron condor benchmark).
Let me get this right, you beta weighted your all your options systems against SPX and you came up with 3500 Vega. So you are currently a net purchaser of options, then correct? What about over the course of your trading???
If you have a call write system, which is the same as short puts, which is short volatility - it could be bench marked to the overall Vol Arb Index. Think of it this way, you want realized vol to be less than implied vol over the course of you holding the position. Very likely, in a moderately volatile month, you will make money with call write but so did any other strategy that sells implied and buys realized, so wheres is the alpha??? You have to be able to measure that you indeed did a lot better.
Lets look at your call write system, hypothetically if you sold 5% OTM puts on SPX, with the same amount of margin use, that you used on call writes, did you make significantly more money with your own system? Thats the million dollar question, because a simple 5% OTM put selling on SPX made money over the same time.
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