One notable take-home from today: I don't have a quick go-to response for a vol pop like we had today, and it seems like it would be a really good idea - assuming such a thing is possible. By the time I've checked my list, looked at the premium for each one, and worked through the possibilities, the girl has not only put her clothes back on but has slammed the door and is off dating other people. Maybe this is a place for some cheap, low-risk lottery tickets, where I can just pull the trigger after a quick go/no-go review? Hmm. Another item on the "give this some hard thought" list. That list is actually getting long enough that I may need to take a few days off from trading to do it. Trading puts me in a very different mode of thought from what's needed here (quick reaction with only surface thinking applied.)
Well then. That got really exciting in the last few minutes. Scorecard: Action: Recount: SPY hit the put-side stop on that iron condor and triggered my market order - which just sat there as the price headed for the ground like a skydiver who had packed his underwear instead of his chute. Fortunately, it popped back up... and only then did the order fill. Initial credit 0.17cr, short strangle off at 0.50db, long strangle off at 0.37cr. Overall, $40 to the good - which was quite a surprise, and could have been much worse. Watching that happen wasn't a lot of fun. Sure, it's a vertical with a max loss that was capped at $830 - but now I'm seriously concerned about just how useful stops are. If one failed to get me out immediately in an underlying with damn near infinite liquidity (which would have been about a $170 loss), then... what? Are stops only useful for trades that move much slower than these 0-day beasties? Do I just need to focus on defined-risk strats with "reasonable" ratios (i.e., deltas above 25) and forget about using stops? I thought stop mechanics were fairly simple, but it seems that there is more to it than the books say.
Interesting. Firstly, can I say I enjoy reading your journal - it's clearly written and easy to read. Secondly, if you are open to suggestions, may I make a recommendation? I see that you are currently practising, but when you decide to scale up, I suggest you try trading SPX rather than SPY. I'm sure you are already aware, but these are the various reasons : 1) Lower comms. As SPX = 10 x SPY, you only need 1 lot in SPX for every 10 in SPY. 2) Early assignment risk. Since SPY has American style options, there is a risk of early exercise of short options which are ITM. SPX being European style doesn't have this risk. In addition, you don't need to worry about the dividend dates, which could lead to this situation with SPY. 3) Cash settlement. SPY is stock settled and SPX is cash settled. Combined with (2), it means it's easier to deal with SPX, if the shorts are exercised against you. (Personal episode - about a decade ago, I woke up one morning to see that my account had literally tens of thousands of short SPY shares. My short, deep ITM calls (part of a credit spread) had been exercised. I got out with a manageable loss, but the experience wasn't a pleasant one, and I vowed never to repeat it again.) In terms of stop loss, the longs on your iron condor act as the stop loss. Stop losses are unreliable during volatile markets, esp on expiration day near the close, because the bid/ask spreads can go crazy wide and fluctuate madly. Personally, I don't use them on credit spreads or IC's. Happy trading.
I really appreciate the feedback. That's a large part of my intent in writing it, and I'm glad to hear it's working. (A bit of programming lore: one of the major reasons for documenting your code, with verging-on-stupidly-explicit explanations, is not so much that other people will want to understand it but so that you, reading it a month down the road, will not go "what the hell was I thinking when I wrote that???" Funny as it may sound, it's actually true: once you're no longer in "hack mode", where you're holding all the relevant factors in your mind, your own code - which seemed trivially obvious at the time - will appear absolutely incomprehensible.) I am indeed open to, and grateful for, suggestions; in fact, that's one of the other major reasons for this journal. The market is always happy to give me feedback, but 1) the cost of a mistake can be ridiculously high, and 2) the "messages" you get can be absolutely cryptic, especially when you're first starting out. I much prefer, and intend to be (to whatever degree I can), someone who is willing to help their fellow traders grow their skills - and benefit from that mutual exchange. One of the things I should note is that, as a veteran who is signed up for TradeStation's "Salute" program, I don't get charged commissions. It's a pretty damn stunning benefit, and whatever grousing I do about the TS software or service is always colored by my respect for their really putting their money where their mouths are, in this regard. It's a huge help to a new guy trading small. Bloody hell - I completely forgot that SPY had div risk. Wow. Thank you! I've traded SPX ($SPXW.X, to be exact) a couple of times - in fact, it was this exact sort of trade - and it came off pretty well. The thing is, 99.9% of all trading I've done has been American-style options - so (I'm just now realizing) I have this bit of vague unease about European-style options due to much less familiarity with them. I realize this is a bit broad, but: other than the larger size, what would you say are the things to watch out for when trading it? I'm going over everything I know, and, all else held equal, it seems like several "free" benefits... which I've grown very suspicious of. Maybe I'm just being paranoid. This is actually a concern for me. If, say, SPY is exercised against you, you are short shares: scratch, a little profit, a little loss - all are within a reasonable probability spread. If SPX is exercised against you, you're down $300k per lot, end of story. Am I misunderstanding something? Thanks; I appreciate your recounting that story. I've been somewhat on the fence about closing these out right before expiration - I have a friend who has been doing them for years, and he always lets them expire unless they're going obviously bad - but you've just helped me firm up my decision about always getting out before the close. Someone I know just got assigned 10 lots of SPY last week, after being told "don't worry - it closed OTM, you're absolutely safe!" by her broker. Digging into it, I found out that the price at which she got assigned was fixed at market close, but that the owner's right to "exercise by exception" - i.e., early assignment - does not end at that moment (TradeStation is impenetrably vague about it despite my hammering as hard as I could, but it's somewhere between 30 minutes after and full settlement the next morning.) Hell of a shocker to her (although she managed to get out with a few dollars of profit), and to me as well. Between that, and your story above, I'm now committed to getting out every time. I've just learned that on my own hide. And that may well be the kiss of death for this kind of high-ratio ICs for me. Or certainly a ground-up rethink of this strategy. My main concept in them - very strongly driven by "trade small" for now - has been that my max loss is capped by my stops, which I set approximately equal to my max profit. But the rude awakening I've just had - which absolutely corresponds to what you're saying - made it crystal-clear that my risk is only capped by the wings, and that the stops are nearly useless (and completely useless as you get within a few minutes of the end.) Again, I really appreciate your helpful response. Plenty of things to think about, and useful decision factors.
This point is especially salient. Stops have their uses, including in options where you've defined your "uncle point" - I think of those as "emergency preservation of capital" stops. Slow changes in price, due to volatility changes or otherwise - e.g., 3SD moves that take a day to happen - don't make them any less useful for that purpose. But huge, fast swings, like the ones during the last moments before expiration? Yeah. Totally useless for that scenario. That one's been burned into my brain now.
Rolled the XBI trade out and down for a small credit: Interesting sidelight: I find my thinking on rolling has been somewhat affected - maybe positively - by various people in my "adjustments" thread who basically said "simply close the trades that become non-profitable". I disagree with that premise when stated that baldly, simply because a) many of my trades don't have strong directional views and b) price moves over time, meaning that trades that I expect to eventually be successful will almost always be red at some point during their lives. But if I try to extract whatever sense might be in it, the idea of not treating the roll as one solid whole but considering it as two parts - i.e., looking at it as exiting the old trade for a debit while opening a new one on better terms (credit, better risk position, some combo of the two) - is actually useful. In fact, looking at the closing price and the options for the a trade in XBI resulted in a different perspective (including a review of "is trading in XBI something I want to do right now?") My original thought was to simply roll this out - in fact, I had that roll up at 0.50 for a while, and watching the premium move around as the price and the vol change was both interesting and educational. But looking at the chart, considering the current VIX (20+ - which, in theory, gives me a shot at decent premium), and reviewing the possibilities, I found that rolling down to the 79 strike was really appealing if I could do it for a credit. I wasn't in any major hurry, and the XBI price had been cycling all morning - so I set the price to a couple of cents above mid and let it roll. It filled about 10 minutes later. Good bit of learning overall.
Following up on this thought... oh, of course not. 1) Given the settlement mechanics of SPX (really, SPXW; I see no reason I should expose myself to that AM-settled craziness), I'm simply not going to hold it till expiry. In fact, it may be a good idea to put a time-based exit on any SPX trades I open, just in case I get hit by a speeding shopping cart or whatever. 2) The loss at close, assuming one, should not be significantly more than abs(sold_strike - close) * 100 * num_lots; i.e., if I sell 5 contracts at the 3200 put and it closes at 3201, then I'm out $1*100*5, or $500. I plan to be Johnny-One-Lot for a good while yet... to quote AllDayFaders from Twitter, "You need to earn size". I'm on board with that. 3) Per the lesson I've learned on this last 0-day IC, I'll be exiting or managing whatever short trades I do when I either a) see significant profit or b) see them going wrong. Yeah, there's gap risk in that approach... I don't know that there's much I can do about that. At least until I've got hedging down (in process now.)
BOT GE Oct18 7P, 0.24db This morning, my portfolio delta was ~185; this brought it down to 45-ish. I do like to sell puts, and I am generally bullish - but that was quite a bit over the amount of exposure I like. Plus, it's a cheap bet against GE, for which I've long harbored a mild dislike... I know, it's a damn poor reason for investment decisions. But when reality aligns with preference, I'm happy to gloat just a little. I've also been pricing put ratios and skip-strike flies in ETFs, but so far, I'm treading on very uncertain ground. Some of them looked pretty good, especially when my assumptions about price movement line up with the strikes I want, and I end up with a bit of credit to boot - but what I was really looking for (that is, one of these in an ETF in the $10-$20 range so that even the worst mistake won't hurt much) never quite lined up. Would be lovely to find some really good material on how these work - plus something to model the volatility surface for the chain I'm looking at. Been trying to code one up, but the Python module that used to do the data retrieval is out of date... My learning process is currently about 75% research/study and 25% practice in the market, and I'm seriously jonesing for a shift to something more like 50/50... but without the former, I get very little feedback/understanding from the latter. I WANT IT ALL ALREADY, dammit!
Closing several trades today, mostly based on a feeling of wanting to reduce my market exposure and "take another set" based on the current conditions. SPY @ 292.78, BTC 190920P284,2.45db (from 4.08cr) SPY @ 292.78, BTC 190920P284,2.45db (from 4.00cr) XBI @ 81.22, BTC 190906P79,0.49db (from 0.76cr total) This market feels like it's starting to turn bearish, despite the occasional rallies. I don't think it's filter or selection bias to say that the average Trump-tweet triggers a sharp correction - and I don't think that's going to change; if anything, it's going to get worse because investor fear is cumulative (and because ego-based flamewars never get any better on their own.) Much as I like SPY and its inherent diversification, I'm going to try some of the smaller indices, preferably with a lower degree of correlation to market movement. Having skin in the game is a lot of fun, and seriously pushes the parts of my brain that jump on the job of developing domain-specific skills and sensitivity as soon as they're convinced that it matters. It's not comfortable... but then, comfort isn't my main aim. Building skill sets in areas of life that matter to me, that give me the most direct engagement possible with things I want to achieve, is.
STO IWM 190913P144.5 $1.00 STO QQQ 190913P181 $1.25 STO TLT 190913P145 $1.07 BTC TLT 190913P145 $0.97 VIX is still high, and the prices slid off a bit today, so I'm opening a few (shorter-term) trades. I'm slowly settling on a rationale for wheel trading that's bounded by not caring that much about the greeks (since my default plan is to hold till expiration) and taking advantage of them when the trade goes my way - i.e., taking a sufficient percentage off the top if I happen to reach it during the trade. So far, I haven't been assigned on a single trade and have been harvesting bits of profit pretty regularly. TLT, above, is a good example. I usually put in a day sell order for 10% or thereabouts when I open a trade, because getting paid 10% for (in this case) less than 7% of the total risk is a good deal. This one took 21 minutes. Meanwhile, the Qs are quite far from spot (187.47) - which is very pleasant, but rather confusing. I sold them at the same delta (30) and expiration (14 days) as the others, but ended up just under six and a half points away by comparison to the usual four or so. IWM, by comparison, is at 148.84 - just a bit over a 4-point offset - and with a smaller premium/break-even distance to boot. It doesn't seem to be the IVR/IV% (29/58); that's not especially outrageous. So I'm at a bit of a loss, especially since I would love to know how I ended up here!