80 trades were automated trades this week. The automated system is up about 25k this year. It trades about 1/3 of my net liqu value. The rest was in discretionary trades. I'm very short indexes/ETFs mostly (futures, spy and SPX options). Many of the options are laddered, meaning they have different expiration dates. Those are not new trades, nothing changed in my market opinion, however I do need to roll the expiring options and/or add to my hedges as they become useless. As far as methodology goes, don't think about this as the opening bell rings and I'm looking for trades. That's very rarely the case the only one that comes to mind this week was WAG after earnings. I've already made my bet on the majority my net liq, it's a matter of keeping the trade or closing it (or reducing it). The way I trade is that the opening bell rings and I need to look which options are completely useless, roll those into the next weeks or month and or look at my overall portfolio delta and manage it closer rather than letting it run (as I have been for the most part).
Why not go 100% automated then ? Do more of what works & less of what does not. And if you really must do the discretionary stuff, trade it i) in a separate account and ii) Very small (tiny) size compared with the automated stuff.
That's why http://en.wiktionary.org/wiki/hindsight_is_20/20. If the results would have been different I guess the recommendation would have been different
So, if I understand correctly, you think the poor performance of your non - automated trading just just a temporary situation ? If so, then what's the problem ? Sorry if you think I'm trying to be a smart arse, I'm not. Anyway, Holland vs Mexico starts shortly, so I'll be busy wtaching that.
My net liq is lower today than it was on Jan 1st for the first time this year. 6 month trading and nothing to show for while every index fund is up at least 8%. I barely looked at the market today but looked at previous years results. - On average I've had 4 winning days a week (obviously not this year). - I've had half my profits made by August every year (not this year nor last year). - My pairs trades rarely have several losing days in a row, they trade many positions (right now about 150 so some bad pairs usually get absorbed by other profit pairs). Right now I've had 4 down days out of the last 5. So everything's off right now and I'm down 6k5 for the year. Every day I have to sell puts to keep my delta somewhat in check but then again selling puts seems like it's a risk less trade. Wait for a down day (they don't come very often, so be patient), then sell puts and cash them in the next day. This reminds me so much of Y2k (or maybe it's Netflix being up 30 points today after a 100 point gain last month). Guess I better buy some nasdaq since it's up only 50 points, I don't want to lose out on this rally.
Gamblingman - its been interesting reading through all this. Whats your plan with the S&P short now? keep rolling it over? What size drop do you need to make your money back, 5% or more like 20%? Being short the S&P must be exceptionally difficult psychologically. Probability (based on past data) suggests that your going to get a 5% drop by the end of the year. If your looking for much larger, say 20%, then it normally requires a recession and that seems a long way off to me with improving employment data and low interest rates. The only way I would keep that position is by also taking out a highly leveraged long position on emerging market stocks. If the global economy keeps improving then in my opinion they will have much greater gains - both from earnings growth and PE multiple expansion which is now ca. 11 so way below the S&P.
Actually selling puts is (usually) statisticaly OK. But still it seems to me like you need more statistical and mechanical approach than "I better buys some nasdaq since it's up only 50 points..." How much money you have made from start of the year with pair trading only? Answer in % will be good, because I don't remember how much money do you manage.
Right now I'm sitting @ 19.7% for the pairs (after commission and borrowing cost). This is using about 3 times leverage on average.
I capitulated for the most part on my short S&P and yes it's difficult psychologically. I'm short 5 E minis, which is less than 1/3 of what I was short last week. After many comments over the weekend I covered 12 on the open on Sunday, which helped since yesterday I would have gotten killed even more. I would need a 11% drop to get back to even, which isn't going to happen. So the plan is to keep rolling up and collecting some premium, but mostly keeping my delta in check. The big challenge is going to be managing those puts if we actually do drop, since volatility is going to expand as well. But then again we just go up, so I may not have to worry about it.