Alright time for another trading thread to add to the long list of threads. I've found some really good and interesting threads that I've learned a lot from. Kudos to optioncoach for the infamous SPX credit spread trader journal which I finally have completed reading the entire monstrous thing. So I've been testing a strategy on paper since Jan as its my sad and pathetic new years resolution every year to try and come up with a trading strategy that I paper trade and eventually roll into production once I'm happy with it. For this year I paper traded a strategy (I"m not sure if this is an existing strategy with some retarded name like iron condor or butterfly). I'm just going to call the strategy "SUCK IT." The strategy is simply to buy an in the money call or put debit spread with at least 3 weeks usually more till experation. I am only buying RUT spreads. On the same day that I buy the RUT spread I will hedge the spread purchase by selling an ITM IWM call or put. The goal is to have the long RUT spread stay in the money and gain value while the short IWM option loses premium value and HOPEFULLY by the time experation comes around, the RUT and IWM prices are close to where we started (similar to a calandar spread). Why am I putting SUCK IT into production? On paper trading the strategy logged a nice 100% return for the year. The sept - november period did manage to generate a 17% loss for that time period however just this month alone has generated back 20% erasing the prior months losses and still ending the year at slightly over 100%. So I am happy with the paper returns and have decided to put some real skin in the game and put a portion of my aggressive portfolio towards this technique. At the risk of jinxing myself and having this thing blow up in my face.....I figured what the heck no risk no reward! So as I said, I've finally decided to put some real money behind this thing. I'm looking at putting 30K towards SUCK IT and we'll see how it goes. Here are my current REAL positions: bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 These positions were opened back in november and I am currently looking to establish some new ones for this month but due to pricing I may actually start purchasing positions expiring in February. Here is an explanation of the position description above: bot jan 460/450 put/short jan 45 iwm put@ cost of $47 "bot jan 460/450 put" this means that I am long the jan 460/450 put spread for which I had to pay. "short jan 45 iwm put" this means that I have a short put sold at 45 for which I received premium. "@ cost of $47" means this is my total cost of the position. So in this case the result of the cost of buying the RUT debit spread minus the premium from selling the short IWM option = $47. So in this case if RUT is above 460 by jan expiration I would incur a loss of $47 and this amount does include commission costs. So I am now aboard the SUCK IT train and we'll see if it crashes and burns!!!!
Did you adjust all trades for slippage, commissions and the occasional trader error, panic or other trading problems? On paper, people do not execute the same way, they do not use the same money management, they do not use the same cool logic, etc. etc. I would guess a 100% paper trade results as you described, even if properly executed, should be cut by at least 50% or more
I didnt' do too much accounting of slippage, I figured I'd simply just use market orders to do my call entrances since they always trigger at the crappy bid prices. So I think I'm factoring in a little bit of slippage by overpaying for the debit spread and getting screwed on the selling of the hedge. Obviously now that I'm using a live account with real money I'll be hopefully getting better pricing but we'll see. No way to know how my money management skills would be in a nasty environemnt like we had the past few months unless I have some real skin in the game. I traded through the last couple months with my other positions and managed to eek out a gain so we'll see what happen with this. I agree 100% is probably not doable in a live trading account for the reasons you mentioned above. However, I will take as low as a 30% return on this strategy for a year. If I don't generate at least 30% return in the next 12 months I will scrap this assuming the market gods haven't put me out of business by then. So no I am not expecting anywhere near a 100% return, my expected target is around only 30%.
I added one more feb call position today. Here is a list of my current open positions: bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $77.06 Obviously I'm really hoping to get RUT in the 450 range by experation next month. Lot of time left so we will see how it shakes out
Well today we came pretty darn close to touching the 50day EMA but alas the market sold off of it. I'm not really seeing any upcoming reason for the RUT to go above 500 in the short run. I'm expecting a pullback in the short term to around 460 or 470 at least before we try closing above 500 and actually stay above 500. I went ahead and opened another feb SUCK IT position on the put side. Until the market actually breaksout of this wide consolidation range between 440-500 I'm going to assume we are going to get more sideways consolidation. I obviously I don't mind consolidation and if the market does manage to close above 500 then I will do some adjusting to my jan put positions. Here are my current open positions: bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $77.06 bot feb 520/510 put/short feb 51 iwm put@ cost of $42.06
Well got the short term pullback today on low volume, so can't really place much signifiance to the market. I'm sure the next week or two will be more of the same because of the holidays, which is fine with me if we keep trading in this 440-500 range. I'd be happy with Jan experation anywhere between 410 and 480 so consolidate away as far as I'm concerned. Today I went ahead and added to my feb call position: bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $77.06 bot feb 520/510 put/short feb 51 iwm put@ cost of $42.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $148.06
Well the sideways trading continues as more meaningless trading continues which is perfect for my jan setup. Only fear now is that typically low volatility trading is followed by high volatility which means a breakout or breakdown is approaching. Only problem is that even next week has no real significant eco news coming that I can see. Looks like the next Jobs report is scheduled for Jan 9th according to briefing.com so maybe we get more sideways trading through next week. I may start closing out the Jan positions by the end of next friday (Jan 2nd) depending on the market conditions and pricing. The last thing I need would be a break of 400 or 500. I went ahead and added another feb call position. bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $77.06 bot feb 520/510 put/short feb 51 iwm put@ cost of $42.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $148.06 bot feb 440/450 call/short feb 45 iwm call@ cost of $137.06
So far I'm just sitting watching the premium dry up on my short iwm calls and puts which is good while the market does nothing. I am keeping a close eye on the following position: bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 Right now I would be more comfortable with a breakdown below 450 on the RUT as opposed to a breakout over 500. And it seems like the market might be setting up for another run at 500 so I might close this position out or do some adjusting to it if we do breakthrough 500. Reason being I think a move above 500 has the potential for the market to run much higher versus if we breakdown then we might have support at 440, 400, and 370 which shouldn't do as much damage to my other positions. A move above 500 could start creating some losses so I'm keeping an eye on that 500 level. I've also added another feb put position. Below are the current positions. bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $77.06 bot feb 520/510 put/short feb 51 iwm put@ cost of $42.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $148.06 bot feb 440/450 call/short feb 45 iwm call@ cost of $137.06 bot feb 500/490 put/short feb 50 iwm put@ cost of $112.06
Sort of an interesting day today. Another low volume day so can't take too much out of it but it was nice to see a decent move in the RUT compared to the relatively flat past few days. What is interesting is the move down to 460 again.....and once again no luck for the bears to take that level out. This tight trading range should break and break hard. Normally I would have thought that 440 or 500 would have broken by now but with the light holiday trading the break seems to be getting stalled. I'm basically thinking at this point that we may have to wait for the catalyst of the breakout or breakdown until next thursday or friday when the official retail numbers and jobs report come out. I'm leaning towards a move up to 500 in the next couple of weeks as the tax selling should be done this week and we may get some buying at the start of the new year, and mix that with some possible "buy the news/sell the rumor" action as people start buying into useless #1s departure and start to sell as we get closer to useless #2's take over. I'm concerned about a useless #2 rally because he takes over Jan 20th and option expiration is Jan 16th so it could be a pretty volatile market. This is why I am trying to find a good exit point prior to even Jan 8th for my Jan options position. The goal is to generate 30% return a year which is about 2.5% per month. I think I can close my Jan options positions for about 3.5% - 4% return right now so I may let greed get the best of me and see if I can hold out for more premium to decay this week and look to start closing stuff early next week. I've added another feb call SUCK IT position and as always here are the current positions: bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $77.06 bot feb 520/510 put/short feb 51 iwm put@ cost of $42.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $148.06 bot feb 440/450 call/short feb 45 iwm call@ cost of $137.06 bot feb 500/490 put/short feb 50 iwm put@ cost of $112.06 bot feb 440/450 call/short feb 45 iwm call@ cost of $163.54
Looks like we're inching closer to that 500 level, its anyones guess if it holds or not. In the meantime I added another feb put position. bot jan 460/450 put/short jan 45 iwm put@ cost of $47 bot jan 470/460 put/short jan 46 iwm put@ cost of $52.06 bot jan 480/470 put/short jan 47 iwm put@ cost of $68.51 bot jan 500/490 put/short jan 49 iwm put@ cost of $53.82 bot jan 400/410 call/short jan 41 iwm call@ cost of $117.34 bot jan 440/450 call/short jan 45 iwm call@ cost of $208.54 bot jan 420/430 call/short jan 43 iwm call@ cost of $177.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $77.06 bot feb 520/510 put/short feb 51 iwm put@ cost of $42.06 bot feb 450/460 call/short feb 46 iwm call@ cost of $148.06 bot feb 440/450 call/short feb 45 iwm call@ cost of $137.06 bot feb 500/490 put/short feb 50 iwm put@ cost of $112.06 bot feb 440/450 call/short feb 45 iwm call@ cost of $163.54 bot feb 510/500 put/short feb 50 iwm put@ cost of $128.06