Karen the Supertrader - TastyTrade Hybrid Experiment

Discussion in 'Journals' started by Sweet Bobby, May 18, 2016.

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  1. Amalgam


    What is "managing risk?" You either take risk or lay it off. No option I've ever sold had some magical thing I could do to save the position when it went against me, only options ever were adding more risk or cutting the loss.
    #311     Jun 16, 2016
  2. The GTC has nothing at all to do with my management of risk during a major gap down. You just don't get it. I am fully aware that it will blow right on past my GTC order.

    That is not my management technique for a Black Swan. How many times are you going to blabber about this? Nonetheless, carry on.

    #312     Jun 16, 2016
  3. Very good point. You have to take some risk to get a reward. When I say I'm managing risk, I mean that should some outlying move occur, it will not put me out of business and I will survive to trade another day.

    #313     Jun 16, 2016
  4. As an example, one of my GTC orders kicked in today closing a trade at 2x the credit received. It performed exactly as I intended to under normal market conditions. It isn't intended to do that under a Black Swan event.
    #314     Jun 16, 2016
  5. i960


    Okay, so what are you going to do under a black swan event then when those options turn into 5-10x losers vs what you originally envisioned?

    If the answer is "keep my size reasonable so that under 'worst case' scenarios" it wouldn't wipe out more than 5% of my account" then wrong answer. There's no way to do that AND make a high return at safe levels of risk whilst using this strategy or in other words there is literally no way you'll get anything close to 30% a year and suffer only a 5% drawdown in "adverse selection" cases using a "premium selling" strategy like this.

    I just pulled up the Sep'16 chain for ES and as an example 1600 puts (3.8 delta, 1.0 vega, 32% IV) are 6.25/6.75 right now. Let's say you sold two of these every quarter for a year straight (you can't sell more frequently and still hold until expiration either because that means you're now "over-leveraged"), you'd be up a whopping 2600$ - meaning on a 10k account (which would be nuts), it's a 26% gain in the take-it-to-expiration, never ITM, absolute best simple case.

    Now let's say you start the new year off on the wrong foot where one of those 300$ "premium selling never loses" specials goes to 50 bid after Pyongyang nukes Seoul on a Saturday night, leaving you with a 5000$ boat anchor, you're out 4400$ - completely killing 10 months worth of "trading" and converting your shiny 12600$ account to a new 8.2k account or a 35% loss in one friggin' trade. Who the heck would want to trade in such a way that they work hard on something all year and then one single event erases all of that (and more)?

    Still think "Karen was over-leveraging" ? No - it's this simple, the things you are trading have incredible risk embedded in them. People want to ignore that risk because they're too attracted to a "sure thing / never be wrong" mentality and downplay all the people telling them the trades are dangerous. They come up with fancy "risk control" methods like GTC stop orders, ridiculously OTM "insurance" options, and other games to give themselves a false sense of security. Then the day happens, they get smoked, 25-50% drawdown if lucky, way way worse if not lucky (as in you owe your broker money).

    While the examples I gave for outlier events may sound extreme, so does 12 months of absolutely perfect trading with no losses whatsoever. Translation: you will not earn 30% a year without completely risking your ass here.
    #315     Jun 17, 2016
    kinggyppo and DTB2 like this.
  6. i960


    Oh, well I missed this post - so what is your plan for that scenario?
    #316     Jun 17, 2016
  7. One trade today. I sold the ES JUL 16 (EOM) 2160C(1) with 42 DTE for $3.75.

    The account is up $345 for the day and up $2,028 since April 5.

    Theta is 226, delta is 202, vega is -1008, and gamma is -62.

    Have a great weekend!

    #317     Jun 17, 2016
  8. 3 trades today.

    I mechanically bought back theSPY 15 JUL 16 183P(3) after 24 days for a $24 profit.

    One of my GTC orders kicked in and closed
    SPY 15 JUL 16 215C(3)/184P(2) for a 50% profit of $145.

    I opened one new trade by selling the SPY 29 JUL 16 219C(2)/195P(1) ratio strangle for $1.56 with 39 DTE.

    Theta is 209, delta is -38, vega is -972, and gamma is -59.

    The account is up $1,147.89 for the day and up $3,176 since April 5.

    Happy trading!

    #318     Jun 20, 2016
  9. DTB2


    I think there is no answer, thus no answer is forthcoming. ;)
    #319     Jun 20, 2016
  10. No, an answer is forthcoming. I've been too busy to construct my response. I need to be in front of my computer, but my response will basically detail the risk that I am willing to take on the portfolio.
    #320     Jun 20, 2016
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