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Karen the Supertrader - TastyTrade Hybrid Experiment

  1. This is a test of a strategy combining what we know of Karen the Supertrader's strategy combined with some of the research from TastyTrade. Will it be profitable? Time will tell. I started this experiment on April 5, 2016. Here is a link to my spreadsheet where you can follow along.



    Thus far the account is up $2,034 on a $150,000 account. This should be interesting.
     
  2. ...So in about six weeks you made 3% :po_O, or an average of .10%/day
    Easier said than done in the long run, and most people fail... but I would hardly call that a SuperTrader.
     
  3. Karen the "supertrader"

    Why not attached the youtube clip where she says she almost blew her account during the flash crash.
     
  4. 2 things you might not be aware of:

    1. There is a Yahoo group where they have been running this experiment for 2+ years now. No need to reinvent the wheel.
    2. She is using portfolio margin so she can write way more contracts than your retail margin allows you.

    2K on a 150K account is 1.5%....
     
  5. any chance can share the Yahoo group location / domain ? thanks
     

  6. Call me pedantic if you want, guys, but when I left high school (only a few years ago), $2k on a $150k account was actually 1.33%.

    Must be this "new math", I suppose ...
     
  7. I am a member of the Yahoo group!
     
  8. I can already tell that I'm going to get a lot of support and encouragement on this thread. You guys are the best!
     
  9. This is an experiment. I am not a Supertrader.
     
  10. You seem to be very familiar with the clip. Would you please post the link? Risk management is very important with this type of strategy. On the analyze tab in TOS, I am looking at 7 price slices, with the top slice being up 15% and the bottom being down 20%. The goal is to keep the resulting net liq above the margin requirements at those levels.
     
  11. So can you tell us the outcome of the experience?Also what is your expected annual return?

    About the link to the interview, I think there are actually 3, all on Youtube, really easy to find...
     
  12. The yahoo group has been a wonderful experience. We have two main posters, Tom and Keith. They have developed their own individual strategies and they are very different. They are both very successful traders. If covered calls and cash covered puts is your strategy, best wishes. This hybrid strategy is just a test. I think it's worthwhile to see how it performs, don't you? If you have no interest in how such a strategy performs, we will certainly miss your input on this thread.
     
  13. The goal is to collect theta of 100 - 150 per day. Hopefully, that would result in a goal of between 25% to 36.5% per year if all works out.
     
  14. Since you are selling more puts than calls in an environment where vols look to be increasing and market has been possibly tipping over, you might see how well this system does under pressure. As I am sure you are aware, one of those trades popping against you will simply wipe out all your gains. Basically the vanilla selling premium on the indexes which is not reinventing the wheel per se. Always works well in a choppy market like we have had for last two months.

    Also, I could never follow a model from someone who claims to be a "Supertrader" and then pushes a strategy basically known to every option trader. Hyper marketing always raises red flags making the strategy seems safer and easier than it appears.

    Just raising some obvious caution points from someone who did ICs on the indexes for years and got out well before volatility exploded.
     
  15. Thanks for your input. I hope you realize that I am NOT a Supertrader. I know absolutely nothing. Also, this is a hybrid approach. I, unlike Karen, am not selling two outs to one call on a regular basis. Karen does not look at her delta. I am looking at delta. My "vanilla" approach is not trying to recreate the wheel. What may well be known to you may be entirely new to me. So feel free to follow along as I eventually wipe out all of my gains.
     
  16. 1. She never said that. The Tasty Trade guys called her like that for PR purposes.
    2. Then there should be plenty of HFs with the same performance records.

    I think what makes her different is the implementation of the strategy.

    I don't think you can get that much without portfolio margin. Did the guys in the Yahoo group got 25+%?

    Projecting your 6 weeks performance, you can expect a ~14% return...
     
  17. I know that Tom in our group is exceeding 25% if memory serves me right. I think Keith was up around 20% last year. I would have to go back through our discussions to verify. They regularly post their trades and results.

    In starting this test account, I had to rev up in the beginning and start slow and gradually build up the account. I couldn't start with one big trade just to get my theta up to my target. My current theta is at 112 so I'm just now getting in the sweet spot. As you can see from my log, I only have 9 opening trades.
     
  18. Don't understand your point #2, hedge funds have nothing to do with this. Selling premium against the index is nothing new, it all comes down to the implementation which is true of anything so we are just saying The sky is blue.

    But her claim to take $10k to $41 million in 3 years screams of highly suspect to me... How do you make that return using a limited profit strategy during years of intense volatility. Story does not add up does it? Evne with the claim of portfolio margin she started with $10k so could not use it to start. Also portfolio margin does not allow for millions of dollars in leverage when you have very bad R:R strat.
     
  19. Bobby,

    Your approach might be more realistic but most of your trades are put heavy so keep that in mind. Vols will always affect the put side of the short strangles and vols are starting to creep up. Puts are often where the heat and losses come in.
     
  20. She runs a hedge fund. So if other HF managers envy her and her strategy is well known, they are welcomed to try it... Not to mention portfolio margin isn't available for most of us...

    Again, she never claimed the 10K to 41 million, you really have to rewatch the video. Those claims come from posts and Sossnoff sensationalizing it. Actually we have a few threads on her, just do a search on ET, I think I did a summary of her performance, which is by the way not clear. Her best year was when she was trading her own money and then the offers to manage money started to come in. Most of the money was raised and once she was handling big money her returns were around 20% IIRC...

    Again about the supertrader moniker, if Sossnoff says: we have a HF manager with a well known strategy making 20%, would you watch the video?
     
  21. There is a lot of misinformation about her and misleading information. Don't doubt she made money selling strangles (I myself did it) but all the contradicting info raises some flags. Why is it so hard to just tell the truth? Methinks because once the fund is up you need people to pour in money so better to let the misinformation run. One source says she turned $10k into $41 million. Another says she made $41 million from her hedge fund after it was extremely well funded and thus she was very large in position size.

    Another source from her says she will allow a position to move 30% ITM...she just keeps rolling out. Not something a retail trader could copy since a large fund can be solvent martingaling into a finite expiration period.

    I doubt she is the only HF selling premium, there are a lot of them out there, most cannot advertise like she is doing.
     
  22. OK for the lazy, here is the original thread:

    http://www.elitetrader.com/et/index.php?threads/karen-the-supertrader.254837/#post-3699074

    And here is my summary of her performance posted in that thread:

    Now there could be an explanation why she is not completely clear on her record: HFs can not advertise and going on a show and touting her record would count as such and she could be fined. By the time she was on TastyTrade, she already had enough money under management, so I don't think she cared about getting more... Just my projection...

    Most likely she never had a better than 50% return, specially not with the HF. It would be interesting to know her record in the last 3 years, but I couldn't find anything on the net when I looked a few weeks ago...
     
  23. I guess Google decided I wanted to read about "Karen the Supertrader" -- does anyone know the name of the fund or the person? I did not see a claim to turning $10K into $40M and I've not seen or heard the mistruths -- has someone compiled examples of where the interviews on tastytrade gave misleading information?
    It seems to me, the only claim is that if you can stomach the trading, a two or three standard devs wide strangle on the SPY or SPX can be managed to consistent profitability in huge size (over $1M.)
    As described in the Sosnoff interviews, having gone from a two-person novice operation to a team of polymath types, the capital influx was not insubstantial, and the gains have been consistent and far above typical performance for options traders.
    I don't think the core strategy relies upon a martingale at all. The most I've heard on that was "never give back profits" but that's several steps away from double-up to catch-up -- a suicidal gamble. I do think the basic idea of very wide, actively scalped strangles is, by definition, at risk of a black swan of the "markets can remain irrational longer than the trader can remain solvent" magnitude and duration.
    I don't know that tastytrade has ever disclosed the identity of the fund, though I can't say I've tried to find out, and they have suggested another fund would be added to respond to the requests to get in.
    If you want to see all these so-called hedge boutique exclusive invitation-only funds come out of the woodwork, open an account at TD Ameritrade or Fidelity with $250K or more. I've tried several -- they are not hedged, the invitation is forthcoming to anyone with the capital and the only similarity with a boutique is the high prices on otherwise mundane goods. In each of my attempts, it was either a "thesis" approach (fundamentals) or a "derivative" model (covered calls being the norm) usually with "picking" or "timing" as the crucial weakness -- trying to pick stocks on a theory of fundamental or technical (price) opinion, or trying to time the long/short, entry/exit on an unproven system of time and price behavior.
     
  24. One opening trade today. I needed a little short delta so I sold the SPY
    01 JUL 16 214C(3)/170P(2)
    By now entering a daily trade, I'm beginning to see my theta creep up to my target of 1/10th of 1%.
    Theta is 123. Delta is -48. Vega is -565.
    The experiment is down $22.16 for the day.
    Karen tells us that she lives on the analyze tab. I find myself more and more doing the same thing. Some thoughts for the day. Can you actively manage an account by using the analyze tab and looking at the Greeks? Today, I really didn't pay attention to the price movement of SPY to determine my trade entry, I solely looked at the effects on my analyze tab.
    If you enter high probability trades, manage risk using the analyze tabs and the Greeks, take profits at 50%, try to keep losses at around 2X the initial credit received, one would think that you can be successful with this strategy. I guess time will tell.
    Happy trading!
    Bobby
     
  25. Bobby - interesting thread and good luck. If this is a real account get portfolio margin rather than reg t (if you don't have it already) 150k is above the td/Tos threshold. Don't increase your leverage but having portfolio margin helps a lot when the markets get a little rougher and you need to put on new positions as the new ones don't reduce your buying power as much.
     
  26. One trade today. I sold the SPY ratio strangle:

    01 JUL 16 213.5C(3)/170P(2)

    The market was down and volatility was up, so I definitely wanted to sell some puts. But, after trying to be market aware like Tom, I looked at the chart for amount two minutes and decided we look like we are in a little downturn that might continue for a little while. So, since I was long delta, I wanted to decrease my delta. I therefore sold 3 calls to 2 puts.

    The experiment is up $56.59 for the day. My delta is 0.98, theta is 129, and vega is -566.

    I spent some time hovering over all of my positions to see if any of the puts/calls are in trouble or near Karen's radar of a 30 delta. All positions are safe and accounted for. I will add more positions tomorrow as I try to increase my theta to near my goal of 150/day.

    I am now of the opinion that I don't care where the market is - up, down, or sideways. I'm going to be wherever it is ready to put a trade on.

    Happy trading!

    Bobby
     
  27. I remember her saying that in order to avoid the next flash crash she would start using bollinger bands.

    Well Karen, I'm not sure how bollinger bands would save you from the next flash crash (If).

    Mbey she could swing of them and send herself up into subspace away from any negative account balances.

    Then she was like "its the Theta, you just hold the options and they decay and you basically make money".

    GJ Karen. Now she may never get attacked by a graceful black swan, but if she gets hit by a CHF similiar event, well, I know many companies went under because of that and when she sells options as she does she puts herself in a very risky place.

    The only thing I like about what she said is that she was starting to use different strategies as well, I think she said spreads.

    Selling outright like that would create sleepless nights for me. I'd probably chew my arm off X(
     
  28. I believe your memory is erroneous, she did say she uses Bollinger bands but not that she'd use them to avoid the next flash crash...
     
  29. CBC, with all due respect, and as an avid student of Karen's method who has reviewed the Karen videos in excess of 100 times, she said basically nothing that you indicated. Unless you have reviewed the entire video of hers at Dan Sheridan's event in the summer of 2015 and she said those things in that video (which I did not see) you are completely wrong and I have to sniff out inaccuracies on my thread.

    She never said that she started using bollinger bands to avoid the next flash crash. She did say that she uses bollinger bands.

    She does not use spreads, though she may at times at a long option if she started to get in trouble.

    Folks that think that Karen is going to blow up her account have no idea of how she manages risk. Karen lives on the analyze tab and is always stressing her account. She can have losses, some could be big, but she will not blow out her account.

    I appreciate your contributions to this thread, but I have to call out things that I know to be inaccurate. I do suggest that you review her 4 videos again as well as the ten minute clip with Dan Sheridan on YouTube.

    Happy trading!

    Bobby
     
  30. Seriously? "living" on the analyze tab of a retail punting app is not even remotely risk management. You will get smoked in the long term with this strategy. Hell, you'd probably be *safer* over the long run selling ATM straddles than these short delta/short gamma OTM nukes.
     
  31. Please e
    Rather than criticizing our methods of risk management, could you possibly share your enlightened methods of risk management for those of us who would like to learn? Thanks for having the heart of a teacher!

    By the way, just guessing, but you don't know how to utilize the analyze tab, do you? It's okay. It's not for everyone. We often condemn what we don't understand.

    Bobby
     
  32. There is no risk management of any sort by LOOKING at an analyze tab in TOS or any other program. If you're going to sit here and tell me jacking around with vol-jump settings in the TOS analyze tab is some form of risk management I'm going to laugh right at you. The only form of real risk management is to have active orders or fundamentally offsetting/hedging positions in the market that will be able to guard against a real move you have no control over.

    It doesn't matter how much modeling you do, "sell puts and hope" is not a form of risk management. It's an account liquidation waiting to happen.
     
  33. You haven't even looked at my trade log, have you. Yes I have offsetting hedge positions on as well as GTC orders on all my positions. This is not at all about blindly selling puts and hoping. I hurt for you not being able to understand my strategy.
     
  34. Where are the "hedge positions" in the log that you posted earlier? Are you accounting for their eventual losses in your P/L? GTC orders are a half-ass form of risk control, particularly when you're trading SPY and SPX - you will get smoked on a gap down like 8/24/2015.
     
  35. Why not try to understand this simple strategy rather than coming in like a damn bully trying to destroy and crash everything with a ball bat? If you have something constructive to add then do it. Otherwise, shut the hell up you insignificant newbie. You know nothing. Now get back to losing money and chasing every snake oil system on the planet. I'm glad you're in the markets. You help keep my kids fed!
     
  36. My first very successful strategy was based on condors and short strangles.. Until I blow 60% of a my account in less than a day. Not too bad after 2 years of great profits, my account was almost back where it was 2 year before. I considered myself lucky.
    I learned that bad real time events can and will happen (again) when the US option market is asleep and closed.
    I am definitively not a supertrader and happy not to be one :)
     
  37. Sori Bobby,

    I watched the vid a few years ago. I thought that she said she uses bollinger bands and different strategies after she the flash crash for more protection.

    Althought I remember the bit where she was talking about theta, she said that she enters trades and the theta just eats away at the options. I got the opinion that she thought theta was the holy grail. I couldn't find that bit either.

    Thing is Bobby, all options traders know about this strategy, and it is a great strategy 95% of the time. You could trade this for 12 months and not lose a thing, probably be the most profitable trader here on this site. If you wanted to do it for 12 months then I would be happy to say its a good strategy, I don't like it been used any longer than that.


    Up to you.
     
  38. Thanks, CBC. I think the key to Karen style trading is you have to stay small enough, manage a somewhat doomsday type risk, and at times be willing to cut losses. My account is stressed 15% to the upside and is designed to keep me in business in the event of a 20% downside disaster. Can I lose everything? Sure, but I am a risk taker. No one will ever make money without taking strategical, calculated risks.
     
  39. When I was selling credit spreads heavily and journaled it, I rarely had more than 50% of total portfolio value committed in maximum total loss scenerio (which would never happen unless you simply shut your computer off for weeks into expiration and ignored everything). That was the main way I knew I would never blow out my account or lose even too large a chunk because it would never get that far.

    However the one point I made back then that was never focused on is I did this strategy for 2-3 years mainly when the VIX was really low and the market was trending to chop consistently. People believe they want higher VIX for bigger premiums to make this strat work but I preferred extremely low VIX (ES moving 10 points a day would get me worried) and smaller credits for more manageable portfolio. When VIX started increasing steadily I just stopped trading them pretty much. Most people find it hard to abandon something that works for them but never realize the market conditions is what makes it work- when that changes, so do you.
     
  40. Two trades yesterday. One trade caught me by surprise.

    I sold the ratio strangle:

    15 JUL 16 225C(3)/184P(2) with 56 DTE. This trade will be closed automatically at 32 DTE if it doesn't hit the profit/loss targets before then.

    I had looked over all my GTC orders during the morning hours and it appeared that none would be triggered for the day. But after the close, I noticed that my GTC order was triggered and I bought back:

    24 JUN 16 2165C(3)/1810P(2) at 50% profit for a total profit of $895.00. I wish I had known that this trade triggered so I could have put some other trades on. Now my theta numbers are low going into the weekend.

    Theta is 57, delta is -42.90, and vega is -275.89. The experiment was up $362 for the day.

    Have a great weekend everyone!

    Bobby
     
  41. Thank you for taking the time to share your trade log and journal here, despite many posters on ET being hostile to anything with Tastytrade's scent on it. Though you probably knew what you were stirring up when you named the topic what it is.

    You have an interesting hybrid strategy going here and I'm continuing to watch with interest.
     
  42. Thanks, kurros, for having an open mind. It's an experiment. I am actually looking to incorporate straddles into my strategy in the near future. Thanks for following!

    Bobby
     
  43. @Sweet Bobby :
    Well said and my salute to your sharing your experiment. Here are 2 cents from an old fool. For those who are dedicated to life long humble learning, the Internet provides unprecedented wealth of knowledge in the history of civilization. But we must use some critical thinking to filter out the noise from the real signals.
    For the benefit of those who share the same learning spirit, take a look at these links which may explain in more detail what Sweet Bobby is trying to tell us.

    https://smoothprofit.blogspot.ca/2014/05/investigating-stress-tested-portfolio.html
    https://smoothprofit.blogspot.ca/2014/04/a-study-of-market-drop-and-volatility.html
    https://smoothprofit.blogspot.ca/2014/02/a-summary-of-karen-super-traders-option.html

    Full disclaimer:
    I am a retired old fool trading futures and options for amusement. I am lucky enough that I have been earning enough income from my trading so that I don't actually have to live off my savings. My emphasis is that I have been lucky because I don't pretend that I can consistently beat the market. My interest in Karen is purely academic.
     
  44. Mine too. That being said, just running the test on a fairly boring sideways market is not going to tell us much, specially that others already have been doing it for 2 years. We already know that it can generate 1% monthly and with portfolio margin 2-3 times more.


    What I am more interested in is, how the strategy worked in January, when the market tanked 10% in 2 weeks and how did it perform when the market recovered in 2-3 weeks. Or I guess we could ask the guys in the Yahoo group how they did last August?

    So I guess we just have to wait until another big move comes...
     
  45. P
    Pekelo,

    Tom and Keith report daily in our group.

    Keith mainly sells deep out of the money puts. I am looking at his spreadsheet now. He actually had a profit of $4,415 for August and a loss of $6,368 for September. September was his only losing month. His total realized profit for 2015 was $36,226 on about a 200k account.

    Tom reports a little differently, but it looks as though he was up $42,175 for the year. His largest drawdown was $82,200 that occurred on 08/24. From 08/24 to the end of the year, he had profits of $55,430.
     
  46. Hey Pekelo,

    I short vega and long theta on SPX, using a combination of credit spreads. I use stochastic-RSI, two-line MACD and the VXST/VIX/VXV/VXMT clusters to watch the weather. So far, I manage to average 10-15% per month return on capital at risk. The StochasticRSI and MACD give me some sense of whether the market is over bought or over sold. Monitoring the relationship between VXST/VIX/VXV/VXMT helps me to stay alert of imminent dangers. 80% of the time when the volatility graphs are in contango, I deem it safe to surf the waves. When there are signs of ominous backwardation in the making, I stay on the beach. This is the old fool's way of getting some fun in the water. Every time somebody quotes "picking up pennies in front of a steam roller", I am reminded of my insurance broker who is much wealthier than me. One of his favorite brag is his selling hurricane policies right after a hundred year storm.

    Lucky trading, and hope that I don't get drowned on a sunny calm day.
     
  47. That was my idea with Karen's strategy, wait for a fairly big drop, then do it for 5-6 months. Then go defensive and wait for the next drop. The only problem is that she is selling on the call side too, so a quick recovery could be just as bad as a big drop...

    Last August's drop was slightly less than this January's. How was their January? I am surprised he lost money in September, unless he was selling calls a lot, because the market recovered quickly.

    Are they using portfolio margin or just normal retail and are those simulated accounts or real?
     
  48. The
    y are real accounts and both use portfolio margin. I will try to look at the numbers for January and report them later.
     
  49. My superficial understanding of Karen's method is that she sells far few calls than puts. Furthermore, her calls are mostly 14DTE while her puts are mostly 56DTE. My take is that she scalps on the calls sales and harvest more theta on her puts sales.

    Calls sales are difficult to play due to thinner IV. Big funds sell tons of covered calls to pay for their protective puts. The insurance premiums are on the puts side. The calls are more like selling scrapped metal to the junk yards.
     
  50. That is correct.
     
  51. how about selling a ton of ATM strangles that expire in 200-300 days. This market isn't going anywhere

    I don't think anyone really understands her method, myself included. I've heard four different accounts . It's pretty much a put selling strategy. I think she sells delta 5 puts that expire in 56 days or less
     
  52. I think she sells delta 5, 7, 10 puts depending on IV level. I had tried diagonal spreads on LEAPS. Slippage due to low liquidity is the main issue. My staple diet in recent time is broken wing butterflies -- delta, gamma neutral, moderate long theta, and considerable short vega. So far the high short vega hasn't hurt much yet. When VIX starts a steep climb (rate of climb is more important than its magnitude), I either reduce my positions or buy some diagonals to offset my short vega, subject to my net liq of course. I typically hedge with a short 50delta 50/60DTE put against a long 70delta 140/180DTE put diagonal. If the market keeps creeping up, I just roll up/out my short strike. Roll values of the diagonal are the key determining factors in choosing the expiration dates.
     
  53. I would imagine most people who comment on Karen only take the time to watch a video or two and then start throwing out comments. Our group has studied her for years based on the limited information that we have. There are still holes, but some seem to have filled in the gaps very nicely.
     
  54. The experiment is up $98 for the day. One of my GTC orders kicked in and closed for a 261 profit.

    17 JUN 16 2155C(1)/1850P(1) Closed at 50% profit

    I sold the SPY 15 JUL 16 225C(5)/185P(4) with 53 DTE.

    Then I wandered off the reservation and sold a straddle:

    15 JUL 16 206C(1)/206P(1) with 53 DTE for a credit of $8.69. I will try to manage this at a 25% profit or a loss of 1.5 times the credit received. I will automatically close the trade after 24 days if neither profit or loss target is triggered.

    My theta is 49, my delta is 11, and my vega is -292. Hopefully the market will be up a little tomorrow because I would like to put on some negative delta.

    I'm handicapped by not having the analyze tab at work.

    Happy trading!

    Bobby
     
  55. So it is safe to say that Karen's HF probably had at least a 20% return last year. And since 2013 and 14 were an almost uninterrupted uptrend with only 1 not bigger than last August's drop, those years had probably similar or better returns...
     
  56. The experiment is up $106 for the day. Sosnoff was bashing GTC orders today, but I have to say I have enjoyed them very much.

    One of my GTC orders kicked in and bought to close:

    01 JUL 16 220C(1)/185P(2) at a 50% profit. I was in the trade for 7 days.

    I sold to open the SPX ratio strangle with 45 DTE:

    8 JUL 16 2225C(2)/1900P(1) for an $8.00 credit.

    Theta is 75, delta is -51, and vega is -488.

    Here's the daily Net Liq graph thus far:


    upload_2016-5-24_21-6-52.png




    Happy trading!

    Bobby
     
  57. I must have seen a diferent vid. I watched all the TT vids through and I couldn't find stuff that I remember. I think she has done different interviews. She does say she goes to conferences, mbey she did one then.

    There is a really long running thread over at futures.io which I've read some of, if your interested in this kind of strat then you should go check it out. Its called selling options on futures.

    Happy Trading!
     
  58. Isotope, can you share more about what you look for in the relationship. I mean obviously there is backwardation/contango in the vix futures market. But I have not found that to be a great predictor of continuing volatility movement. Is there anything for example in that relationship that threw up red flags for you on Aug 20 or 21st before that big vol spike?
     
  59. Coolraz, by the time the VIX is in full backwardation, it is probably too late for damage control. I try to watch for signs of weakness in the contango term structure. I use both a set of volatility cones of statistical vols and a graph plot of the VXST/VIX/VXV/VXMT to monitor their relative movements. e.g. In a normal/usual/healthy contango state, the VXST/VIX/VXV/VXMT line plots are widely spaced apart. When the market is very nervous, the spacing between the lines will diminish, the VXST will start a steep climb and cross over the VIX line. When the market is near a nervous break down, the VXST would cross over the VIX/VXV/VXMT, the VIX would cross over the VXV, and so forth. I hope you get the picture without the actual graphics. In my experience, the velocity of change is more telling than the change itself. When the market is in free fall, the backwardation term structure will look like VXMT/VXV/VIX/VXST. BTW, I also check these places frequently http://vixcentral.com/ ; http://vlab.stern.nyu.edu/analysis/VOL.SPX:IND-R.GAS-GARCH-T ; http://www.volx.us/volatilityconesgraphs4.shtml. Hope it helps.
     
  60. A wiser friend of mine, who by the way is also a better sailor than me, had taught me this. Never sell premium when the market (SPX/SPY) is below its 200-day-SMA. Never sell premium when VIX closed above its 30-day-SMA. Following his advice has kept me out of trouble so far. The logic behind his sage teaching is that when SPX/SPY is above its 200-day-SMA, the market is quite bullish. Statistically, the probability of a black swan fat tail event under such conditions is much less than in a bearish market (within the time horizon of 45-60 days which is the typical period of my risk exposure). And when VIX is above its 30-day-SMA, the market is very nervous, usually for a good reason. Of course, there are those who prefer to surf the waves in a storm. They will get their thrill of fat juicy premiums, and good luck to them. Both my wise friend and I are but old greedy cowards. We prefer to live longer. When we sell volatility risk premiums, we get paid to bear the unknown future volatility of the market. If we demand juicy premiums, we shall beget chunky volatility. Better safe than sorry -- don't bite more than you can chew.
     
  61. One of my evil GTC orders kicked in today closing one of my trades at a 50% profit:
    15 JUL 16 225C(3)/184P(2) I was only in this trade for 5 days.
    I then sold the SPX 8 JUL 16 2250C(2)/1930P(1) ratio strangle for a $8.00 credit. As I was placing my two closing GTC orders, I made a mistake and placed the second order as a limit order instead of a stop limit order and it immediately closed this trade for a $4.00 profit. I'm a newbie and I don't know what I'm doing. Let's just be nice and call this a scalp and not an ID-10-t error. (Idiot)

    So, then I sold the 8 JUL 16 2250C(2)/1930P(1) ratio strangle for $7.80.
    Then I traded something new! I sold the ESU6 JUL 16 (Wk3) 2245C(2)/1905P(1) with 51 DTE at $8.60.

    Now, here's where I need your help to understand why I received a credit of $4.30 when I sold it for $8.60. I have zero experience with futures options and I hope some of you can help me understand why the credit is half.

    The experiment is down $8 for the day. I added an "Automatic Close Date" column to my spreadsheet which tells me the date to automatically exit the trade regardless of P/L. This will make it much easier to manage the portfolio.

    Here's a link to my updated spreadsheet:


    Happy Trading!

    Bobby
     
  62. SPX is $100 per point
    ES is $50 per point
     
  63. I find even delta 4-5 options move to much to underlying movement. Selling delta 2 puts seems better. Calls give too little to woth selling, and every time I have sold calls I haad to exit early to aovid potential very bifg losses. If karen is selling 14-day calls this probably would have been a very bad week. Maybe also sell NDX puts
     
  64. On May 23, I sold 5 SPX 22JUL 1800 PUTs @6.88. If I remember correctly, they were about 0.055 delta (i.e. your 5 delta). They are doing quite well now. I am contemplating closing the position soon when I reach the 50% max profit target. On the other hand, it is tempting to sell some calls against this position when the over bought condition subsides, hopefully very soon. Always torn between fear and greed.
     
  65. I sold the SPY 15 JUL 16 225C(1)/191P(2) ratio . The experiment is up $362 for the day. Theta is 110, delta is -52, and vega is -778.

    Happy trading!

    Bobby
     
  66. I forgot to mention that I also monitor the VIX/VXV ratio and the CBOE-SKEW index. https://docs.google.com/viewer?url=...icro/skew/documents/skewwhitepaperjan2011.pdf
     
  67. Bobby really enjoying reading your Journal. I see you have a 50% profit target and Timed exit 24 days after entry. If a spread goes against you, do you plan on exiting the spread at a loss or adjusting the position like Karen does? Keep up the great work.
     
  68. Thanks. The plan is to close the positions at a loss equal to two times the initial cred received. So if I receive $1 in credit, I will close it when it reaches $3. I am also giving myself permission to roll the untested side of the trade up/down one time only and I can roll the entire position out in time once only to extend duration if needed. I have given myself these rolling parameters just in case I need them, but I really don't contemplate many rolls at all. We shall see!
     
  69. OK, just bought back my puts @3.30
    Gross profit = $1790;
    round trip brokerage fees = $10;
    I want to wait and see before deciding on next trade. The SKEW index is at 129.28. It is probably safer not to do anything over the long week end.
    The market makers are not very friendly today. They are pricing in the high SKEW. Any order easily filled today would most likely not be a good deal.
     
  70. Bobby you have automatic close date of 24 days after entry, why did you select 24 days

    I have watched the 4 Tasty Trade videos off Karen, she says her fund sells puts on a down day and calls on a up day and doesn't trade spreads. She also says she loves to trade like this because its non directional. If the SPY/SPX is in a trading range this works great but if you have price action like the last 2 months when the SPY/SPX went up most days, it doesn't give you a lot of opportunity to sell the puts. Also price action like this makes it tricky to sell the calls.
     
  71. Good job! In my experiment, I am placing at least one trade per day. My thought is that I don't care if the market is up, down, or sideways. I'll be waiting on it with a trade in hand ready to go.
     
  72. Bobby the way you are trading makes sense because you are trading strangles, just cant get my head around how Karen's fund trades. Maybe I need to watch the videos again. The way I am looking at it is - if you only trade puts on a day down and calls on a up day, you cant really say you are non-directional because if you are in a bull market you wont be trading many puts.
     
  73. If you have the gall for a gamble, here is some food for thought.

    BUY +1 VERTICAL SPX 100 (Weeklys) 15 JUN 16 2150/2025 PUT @52.15 LMT

    Since the IV for this series is at 13%, it is still near the low end. A debit spread with a +ve theta of nearly $35 per day is a tempting proposition. The reward/risk ratio is about 3/2.

    If SPX plummets by 50 points, and VIX spikes up to 28%, this spread is still profitable before expiration. If SPX stays below 2096 at expiration, the trade is a winner.

    As I am an old chicken, let me consult my sister's Feng Shui master for his aureate wisdom.
     
  74. Karen trades puts and calls separately and manages each side separately. My hybrid approach calls for selling ratio strangles instead and managing the trade as a complete package. I sell more puts to calls on down days and more calls than puts on up days. Now that's a general statement because I am actively watching my Greeks. I just like having a little action on both sides on any given trade. There may be days that I only sell calls or only sell puts. Right now I am pretty much maxed out on the call side after looking at the analyze tab. Is none of my trades come off, I may be limited to just puts for a few days.
     
  75. As Pat Dye, former football coach of the Auburn Tigers, once said -- "Hindsight is 50/50."

    My little experimental account is overly maxed out on the call side. And, it is now almost maxed out to the put side. When I'm at my day job 3 days a week, I don't have access to the analyze tab. I don't think I can see it on my mobile phone either. I guess I'm going to have to get a tablet and tether the internet from my phone. If any of you have any suggestions, I would appreciate them. In retrospect, I should not have put on the SPX trades this week. I should have stayed with SPY.

    I did make one trade today. I sold 3 of the 15 JUL 16 183 puts.
    The experiment is up $ 208.78 today. Theta is 120 , delta is -119, and vega is -786 .

    Happy Memorial Day Weekend!

    Bobby
     
  76. Meaning your position will completely blow up in your face if Monday morning equity markets open up just a few IV vol points higher. Quite a risk over the weekend. Do you mind sharing how much you have funded your account with in order to better understand how much risk you put on?

     
  77. Several years ago, James Bittman of CBOE proposed his 2-step strategy. The backbone of the strategy is based on the following probabilities:-
    +------------------------------------------------------+
    Prob of touching 1 Std Dev* (up or down) 54%
    Prob of touch 1/2 Std Dev* (up or down) 99%
    Touch 1/4 Std Dev* > 99%
    Touch down 1/4 after up 1/4 is touched* 34%
    Touch down 1/2 after up 1/2 is touched* 22%

    * Probability of touching any time during the period
    Note: probabilities are independent of time frame and level of volatility.

    +---------------------------------------------------------+

    The game plan:
    1. determine the time frame, e.g. Karen's favorite of 56 DTE
    2. use yesterday closing VIX and compute the volatility for 56 days: sqrt(56/365)*VIX
    3. compute from today's SPX opening price, the expected ranges i.e. -0.5SD -0.25SD +0.25SD +0.5SD (Std Deviation) for 56 days
    4. now wait for SPX to touch either -0.25SD or +0.25SD from the opening price (may take more than 1 day)
    5. if -0.25SD is touched, we assume a bearish trend, then we sell OTM calls or calls spreads with the short strike at +0.5SD
    6. if +0.25SD is touched, we assume a bullish trend and sell OTM puts or puts spread with the short strike at -0.5SD
    7. if we were wrong in our trend hypothesis, and SPX turns around, then close the position when the opposite 1/4SD is touched. Otherwise, hold the position until expiration.
    According to the probabilities listed above, we would average 2 home runs out of every 3 trades. Bittman back-tested his strategy using a 7DTE time frame over 41 weekly expiration cycles. The empirical results were consistent with the theoretical statistical model. Somebody else tested the strategy over various time frames on a Monte Carlo engine, and yielded similar results. There is another guy (forgot his name) who started an algorithmic trading company using an automated version of this strategy.

    The chartists and technicians severely criticize this strategy, citing the low profit margin in selling calls when the underlying price is falling and selling puts when price is rising. What they presume is their market timing with charts is superior to the mythical power of the central limit theorem.

    The take away of this strategy is that we can mechanically sell premium in a much wider range of conditions. However, I wouldn't play this strategy if VIX were below 12 or above 28. Neither would I pick the 56DTE time frame for real trades. Writing weekly options are more suitable due to their higher efficiency in theta collection. http://ir.cboe.com/press-releases/2016/27-01-2016.aspx
     
  78. This is very interesting. Thanks for sharing. I'm going to study this more.
     
  79. Tastytrade did some studies that found closing trades with 21 DTE yielded similar results to closing trades at 50% of max profit. This was based on opening trades at 45 DTE. So the trades would have a duration of 24 DTE. Since some of my trades are in excess of 45 DTE, I decided to close them after 24 days instead of close them with 21 days remaining to give them enough time to decay, but at the same time closing them to take risk off the table so that I can put new trades on.

    I initially started this experiment thinking that I would sell Two puts to one call every week. I soon found it hard to do this on up days. So I adjusted my plan to look at my Greeks as well as daily direction. Generally on down days I will sell more puts to calls and on up days I will sell more calls than puts. Ultimately, the Greeks will control my decisions. I'm usually selling puts and calls together because I want to be on both sides of the market. Yesterday, however, I only sold puts because my risk to the upside is overly maxed out. I sold the puts even though the market was up. Keep in mind the puts have a 5% chance of being in the money and my Greeks indicated that my portfolio could withstand the addition of more puts.
     
  80. Conduit, please feel free to follow the account at

    Your assumption that the account will blow up is in error. The account is maxed out on the up side. A 15% up move would hurt me greatly. Since markets don't crash up, I will have plenty of time to close trades and adjust positions. Based on my observations, I am not comfortable putting on any more calls until I close some of my current trades.

    Now, if the market opens down big and volatility increases will my account be blown out? I have stress the account (as best I can) to withstand a 20% down move with a substantial increase in volatility if I make no adjustments to the account.

    In my opinion, everything is perfectly safe.

    Let me know if you have other questions.

    Bobby
     
  81. In this post of yours

    (http://www.elitetrader.com/et/index...-hybrid-experiment.300013/page-8#post-4286246)

    you stated you have short vega exposure of -786. Looking at the table you pasted above and backing out an initial account size of around 20k a 1 vol point move against you will set your account back by around 4%. I did not mean to say that one large move might blow out your entire account (my apologies if I miscommunicated) but nonetheless 2-3 vol point moves are not unheard of at all after a weekend "special event". That would set you back at least 12% if not more depending on your gamma profile. Sounds more like a very risky approach to trading in exchange for collecting a bit of premium here and there. At the very least I would say no professional fund allocator would find such risk/reward acceptable. Please correct if any of my above numbers seem off. Something with your cum annualized relative return does not add up by the way, initial $86 depicting a cum annual return of 1.05% and $2308 (row8) depicting 11.7% seems hard to reconcile...


     
  82. The 11.7% return is a projection on my realized profit/loss. The formula makes an assumption that the profit/loss already obtained will continue thelroughout the year. I take the realized daily profit/loss and multiply by 365 days. Then, I divide that number by the beginning balance in the account. That gives me a projected annualized profit/loss as if I had been trading this account from January 1.

    I love your comment about unacceptable risk and that it would not be acceptable to any professional fund allocator. I'm just a simple guy testing a little strategy. It helps me to learn as I think through my responses to your questions and others.

    My approach is simple. I place high probability trades. I take winners early. I try to limit my losses. I make decisions based on daily moves as well as some guidance from the Greeks. I manage risk up to a 15% up move and a 20% down move so that I will survive to trade another day. I expect my strategy to have annual returns of 25% to 36% per year. As you can see I am underperforming my expectations at this point. There's no magic here at all. I know absolutely nothing!
     
  83. You may want to multiply your daily pnl by 250 or so but not 365 as there are less trading days in a year. Also if you really want to obtain such projection you could perhaps extrapolate the cummulative pnl over the rest of the year as a daily projection will get you a very volatile figure that may not mean much at.

    From your sheet it is then still confusing what starting balance you kicked off from. Is it 20k or 150k or...

    In my comments re risk I assumed a balance of 20k.

     
  84. I'm basing my profit/loss over calendar days so I want to keep the formula as it is. The starting balance was $150k.
     
  85. Two trades today. I sold to open the 15 JUL 16220C(1)/193P(2) ratio strangle.

    One of my GTC orders triggered closing the 15 JUL 16 225C(5)/185P(4) for a 50% profit.

    The experiment is up $95.91 for the day.
    Theta is 122.52, delta is -66, and vega is -686.

    The experiment is up $2,965.71 for May (+1.97%).

    Here's a link to my spreadsheet.



    Happy trading!

    Bobby
     
  86. Take a look here:

    http://docs.hamzeianalytics.com/JB_121030.pdf


    Can anyone backtest a touch of 1SD and then a touch of 1/2SD on the other side? Would be much fewer trades but seems like it would have ridiculous %
     
  87. Yeah and I was an idiot for claiming no way she still doing this strategy for profit...
     
  88. Bobby...a federal agency found that she was fraudulently claiming profits when she really was not earning anything... You may make money doing this strategy but like all of us have been saying...this is a strategy for a specific type of market, not a strat you can do for the long-term and make money. Sooner or later volatility will chop off your legs.. or you just lie and defraud investors to make it look like you are making money while collecting fees...

    Quote:

    • Hope Advisers and Bruton engaged in a continuous pattern of trading to inflate their compensation from the funds. They not only delayed realization of trading losses but also intentionally sized certain trades so the funds realized a profit every month.
    • The scheme has enabled Hope Advisers to avoid realization of more than $50 million in losses in the hedge funds while earning millions of dollars in fees to which they were not entitled.
    • Without the fraudulent trades, Hope Advisers would have received almost no incentive fees from at least October 2014 through the present.

    After 16 years of being around traders, I still rely on my instincts to not trust anyone who claims to be making millions selling premium through all kinds of markets because they keep proving me right...Maybe they should change her name to Karen the Superfrauder...
     
  89. Thing is first 7 months of 2015 was a great vol selling period.
     
  90. When I sell options premium, I in essence enter into a volatility or variance swap contract with my customer (the counter party). The very reason I choose to enter into such an agreement is that I think market is going to be calmer than expected. The very reason my counter party chooses to enter into the same agreement is that s/he thinks market is going to be more volatile than expected.

    My pay off = contract notional * (strike vol - realized vol)

    The customer's pay off = contract notional * (realized vol - strike vol)

    In writing an option contract, the strike vol is the implied vol. I win the trade if implied vol exceeds realized vol. I lose the trade if realized vol exceeds implied vol. When the contract is established, neither my customer nor I know what the future realized vol will be. We both only have our opposite opinions.

    Since historical vol does not predict future realized vol, I have to resort to vol cones analysis, autoregressive model simulation, consulting Feng Shui masters, or consulting Paul the octopus. And none of these methods consistently yield fantastic returns.

    Selling premium when implied vol is high may not help my long term pay-off because high IV usually implies that I am more likely wrong in my opinion about future volatility. I am still selling premium because my customers need someone like myself to take their bets. In return, they pay me a tiny profit because many of you guys are competing for my business.
     
  91. I have read the complaint and it does not look good for Karen. The Karen videos did one thing for me - they got me engaged. I, along with many others, have devoted years of our lives trying to understand her strategy. One important thing that Karen said was "don't try to do what I do. You have to find what works for you."

    I took her advice to heart. I have tried and tried to explain what Karen says when she says she's using 50% of her account. In my paper trading, I could NEVER see that this was remotely possible. It was too big! In my opinion, it was too much risk. But several things that she said made absolute, perfect sense.

    Now, I have formulated my own strategy and I am in the process of testing it. I named it the Karen/Tastytrade hybrid because I drew inspiration from both sources. It's easy for someone to come on here and bash me and tell me that I'm stupid and I'm going to lose everything and that I'm dreaming unrealistic dreams. But if you look at what I'm doing, I'm taking a very different approach. Karen says that she does not watch her deltas and she's not concerned with maintaining a negative delta. I differ from Karen on delta. Karen says she's 50% invested. I am no where close to that. I manage winners at 50%. Karen often lets trades run to expiration. I never will. She sells puts and calls separately. I normally sell ratio strangles and I have even sold just puts and I have put on straddles. Depending on what's going on with my account, my strategies may change.

    I'm not trying to get on here and say that I'm the next SuperTrader. I have no stinking idea what I'm doing. I'm simply testing a strategy. More importantly, I'm learning. It helps me to be accountable to report my progress. If people don't want to read my posts, go back to your dangling babies and leave me the hell alone.

    My strategy is performing well thus far. I am tweaking it all the time. I eagerly look forward to choppy markets because I want to see how well I make adjustments.

    If Karen is indeed a fraud, she was a very convincing fraud. If she goes to jail and all of her investors go bankrupt that will be sad, but I've invested thousands of hours toward this study. And, her failures aren't going to stop me. I plan on learning something new tomorrow that will make me a better trader.

    Happy trading!

    Bobby
     
  92. Very well said again. I fully support your learning spirit. Keep up with your good work. I brought up the Bittman strategy the other day because I thought it would give you extra perspectives to the intriguing problem of selling volatility risk premium.

    When it comes to trade sizing and capital management, text book studies demonstrate that fractional sizing schemes out perform fixed sizing schemes. The Kelly Criterion is a popular fractional scheme.

    https://en.wikipedia.org/wiki/Kelly_criterion
    http://www.elem.com/~btilly/kelly-criterion/
    http://www.investopedia.com/articles/trading/04/091504.asp
     

  93. Thanks for that tradexxx, quite an interesting read. I read the SEC complaint that had a link down the bottom of that page.

    I remember watching her video a long time ago and thinking to myself, yup Karen, your time is comming. Been waiting a long time to.

    Looks like that time is now.
     
  94. Talk about whackjob accounting. She sells an itm call and claims the whole premium as income. The assigned underlying is put into an unrealized loss bucket where she hopes it will recover.

    She basically had one investor.

    Whole operation is like a newbie elitetrader
     
  95. well, but you do know that your strategy will be blown away the next time volatility picks up meaningfully. I hope you are perfectly aware of that. Why you have done well recently was mostly because vol has been dropping like a stone. It was hard to impossible to lose money collecting premium. Most always the direct relationship between risk-reward holds even if in the short term it is not apparent. Let's see how you weather time periods when vol picks up.

    By the way, I said none of that with mean intention, I said it to warn you and hopefully be aware of the specific environment your strategy works and all the other times it does not.

     
  96. Excellent. Unlike people who need to follow someone else, I don't follow anybody and easily go against smartest people out there (if they tweet their ideas for example). So May was the best month YTD, took credit oil spikes with CL calls precisely (like 1 fails in 6), scalped ES hundreds times with high accuracy, cashed on SPY calendar spreads, VIX spreads, and swinged SPX for major moves, up to 30$ moves just in ES single trades and more in options. Everything logged on my twitter, including screenshots, while correctly describing the topping process day by day and reassuring many times <1month ahead that we will have 210 retry, while everyone else was loading strategic shorts for a suckers bear trap pullback. Short low, cover high. Not nice.
    Now in SPY 203-210 spread (and yes we keep the range), AAPL bear put (and yes we be flagging here), CL 50 call short @2.7 (50 magnet worked as suggested), and VIX long (for a nice leg up since eod). Far better mix than some bs Karen technique working only in one direction market.
     
  97. what is your twitter handle? And when you say you posted all your trades on twitter can we assume you mean in real-time? Thanks

     
  98. Looks like we've found the next person on the chopping block.
     
  99. Oh, some interesting developments!!! I am still trying to understand what exactly has happened since 2014 October. I get the carrying over the unrealized losses. Some questions to be answered:

    1. How did they perform during 2015?
    2. Was their trading activity in 2015 mostly just the Scheme trades for covering up the losses and did they abandon the core strategy? Or did they do both?
    3. What if she just takes the 40-50% hit in 2014 and keeps carrying on?
    4. How come the 2 guys using real money in the Yahoo group made good profits in 2015 when volatility was twice as big as in 2014? (VIX maxed at 31 in 2014 and at 53 in 2015) As quoted in post #59, one of them made 18% last year.
    5. They must have thought that eventually they can make the loss back?
    6. The VIX was much higher back in 2011 ( maxed at 48) and Karen still made money (assumption?) so what was the difference between 2011 and 2014? Was it because the high water mark stipulation?

    I just found it curious that a relative small spike in volatility caused them to start the Scheme trades when volatility was much higher both before and after 2014 and the strategy seemed to perform well even in those times...

    I am really interested what those 2 guys have to say about this whole thing, Bobby, can you keep us posted? My guess is that Karen was actually worse at using her own strategy than those guys. Or she went greedy and overused the portfolio margin...

    Anyhow, I want Bobby to keep continuing this experiment and we shall see how it performs when we get into "more interesting times."
     
  100. 4. How come the 2 guys using real money in the Yahoo group made good profits in 2015 when volatility was twice as big as in 2014? (VIX maxed at 31 in 2014 and at 53 in 2015) As quoted in post #59, one of them made 18% last year.


    Is there a link to these discussions?
    Thanks
     
  101. I would also like to see Bobby continue with his Journal.
     
  102. @conduit: yes and with threads so i can browse what happened before and before. No deletions. A new tweet thread reply is marked with continuation mark to make sure that is a thread with history. Realtime asap screenshots from the broker screen. Noone else does it but it's ok, i have it as a diary and reference. I don't share, you can try pattern-find me.

    @Amalgam
    :) classic.. who "we"? The 90% of losing traders? Ok then.

    That's why i come here only to solve technical stuff. But couldn't resist to unpuzzle that lady. And it's a great example how not only the retail herd, but also hedge funds are clueless how to profit from markets. They get tricked by a lady propped on some channel and once she gains the initial trust, she goes wicked:))

    >>enjoy Karen, who found magic in fixed income just like other failed traders who have no morale.<<

    or

    Stop following, start trading.
     
  103. Pekelo, as you can imagine there is quite the chatter in our yahoo group. Now that this news has come to light, I think I now know how we could never figure out exactly how she managed certain things. As I was driving yesterday, and even before I heard this news about Karen, I keep thinking "how can she possibly be 50% invested?" I am no where near that level and I feel that I am pretty much at maximum risk. I will keep you posted.

    Bobby
     
  104. I posted the link previously in this thread.

    Bobby
     
  105. Post #9 for the lazy, and you have to be approved by the mods first to read the older messages...

    -------------------------------

    The numbers are a bit confusing.

    The mondovisione link says the fund has 175 m NAV, present tense. The Youtube video of TT with the 2 ladies discussing her back in Aug 2014 mentions 300 million. Did the 300 melted down to 175?

    https://www.tastytrade.com/tt/shows...episodes/trading-like-karen-in-spy-08-21-2014

    http://m.mondovisione.com/media-and...hemed-to-collect-extra-fees-from-hedge-funds/
     
  106. Ok, I'm not 100% sure she said this but didn't she say that she had 25% on the futures?

    It would have drastically changed her risk.
     
  107. so, again, so we can all enjoy the magic, what is your twitter handle?


     
  108. is this for real? People call for what? To bitch about how stupid they were to follow #SuperKaren? Lol, this is actually hilarious. How much dumber can people get?

     
  109. I take a different angle and embrace the "dumber" players, especially in the futures and options markets. Without their enthusiastic support, the markets would become ultra competitive and possibly much less efficient (lower volume and wider bid/ask spreads). Trading profit margin, if there were any, would be razor thin. It is human nature to be "dumb" because most of us (myself included) are greedy and fearful. Besides, most "dumb" players don't even know that they play the game indirectly. These are the passive investors who buy mutual funds, hedge funds or entrust their money with financial gurus or advisers.

    Nonetheless, I often console my damaged self-esteem with these quotations:-

    "Courage is not the absence of fear."
    "Prudence is not the absence of greed."
     
  110. For anyone who comes here to gloat, the schadenfraude thread is that way.>>>>

    Honestly, we don't give a fuck how smart you are or that you told us so. This thread is a scientific (if there is such a thing on Et) discussion of a certain strategy. We are aware of its risk and rewards, so you don't have to tell us. What we want to understand is that how that strategy works under certain market condition (stress test if you wish), and why would she suffer a loss when market volatility was much higher before and after and the system just worked fine.

    Assuming she didn't lie about 2008 (VIX at 90), I figured if she survived that year with let's say a relative small loss, it has to be a bigger volatility period to take her down. Yet for some reason she gets a 40% or so DD in 2014 when volatility is hardly above 30...

    Maybe she overused the portfolio margin or deviated in some other ways from the core strategy. But as the Yahoo boys showed, 2014 should have been an average 10-15% return year for her strategy. Time will tell what really happened...
     
  111. Who is "we"? You speak the whole time of we...
     
  112. Agreed! All I'm doing is doing a little testing. No harm here. Everybody is welcome to follow along until I blow everything up.

    Bobby
     
  113. :thumbsup: +1
     
  114. Be kind to us newbies, one of these days I will be an oldbie. Wait, I am already old.:D
     
  115. My rule of thumb is that for every successful trader (that I know) there is about one successful options trader. I know well over 100 failed traders and less than 5 I would deem successful over a couple of market cycles. Options require an enormous amount of knowledge and self control to work. (They are just a tool and not an edge as so many think.)

    Many lucky traders think it must be them and wham, then along comes a bear market. In any trading activity, if it is too easy, then something is wrong. As I have mentioned before in the past I had to run an R test to be sure it was me and to relax a bit more.
     
  116. "does anyone know the name of the fund or the person?"

    https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf
     
  117. One trade today. I sold to open the 15 JUL 16220C(3)/194P(2) ratio strangle with 44 DTE.

    The experiment is up $65.04 today.

    Theta is 129, delta is -75, and vega is -714.

    With all this stuff about Karen, I kind of feel the same way that I did when I was a kid and I witnessed the death of Darth Vader. What now? What do I do? Sure, Indiana Jones is cool, but he's no Darth Vader.

    I guess this is how Dorothy felt when she found out that there was no real Wizard of Oz. If only I had a pair of ruby red slippers.

    Happy trading!

    Bobby
     
  118. Your rationale for this trade? Thanks.

    By the way the reason I ask is I bought a call on May 11.
     
  119. This is a good link. The guy does a quick retest of 2014 with a fairly similar strategy, and ends up with 17% gains. His guess is that Karen over leveraged, because there was nothing special in 2014 where the strategy wouldn't have worked.

    http://macro-ops.com/karen-the-supertrader-goes-rogue/

    Nevertheless we get these"I told you so" guys, when it was greed, not the strategy itself that screwed up Karen...
     
  120. she's a fraud...what's there more to say?
     
  121. Perhaps the strategy was sound, and she goofed by over leverage. The SEC doesn't give a damn about a trading strategy as long as there is proper disclosure. This case is regarding disclosure. She failed to properly disclose how she would collect incentive fees. Then she placed what the SEC called "scheme trades" to generate the fees. The trading itself wasn't fraudulent if she didn't collect any fees on the months the fund generated losses.

    You can tell your hedge fund investor "I'm going to use 100% of capital to buy the open of any Russell 1000 stock that's gapped down 10% or more to capture intraday volatility." The SEC doesn't care, AS LONG AS YOU DISCLOSE IT. If you do something to lose investors' money that's outside the scope of the private placement memorandum, and you get caught, then you're screwed. That's what happened.
     
  122. No, wrong. The strategy is *not* sound. Ignore this at your peril.

    Additionally, I'm very suspect of that backtest:

    1. The TOS software is not accurate for backtesting other than EOD type stuff. It doesn't test intraday numbers at all.
    2. As a result, I highly doubt it takes into account any adverse intraday IV changes which might have caused her to jump ship on huge losses.
    3. On top of that, it's unlikely to even account for bid/ask spreads or other liquidity issues which will be present in high vol situations.

    Don't trade these bullshit strategies folks.
     
  123. It is sound as long as you are aware of the risks and possibilities (of blowing in every 5-6 years). In the last 10 years only one year, 2008 would have caused a loss for this strategy. If you don't believe the backtest, how about the forward test with real money? For the last time, the Yahoo boys did 18% last year when volatility was MUCH HIGHER than in 2014. So all things being equal, she should have made an easy 15-20% in 2014. (according to her interview, she was already up 11% I think by August) The only explanation is that she over leveraged.

    By the way one of the SEC complaint says she was down 44 mil at the beginning of this year. If she had 200 mill AUM that is less than a 25% DD (in HF world aka Tuesday), not really a blow up. Could have made it back in 2 years. I think she started the carry over of losses because of the high water mark stipulation of the fund, she wouldn't get paid until they make the loss back. She didn't want to work for free for 2 years... Probably she would have to pay the workers out of her own pocket.

    But anyway, if you don't believe the possible returns in a non-remarkable year, just follow Bobby running this journal. :)
     
  124. are you completely ignorant or blind? That woman committed some serious accounting fraud and deceived and cheated her investors and regulators and reporting agencies. Why do you think the SEC is investigating? Can we be real for a moment?

     
  125. I think as this unravels we will find there was very little profit at any point in her story. New money paying old monies. The pressure to try and keep it going resulted in her being where she is right now, in a lot of hot water.

    Bbbbut she seemed so nice.
     
  126. All these posts about what Karen has or hasn't done would be better posted in the Schadenfreude Warning thread. Bobby has already said his system is a hybrid experiment. These negative posts are disrupting his Journal.
     
  127. Bobby,

    Just go back and look at my two first posts where I mention some advice. The truest risk of this strategy is simply doing it blindly every month without taking into consideration market events. For example, we have a very jumpy market ahead of FED meeting and the market has looked like it could sell off hard. That means you have to adapt rather than simply picking arbitrary delta level and selling more puts than calls. Skipping a side of the market or being more cautious with reduced size is almost as safe as simply hedging a bit or sitting on your hands until market direction is reconfirmed. One common newbie mistake in any trading strat is thinking you have to be in at all times to make money. What matters is your % return at the end of the year not month to month.

    Lot of uncertainty coming which could lead to some wild swings. Hardest thing I had to do is sit out a call or put trade or a month when I was selling premium and wait until things settled down.
     
  128. Collecting premium via ratio spreads only makes sense when one is a superior forecaster of directional markets. You cant predict low volatility. I have seen way too many professional options traders go belly up at my banks and hedge funds selling wings. It's a horrible way of trading because the inevitable will happen at some point.

     
  129. Generally I would agree with you, but this thread has a more positive approach than the others and let's face it, Bobby's journal itself would be very boring so unless he asks me otherwise, I will post here my observations. Also I just keep putting on Ignore the "I told you so" guys who don't contribute to the discussion.

    I think there are at least 4 separate things involved in this case that complicate the understanding of the case for most readers:

    1. The core strategy and its risks and rewards. I stand by my observation that out of the last 10 years it would have lost money only in 2008.

    2. Over leveraging the strategy what most likely caused the losses in an otherwise non-remarkable year. In other words, greed.

    3. The fee and incentive (high water mark) structure of her fund, that caused her to not take a loss and starting the scheme trades.

    4. Certain "last comers take all the loss" feature of the funds. Its legality depends on disclosure or lack of it. It has a ponzi like feeling to it.

    5. Sending profits from the funds to the charity fund, and circulating that money back...

    So all these issues should be looked at separately first before final judgment is made.
     
  130. I agree in general but I dont think the OP is doing ratio spreads at all. I don't think any of this discussion was on ratio spreads which can be done for net debits or net credits or very limited risk looking large moves.
     
  131. ah? I think the whole approach is on ratio spreads/strangles...
     
  132. Oh and I should add my personal opinion that this strategy is not a good long term strategy to make money and grow and account. I did it for a few years when VIX was between 12 and 20 and moved on when the market began to have big swings. It might good for scalping some income occasionally but still not the best method to do so and eventually all pure premiums sellers get blown out or lose a big chunk of their money and you realize you wasted a certain number of years with a feeling of invincibility. I have done the occasional short straddle when conditions present themselves but that is not very often (indexes).

    If you feel confident in your ability to pick non-direction as your direction then maybe look at mixing in some butterflies or other strats to balance the risk.

    Karen is just another beginner who thought she found the Holy Grail (she was not a trader before she started her hedge fund) and went large and then got bit by the volatility of the market like we all would expect. her fraud is not surprising because she needed to cover up the losses most of us know are inevitable from this strategy. People ask if this is bad why are so many hedge funds doing it...well they do it until they blow up and then the next batch takes their place or they change strats. that alone is telling..

    good luck!
     
  133. It is selling short calls and puts on the indexes whereas spreads involve a long and short side and trader might sell more puts than calls but not sure what ratio if any. These are pure naked trades I believe.
     
  134. in the grand scheme of things both expose you to very similar risks, ratio spreads are risk-capped one sided, short strangles/straddles expose you on both sides. It is a horrible way to trade options long-term, in fact I have not seen a single options trader who survived with such approach alone. Most who sell premium are very good at protecting themselves at the wings when it is needed.

     
  135. Sweet Bobby and his BBFF Surf are taking the afternoon off to attend the Versace summer fashion show in South Beach.
     
  136. Exactly, even Sosnoff will back you up here.
     
  137. "US EQUITY MARKET STRUCTURE: LESSONS FROM AUGUST 24":

    https://www.blackrock.com/corporate...t-us-equity-market-structure-october-2015.pdf

     
  138. I had a whole entire discussion typed out on risk, the analyze tab, making this all safer, etc. before Windows 10 gobbled everything up. I'm too tired to re type my entire post so I'll leave it to another day. I'm working full time and taking three graduate courses this summer. I'm exhausted.

    One of my GTC orders kicked in today closing the SPX 8 JUL 16 2225C(2)/1900P(1) for a 50% profit after 9 days.

    I sold to open the SPY ratio strangle 15 JUL 16 215C(3)/184P(2) ratio strangle with 43 DTE.

    The experiment is up $168 on the day. Theta is 104, delta is -222, and vega is -630.

    Now, here's the most important thing that I wanted to get across today. ARE WE SAFE ENOUGH?

    Please watch the tasty trade market measure segment from 03/22/16. Here's the link:

    https://www.tastytrade.com/tt/shows...lationship-between-spx-and-the-vix-03-22-2016

    This study found that over the last ten years, a 12 point drop in the SPX resulted in a 1 point increase in the VIX. Again, I typed a lengthy discussion about this, but I will repost another day. I think this is important in considering the risk that we are putting on. I would love to hear your thoughts.

    Happy trading!

    Bobby
     
  139. Yep, new money paying old money. But there's another supertrader lady in the town as I'm typing:
    https://www.sec.gov/litigation/complaints/2016/comp-pr2016-106.pdf

    Bbbbbut she seemed to be so profitable..
     
  140. I'm thinking out loud here and constructive comments are appreciated. I've been thinking about a possible tweak to the strategy to mitigate some of the risk.

    My current theta is 104. My goal is theta of 105 to 150 per day. On a date when my daily profit is in excess of my daily theta, what If I used a portion of that to buy puts?

    For example, today my daily profit was $168 which is $64 above my daily theta. What happens if I use all or a portion of the $68 to buy puts? Now I will play with this a little. Which puts should I buy? Which expiration? Should I buy wings to an existing short put? On days that I have a loss, I do nothing?

    This may be the dumbest suggestion ever, but I look forward to your thoughts.

    Bobby
     
  141. translation: On a nasty Friday (or insert any other day) vol pops >5 points and our annual pnl is eaten up in a single day. Those are my thoughts...


     
  142. I think you can find safer ways to make $440 in one week.
     
  143. Today the market opened down. I usually don't sell iron condors. But since I can't get my safer butterflies filled for days, I broke my own rules and put on these two trades this morning as encouragement of your experiment.

    SOLD -2 VERTICAL SPX 100 (Weeklys) 10 JUN 16 2115/2120 CALL @1.10
    SOLD -5 VERTICAL SPX 100 (Weeklys) 10 JUN 16 2050/2045 PUT @.50

    The PUTs are priced at 11.5% vol and the CALLs are priced at 8.1%. If the realized vol within the next 7 days exceeds the vol prices, then I shall be screwed.
     
  144. Projecting that out would be an annualized 15.25%.
     
  145. "Projecting that out" is a foolish way to trade because you do not project out in trading, you look back at the end of the year and see how much you actually made. Risking $2000 a week to make $440 based on the trade week in and week out does not project out to anything unless you can prove you can do it for 52 weeks. One week can wipe out two months and then where are your returns?

    Don't get fooled by the "projected out" game of earnings to be attracted to a strategy. Annualizing strategies is bullshit used to trick people how one trade can show superior annual returns. Beginners usually look at 30% annualized returns and go all in and end up losing money.
     
  146. I sometimes buy 1 delta SPX puts to protect my butterflies when the SKEW index is very high. I sell them off when SKEW comes down again. SPX puts are typically more cost effective than VIX calls. For longer term protection, I hedge my portfolio with long SPY diagonals. e.g.
    BOT +30 DIAGONAL SPY 100 16 DEC 16/15 JUL 16 265/211 PUT @53.12
     
  147. Actually, this was the foolish comment. Ok. I'll bite. Please share with us a safer way of making $440 per week. I can't wait for your wisdom to be poured out upon my thread for the benefit of all.
     
  148. Sell 4 ES weekly ATM straddles
    Buy 3-4 50 point wide weekly ATM butterflies
    Do diagonal weekly spreads on ES using OTM calls and puts and trade every two weeks
    Put on a broken wing butterfly with slight bias

    Study intraday movements in ES and try to earn 4 points a week net on trading 2 contracts

    Should I chew your food for you as well?

    Instead of making comments when someone points out the weakness in your thinking...someone who sold credit spreads for 3-4 years straight, try and think about what could happen if you are wrong. Something most newbies do not do and end up losing money.

    Find experienced traders that will confirm that your approach is viable for the long-term (for God's sake, the person who inspired you to do this was pointed out to be a fraud and it is shown she had losses of maybe 1/3 of her account of OPM) or that risking $2000 weekly to make $440 is smart financial analysis and then we will talk.

    I don't need to spoonfeed you ways to make money when you show no desire to listen to experienced traders here pointing out facts, the best way is for you to continue trading this and let the market teach you rudely rather than us doing so politely.

    There is no incentive for me to show you the reality because you made it clear that you don't want to hear it. market is dead right now so things look really good.
     
  149. You sir should change your screen name. You don't have the heart of a coach or a teacher. I pray no one is paying you to be an options coach. Inexperienced traders such as yourself are scared by out of the money naked options. I get it. They're not for you. That's fine. This is an experiment. You like to troll this thread and post your snippy snide remarks. If it gives you your jollies, then fine.

    Any troll such as yourself can come on hear and make such vague little remarks about there being much safer ways to make $440 a week and then offer absolutely no alternatives. Then you have the gall to mention your little amateurish vague strategies above.

    I tell you what coach. Instead of just offering your useless blabber, give some specific strikes and trades. Let's see your $440. Post the strikes, and I will fade your trades and probably make more than you. You offer nothing but condemnation. You just want to get on here and bash the strategy that I'm just experimenting with! Your contributions to this thread thus far are useless. Up your game, man, or get the hell out.

    Bobby
     
  150. It is just a nickname...are you really sweet or is it a nickname. I have two full posts in your thread with direct polite advice but you blew it off.

    Inexperienced traders are scared hahaha of OTM naked options haha..... dude I have posted trades on here with more risk than you will earn in many years, and EXPERIENCED traders do not whore themselves with selling premium constantly week to week or month to month.

    Find me an experienced option trader who will say your strategy is a smart risk/reward ratio and has high risk adjusted rates of return. Seriously...

    Ha ha....i stopped helping people years ago because they are all like you..beginners who think they know it all. You think you are selling theta when you are heavily short gamma. I guarantee you have no idea what that previous sentence means but you know more than me.

    Also, what incentive is there for me to post trades to prove to you something several traders posted here to explain to you but you ignore. The above are not vague strategies by the way....i can pull in any option trader who will read the first 2 for example and can pull an option chain up and post an example in 1 minute. Since your understanding of options is basic it would not help to go into detail here. The more experienced option traders here already agree with me so I do not need to convince them of anything.

    They are not vague strategies...you are just a newbie who does not understand them. Anyone here who trades options can pull as weekly 50 wide ATM Fly or quote the ATM weekly straddle.

    I will let you walk down this path but please refrain from thinking those who criticize you are inexperienced. Also Karen is a fraud and think about why she had to hide losses if this strategy works so well.
     
  151. Don't get mad at optioncoach because you think he is rude. If I were you I would get upset only if he did not provide useful input. After thinking through, his posts gave some specific examples and made a lot of sense to me.

    Anyway, I enjoy your posts and am very interested to see how your strategy plays out.

    Regards,
     
  152. Just read this on the Tasty Trade website.

    Like many, we are concerned about the SEC investigation into the accounting and reporting practices of Karen Bruton and her firm Hope Advisors. Ms. Bruton is not an employee of tastytrade and last appeared and was interviewed on the network 2 years ago, as a guest. In light of the investigation, we have removed all past videos airing Ms. Bruton for the time being. We at tastytrade believe in full and transparent disclosure by money managers and will continue to advocate on behalf of the retail trading community.
     
  153. Also all the Tasty Trade Karen the Super Trader Youtube Videos have disappeared. It was only a matter of time.
     
  154. Exactly. I fact I even said to Bobby I wish him luck and told him to be careful with the higher ratio of puts given how low the vix is and market risk with upcoming FOMC. This strategy can be done when opportunities arise but most blindly sell the options week to week picking a delta value. I think selling ATM straddles is easier to deal with than far OTM short strangles and provides more controlled risk if market sells off. I would even recommend doing it with ES options so you have access 23 hours a day.... Sunday night - Friday afternoon.

    BUT as I keep saying, I do not sell or did not sell in the past, ATM straddles weekly with regard to the market. I often did it when my analysis of the market and vols made it appear to be a good potential trade. But I would not sell straddles weekly on a regulasr basis expecting to make consistent income.


    ATM straddle right now is about 22.00 for next week expiration.....if market chops for one or two days you make way more than $440...
     
  155. Dude, the pros are hedging deltas (either with the underlying or other options) and/or capping off their risk. You're completely naive if you think "experienced traders" just sit around and sell naked OTM crap all day.
     
  156. OK, so here is my theory what happened in 2014:

    If you look at the chart, there was a whipsaw action in a very short time, compared to 2015. The market was slowly sliding down, when in 5 days it dropped 8% then in just 7 days it came back, and in a few days more it went another 3%.

    So it is possible she was already over leveraged, but when the market started to really move, she started to roll, locking in losses and probably increased the call writing to make the losses up. Then the market suddenly turned, and she started to get losses on the call side. After all the sudden losses she was probably wary of writing too many puts, and kept rolling the calls locking in the losses on the upside too.

    Basically, over leveraging and a whipsaw action did her in...

    in 2015 the drop was similar, 10% in 5 days, but the recovery took much longer, it took 3 weeks to come back 6%... It is also possible the Yahoo boys are better at this game than Karen...
     
  157. Afraid of getting screwed, I just closed out the two trades for a small profit (39% of max profit).
    BOT +1 2/2/5/5 ~IRON CONDOR SPX 100 (Weeklys) 10 JUN 16 2115/2120/2050/2045 CALL/PUT @2.90

    Gross profit: $180
    Commissions: $28
    Total trade margin: $2200
    6.9% return on capital for 1 day

    By the way, my damned butterflies are still not filled.
     
  158. Out of curiosity, if you sold 100 ATM straddles, would you delta hedge the position? And what would your delta band be if you hedged?
     
  159. I tried to search on www.tastytrade.com for Karen Bruton, it came up with nothing. Can you please post the URL of the quoted statement?
     
  160. Two trades today. I sold the SPY 15 JUL 16220C(3)/196P(2) with 42 DTE.

    Again, all this talk about Karen and her troubles has got me rethinking a lot of things. So, let me go through my Greeks and y'all play along and talk me down off the ledge.

    Theta is 110, delta is -133, vega is -635.

    The experiment is up $356 for the day. So I'm thinking, on days when the account outperforms the theta, why not buy a little protective put? For example, my daily p/l of $356 exceeded my theta by 246. So, I thought why not use 10% of that daily gain to invest in a tiny bit of insurance? What are your thoughts?

    So, I BOUGHT one 16 SEP 16 150 P(1) for .25 with 105 DTE.

    By the way, Karen's topic with Dan Sheridan has been announced. I would love to be in that room!
    [​IMG]
    Happy Trading!

    Bobby
     
  161. Bobby, listen man. The way you are going about this is all wrong. You don't set daily theta goals. That's not how you trade. But here is the thing man, nobody on this thread can save you. Most have been polite to you, the truth is, we all have to experience what we have to experience. In a perfect world, people would listen to those with more experience and more knowledge but what fun would that be right? So keep doing what your doing and when the shit hits the fan, and it will, we'll still be here.
     
  162. Point well taken, Maverick. Thanks for your comments. I actually do like maintaining a daily theta goal, but that's just me.

    Have a great weekend!

    Bobby
     
  163. Bobby, theta does not exist. It's a 2nd derivative. It's a calculus equation. A pde to be more exact (partial differential equation).
     
  164. I don't mean to be pedantic, but please correct me if I am wrong. I thought theta is a first order Greek.
     
  165. Maverick I read in another thread you said selling ATM Straddles is a lot better strategy than selling DOTM options. For a novice Option Trader trying to sell premium, what rules would you apply to trading the ATM Straddles.
     
  166. It's not better. It's safer in that you are selling peak gamma. In other words, as the market moves against you,it's doing this with a declining gamma curve which is exactly what you want vs the inverse which is the market moving against you with gamma exploding in your face. There is no "edge" to selling ATM premium, it's just easier to manage and hedge.
     
  167. I like straddles as well and I have one on in this experimental portfolio.
     
  168. It can be either. Every greek has 2nd and even third order effects.
     
  169. It's not about liking them bobby. It's about understanding them. I sound like Confucius.
     
  170. Sorry, I am confused and lost. Can you please elaborate on the 2nd and 3rd order effects of theta? If the explanation is too tedious, please give me pointers to academic literature or papers. I shall do the reading myself. Thank you in advance.
     
  171. Sure, theta is not static, it changes relative to other things other then time. For example, theta changes with regards to vol, price and even skew. ALL derivatives has 2nd and 3rd order effects which is EXACTLY why retail traders should not rely on them. A pde is simply a measurement of a variable holding ALL ELSE CONSTANT. That does not exist in the real world. ALL other parts are moving and are not held constant which is why technically you need to understand 2nd and 3rd order effects.

    Want a book? Fine, you can pick up a copy of "Dynamic Hedging" by Taleb.
     
  172. Maverick, I appreciate your book recommendation. I shall buy the book.
    I am familiar with partial differentials. In my previous life, I built MRI scanners. I also understand the basic concepts of dynamic hedging. I read several books on quantitative finance. But I had missed Taleb's. I look forward to reading his work as I enjoyed his other book "fooled by randomness".
    Thanks again for the pointer.
     
  173. I've enjoyed my short time with this thread but I'm taking it to the garage. To those who have contributed - thank you!

    This thread is just too easy of a target for those who just want to come in and make the "shit hits the fan" and "your account is going to blow up" comments.

    I thought folks would appreciate a free sharing of trades along with questions and constructive criticism. I wanted to learn from this group about how to better enhance the strategy. We clearly have those criticizing who haven't even taken the time to look at my detailed spreadsheet where I've methodically recorded each and every trade. My life is too complicated and full to defend each and every attack on the strategy. It's a shame that the attackers don't even acknowledge my attempts to make the strategy safer. Is risk involved? Sure. But it was just an experiment. The experiment lives on - in my garage.

    Peace out everyone and Happy Trading!

    Bobby
     
  174. Some of your best work ever.
     
    1. GTC orders are not risk management with instruments that can gap overnight in an ever more 24/5(7) market place. Markets trade around the clock - and you cannot just depend on a GTC order on US stock security-baesd ETFs to be safe. I also haven't seen a single mention of ever using the underlying to hedge any delta risk.
    2. You're severely underestimating the potential risk at play due to an inherently over-optimistic view of the future. This will kill you. You must assume that it is not totally guaranteed things will continue to function smoothly or even semi-smoothly.
    3. You must be ready to take some shit from others on your strategy if it's questionable - and the fact that you're bailing so quickly doesn't sound like there's a whole lot of resilience behind it.
     
  175. Bobby every option trader on here knows about this strategy. Infact when I started learning about options it was a strategy I reazlied straight away. But I didn't like it because if something serious happens then I will lose all my $$ / get margined out of my trades.

    What people are advising to you on this thread is probably the best information you can get. I've been trading about 5 years and I wished I had of learnt about hedging my trades a long time ago. But you got this information here on this thread.
     
  176. Taleb? Good man, good lecturer, good fund manager. Oh, what were the results of the funds he ran?
     
  177. Bobby I think you should continue the Journal. I wouldn't look at the negative posts as negative, I would look at them as positive. You have received some excellent info from some knowledgeable traders on this thread. I think if you continue your experiment you will be a better trader for it, in the long run.
     
  178. IIRC 1 Billion during the subprime crisis
     
  179. Work at McDonald's.
     
  180. Bobby, take the advice. Maverick got it right. Theta is an illusion. It's sexy, sounds good to be earnt, but it's an illusion. It's always coupled with gamma. And gamma hits the fan.
     
  181. I wonder if that could be confirmed, both funds (Empirica and Universa) to have been profitable above average longterm. But my memories tell me otherwise. I could be wrong.
     
  182. Here is the crux of it, you cannot make it safer. The risk is always there. you can partially hedge but then you end of up with too many moving parts, lots of commission and underperforming the market. People used to ask me all the time how can I reduce the risk of selling credit spreads and I often told them the risk is there no matter what, only thing you can do when it is not a black swan is lose the ego and get out when it starts moving against you. limit the pain. When the market black swan comes, there is no way to reduce the risk. You cannot foresee something unpredictable and reduce the risk of the unknown and when you actually know it, it is too late. Boom!

    Attempts to make the strategy safer have been tried by people far smarter than both of us and they have usually blown out at some time.

    As I said before I am not against selling premium, but it is a strategy where any edge, if it exists at all, is picking the right circumstances to go in and do it (and this is different for every person), not to do it weekly as a constant strat irregardless (i know it aint a word but fits nicely) of market conditions.
     
  183. First, selling 100 ES straddles is too much risk to undertake in my opinion but I know you were just asking a hypotehtical.

    Delta hedging is something maybe market makers do with their almost no transaction costs and constant hedging I assume. For anyone else, delta hedging is a way to make your broker rich in churning your account and serves no useful purpose. When I sell straddles ATM or directional, I have a market price level where if it hits either or the straddle gets to a certain value I bail.

    If the straddle decays nicely but I still want to do it, I will buy the wings only if I like the Iron Fly that would result.

    Honestly I rarely do this strategy because i want the right conditions to make me comfortable, everybody is different. I prefer when ES is setting up to range and vols have good chance to pull in (it is more a vol trade than a theta play). Now I perfer trading volatility and ignoring market direction all together because it makes it easier to monitor.
     
  184. Well, I dont know.
    What I know is that Taleb is a millionnaire, and millions have been made as an option trader
    Tavakoli is a Consultant, Expert Witness, Author, Speaker.
    So if I had to trust ....
     
  185. They were pretty good actually. The guy made enough money in 1987 to support him the rest of his life. He made enough money in 2008 to live another 200 years if such option were available. Wish I could say the same for the rest of the industry.
     
  186. One of the beauties of life sir is you get to believe whatever is you want to believe and in the fashion in which you want to believe it. So if it serves a function in your life to believe Taleb is a failure, if that justifies the things you hold dear, if it just helps you get through the day, then by all means, your life is your life and have at it.
     
  187. I don`t believe anything - at least when it comes to money and I won`t consider another person a failure. Certainly not.. Just wondered, why we required certified accounts from Karen and not apply this due diligence to others. If you know of any data available easily - I would be grateful. It wasn`t meant to be bashing.
     
  188. Karen is being accused of fraud, Taleb was not. Karen's investors are going to lose everything. Taleb's are not. If charges are brought before us that Taleb or his associates defrauded someone then by all means, let the investigation begin. But Karen intentionally at least from the period 2014 committed fraud and actively tried to cover it up.
     
  189. Thank you for your long response with which I completely agree. Yes indeed my question was hypothetical.
    I undestand that scalping large negative gamma is primarily a loss control exercise and an up-hill battle.
     
  190. In this business if you dont provide a verified track record then it is just hearsay , this applies to Taleb as well no difference .
     
  191. You are confusing track record with fraud. There is a difference.
     
  192. Yes cant say he is a Fraud ...
     
  193. Right, fraud requires evidence. That's how it works in this country. Thank God for our court system or we could convict people we don't know on online message boards.
     
  194. Her investors will be just fine. They know what the value of their funds are as she published the nav and no one is doubting the veracity of those numbers. She just took fees that she shouldn't have.

    In the end those fees will be disgorged, she will pay a fine and prob be censured. The fund will be unwound.

    The unrealized losses are just accounting like goodwill on a corporate balance sheet.
     
  195. Huh? The investors claimed all their retirement money was in the fund and the NAV was NOT accurate as she based on the NAV on REALIZED losses and not unrealized losses. Her NAV is still showing the fund to be profitable. LOL. Of course that 100 million dollar loss will have to be reconciled, but like you said, that's just simple accounting.
     
  196. I didn't read that in the sec complaint. She kept two valuations (which she published to investors) : realized vs unrealized and standard nav.

    Unrealized is wrong but that's just accounting (similar to tax loss selling around New Years).

    The she put on calendar spreads that produced no net gain or loss but created two taxable events (a gain and a loss). Nav isn't affected as the two taxable events offset each other but they created a fee for her.
     
  197. You may want to read it again:

    "Each month, Hope caused the Funds to make certain “Scheme
    Trades” that had the purpose and effect of realizing a large gain in the current
    month while effectively guaranteeing a large loss would be realized early the
    following month. In essence, these trades continuously converted any realized
    losses into realized gains in the current month, and losses which would be realized
    in subsequent months, except that they would be continually deferred by the
    Defendants engaging in additional Scheme Trades. The Defendants did not
    simply delay realization of trading losses, however, they also intentionally sized
    the Scheme Trades such that the Funds realized a profit every month. Hope
    employees maintained a spread sheet that tracked, month to date, the realized
    losses of the Funds. As the end of each month approached, Bruton picked the
    amount of profit she wished the Funds to show (and de facto, the fees she wished
    to generate), and her traders would size the Scheme Trades accordingly."

    "The HI Fund had an NAV of approximately $136 million as of
    February 29, 2016.

    23. As of the same date, the HI Fund had unrealized losses of
    approximately $57 million.

    24. The HI Fund had unrealized losses at the end of every month for at
    least two years, with the amount fluctuating between $3 million and $62
    million.

    The Fraudulent Trading Scheme

    58. In October and December 2014, the Funds experienced significant
    trading losses due to volatility in the financial markets.
    59. In response to these enormous losses, beginning in November 2014
    and continuing almost every month to the present, Defendants entered a series
    of trades (“Scheme Trades”) in the accounts of the HI Fund and the HDB Fund
    that had the purpose and effect of avoiding realization of the losses.
    60. Hope had used similar Scheme Trades in the prior months.
    61. Before February 2015, the Defendants used a variety of forms of
    Scheme Trades, but they all had the same purpose and effect, i.e., to avoid
    having realized losses at any month’s end.
    62. In most months after February 2015, the Scheme Trades took the
    form of large matching “paired” trades that essentially canceled each other and
    cumulatively had little to no prospect of gain or loss, except for transaction
    costs.
    63. These Scheme Trades, however, effectively “rolled over”
    realization of losses to subsequent months, which allowed Defendants to (1)
    report a targeted monthly realized gain of approximately 1% in the Funds every
    month and (2) receive an incentive fee every month and avoid the high water
    mark restriction.
    64. Hope employees maintained a spreadsheet that tracked, month to
    date, the realized losses of the Funds.
    65. As the end of a particular month approached, Bruton would ask
    Hope employees for the amount of the Funds’ net realized losses month to date.
    66. Bruton would then either enter a Scheme Trade herself or approve
    Scheme Trades that the other traders proposed and entered.
    67. These Scheme Trades often involved (1) selling call or put options
    on futures that would expire at the end of the current month (“first leg option”)
    and simultaneously (2) buying call or put options on futures for the same
    quantity at the same “strike price” that would expire early the next month
    (“second leg option”).
    68. These options would typically be deep “in the money,” meaning
    they were very likely to be exercised or assigned.
    69. The sale of the first leg options would result in significant proceeds
    (referred to as “premium”) being paid to the respective Fund, which was
    realized as a gain for the current month when the first leg option expired.
    70. Bruton picked the size of the first leg option sale so that the
    premium collected would be sufficient to offset the losses realized for the
    month and enable the fund to report a net realized gain for the current month.
    71. The expiration of the first leg options also resulted in the
    assignment of futures in the Fund’s account, which would carry a large
    “unrealized” loss at the current market price.
    72. The expiration of the second leg option, typically at the end of the
    first week of the subsequent month, covered this open futures position, but also
    required the Fund to realize a large loss (the purchase price of the second leg
    option).
    73. The net effect of the Scheme Trades was to allow Hope to defer
    indefinitely the Funds’ realization of trading losses while consistently reporting a
    realized gain in the Funds and collecting an incentive fee.
    74. To illustrate with a specific example, the HI Fund began the month
    of February 2015 with a net unrealized loss of $44 million. Much of this loss
    became realized early in the month.
    97. For example, in October of 2014, Hope experienced massive
    trading losses as a result of volatility in the market. The HI Fund and the HDB
    Fund collectively ended the month with unrealized losses of approximately
    $100 million, most of which resulted from the October trading losses.
    Nevertheless, Hope reported to investors that the Funds had millions of dollars’
    worth of “realized” gains in October and collected incentive fees of more than
    $600,000.

    F. Hope’s Redemption Practices

    105. Hope redeems investors exiting the HI Fund without reducing the
    value of their investments by the HI Fund’s large net unrealized losses.
    106. Consequently, redeeming investors get a windfall, while the pro
    rata share of the unrealized losses to the remaining investors increases.
    107. While the Fund states that investors will redeem exclusive of
    unrealized losses, the Fund does not inform new investors that the value of their
    investments are subject to immediate reduction as a result of their being saddled
    with a pro rata share of large unrealized losses.
    108. The manner by which the HI Fund pays redemptions (excluding
    unrealized losses) creates a risk that, if the unrealized losses continue or there is
    a significant exodus, the last investors to redeem will not get any money. That
    risk is not expressly disclosed to investors.

    You just can't make this shit up.
     
  198. I think his post was missing the obligatory [/sarc off]
     
  199. Paragraph 47 says the NAV was a correct calculation: incorporated the realized and unrealized only.

    Everyone knows what the value of the fund is. No one knows how it will be dissolved.

    Her accounting for fees is definitely fraudulent but this wasn't a madoff style "the money is stashed in the hull of a yacht"

    I think the fees get disgorged and she gets censured. Probably can't manage money again.
     
  200. How can the NAV be correct if its showing her fund to be profitable? The document is saying that accounting for only "realized gains" the NAV is correct. If I pull your teeth can I say you're Gumby? By this definition Madoff, yacht or no yacht, didn't do anything wrong either. BTW, Bernie did pay out 100% of the correct amount to his investors as well per the "NAV". That's how ponzi's work, the early people get their money out, the latter do not. This court document explicitly stated, that the early investors "would" get their capital back but if the losses continued longer then she could maintain the forward rolls, the later investors would get NOTHING! So whose NAV is correct, the early investors or the latter? Can't be both capadre.
     
  201. I now understand how she avoided losses. She mentioned in the tastytrade interviews she hated losses so avoid taking losses. I thought she meant just roll them over until the losses went away when the underlying moved in her favor.
     
  202. Time for you to put a lid on it, your annoying, I think Sweet Bobby needs your help in the garage...and dont come back with "I'm just trying to learn".
     
  203. If my post offended you my apology.

    I noticed there are generally two classes of people visiting ET, the experts like you and the novices like me. You don't need to be a better trader but I do.

    A lot of my posts were trying to ask or to confirm my understanding of others' comments so I personally can avoid the same mistakes. If that is too offensive to you, you can ignore my posts but please do not deny me a chance to learn.

    Best wishes.
     
  204. Your an alias looking for clicks, best of luck in your endeavor.
     
  205. I wonder if she has bothered to show up for work during the last week ?

    And I'd like to know what her employees knew about her shenanigans. I recall that she only had 3 traders working for her. It seems unlikely that they could be traders and had their finger on the pulse and were not aware of what she was doing and the reports she was releasing.

    And I wonder if she has any kids and what they think about the prospect of Mom / Grandma going to the Big House ? Maybe they can do a reality show on her experience in the Slammer.
    The only advice I would give her is to downplay her association with TastyTrade. Somehow, a name like that isn't a good idea for prison.
     
  206. There was a group of 7 including Karen. 6 Traders and 1 number cruncher. The number cruncher worked out how much money Karen made each day. Karen's words on Video 2. Videos Published on 16th Oct 2012.
     
  207. Just noticed all the Karen the Super Trader Tasty Trade video's are back on youtube for anyone who's interested.
     
  208. The SEC Complaint said 2 of the 3 knew, because they were instructed by Karen each month of the exact number they had to make up. The video did mention more traders, 5-6. Maybe they were divided between the 2 funds...
     
  209. AAHAHHA, well the number cruncher would have got sacked as soon as the fund took "catastrophic" losses. They were no longer required anymore XD

    That accounts for 1 of them.
     
  210. So I was in the garage yesterday, drinking a bottle of Mad Dog 20/20 and shooting roaches with a pellet gun, when all of the sudden some GTC orders caused my phone to buzz.

    These three positions were closed at 50% profit:
    upload_2016-6-8_14-37-32.png

    It must have been the effects of the MD 20/20, but I then went on a trading frenzy and entered the following positions:
    upload_2016-6-8_14-40-4.png

    The experiment was down $255.93 for the day.

    Happy trading!

    Bobby
     
  211. Three trades today. I sold the 22 JUL 16 224C(1)/196.5P(2) ratio strangle. As I was putting in my GTC orders, I entered 81.00 instead of 0.81 and the trade closed for my first realized loss in the experiment. Fat fingered mistake.

    [​IMG]
    So I reopened the ratio strangle and this time got the GTC orders corrected. I'm a newbie.

    The experiment is down $236 on the day.

    Theta is 133, delta is -281, vega is -757, and gamma is -126.

    Happy trading!

    Bobby
     
  212. Bobby good to see your back
     
  213. Good to be back! Being here is just like going to my wife's family reunion. You don't want to talk to Uncle Ted, but the potato salad is still pretty tasty.
     
  214. Bobby, can I make a suggestion? I see a lot of guys on ET do this so you are not the only one, and that is report your return on a trade. First of all, reporting a return on any individual trade is really quite trivial and reveals nothing meaningful about what you are doing. You could report the return on the total notional capital but even that is rather meaningless. What is meaningful is at the end of the year you take your return on notional capital and divide it by your standard deviation over the course of the year and compare that return to the risk adjusted return of the S&P 500. Just a suggestion. Saying you made 50% on a trade is like me betting on Golden State and saying I made a 100% return on my money because they won.
     
  215. Thanks for the suggestion. The trivial reporting of the trade is for my benefit only. I will certainly take your suggestion for the end of the year reporting. Studies have shown that people who track their daily food intake are more successful at weight loss than those who do not track. Hopefully my posting of my success and failures here will be beneficial to ME as well.
     
  216. I understand, but a 50% return on a trade is not how people measure trades. It does not mean the trade was successful. It simply means you are using leverage and your denominator is small. When I make sports bets I always earn 100% on my wins before I pay the juice. But this is true of ALL sports bettors. In other words, it does NOT allow me to differentiate between all other sports bettors. Hope that makes sense.
     
  217. Yes it certainly does. Some people prefer to piss in the toilet, others prefer to piss off the back porch. I prefer the latter.
     
  218. Two trades today. I closed my 30 JUN 16 216C(3)/177P(1) for a $53 loss. This is my first official losing trade since I started the experiment on April 5th. I mechanically closed it after 24 days.

    I sold to open 22 JUL 16 223C(1)/196P(2) ratio strangle.

    Theta is a very nice 140, delta is -136, vega is -743, gamma is -106.

    The experiment is down $29 for the day.

    Happy trading!

    Bobby
     
  219. One trade Friday. I sold the SPY 22 JUL 16 222C(1)/191P(2).

    The account was down $600 for the day.

    Theta is 187, delta is 116, vega is -771, and gamma is -95.

    Happy trading!

    Bobby
     
  220. Quit it with the theta, delta, vega, gamma.....they are just statistics....of PAST price movement.
    They have little to no bearing on the outcome of an options trade.

    Great options trading is about taking a counter-intuitive trade.....and garnishing big profits in a short period of time.
     
  221. I will post whatever I please. This is my journal. Move along you idiot and condemn somebody else. This is my strategy you fool.
     
  222. Clearly you have no depth of knowledge with options trading. You clearly don't understand the Greeks.
     
  223. At least you've ignored Rho...which of course is useless in this low interest rate environment.
     
  224. Just because I look at the Greeks doesn't mean that I'm encouraging anyone else to look at them. It helps me. If someone looks at MACD or head and shoulder patterns or abandoned babies and it helps them, good for them. Who am I to criticize.

    Now, let's have a short lesson on what a constructive post might look like. Let's say you think I'm the dumbest trader in the planet and you can't believe that I post my daily Greeks because they are meaningless. First, you could ignore my post. Second, you could bash me and tell me to stop the foolishness. Or third, you could respond with a warm and friendly post that goes something like this:

    "Hey Bobby, I've been following your posts and I see that you are posting your daily Greeks. In my personal experience, I have found them to be totally useless to my trading. Could you please share why you share them and why you think they are important to your style of trading? Thanks!"

    I respect posts that question me. But to come on here and just tell me to stop it - that helps no one.

    Happy trading!

    Bobby
     
  225. This post remind me Howard. The strategy will appear works for most of the time and will attract some amateur traders (in reality it is only a position with HIGH risk LOW reward, win small most of the time with ridiculous risk) , until one day when s*** hit the fan and the thread close.
     
  226. I would classify this as managed risk. If you take risk off the table there is no reward.
     

  227. When insistiturional vol traders talk to each other, they only talk in the terms of their Greek risks. It explains the book succinctly and will let someone understand what's driving their pnl.
     
  228. Welcome to the thread! Exactly. The Greeks are important to some of us.
     
  229. I'm suprised that Baron hasn't shut this thread down already considering that Karen the fearless leader is been investigated for fraud.
     
  230. Why would he shut this down? This is just an experiment. Other than selling mostly 5 delta puts and 10 delta calls, there really isn't too much resemblance to Karen's strategy. I look at delta. Karen doesn't. Karen sells puts around 56 DTE and calls at 14 DTE. I try to sell both around 45 DTE. Karen churns positions and takes some to expiration. I will never take a position to expiration. I manage winners at 50% or take it off at a loss equal to two times the credit received. If neither of those targets get hit I close the position after 24 days in the trade.

    I manage risk off the analyze tab at up 14% and down 20% with a 50 point increase in volatility. That's pretty much it. No fraud here. I'm posting every trade and providing a link to my spreadsheet. Now why on earth would this thread get shut down. That's an unbelievably stupid comment. Please go bash Karen somewhere else.
     
  231. So basically you're just doing a typical Tastytrade strategy.
     
  232. You beat me to it!

    I have a close friend doing the same, we talk every week or so. Goes great then he gets stuck with a bad position that becomes part of the core until he runs out of margin and has to sit on his hands until hopefully things work out. Goofy IMO.
     
  233. Stop being a muppet... The Greeks are instantaneous factors, not "statistics of PAST price movements".

    Great options trading is, first and foremost, about not being silly and not ignorantly dismissing useful concepts.
     
  234. WTF is wrong with people here? Anyhow, for those who don't understand the topic, Karen's strategy, her tricky fund set up and her concealing the losses are actually 3 separate issues that can be confusing at first sight, but we are here to set you straight.

    Or one could just read the complaint and read it again...
     
  235. Not really. Tastytrade normally sells 1 standard deviation strangles one to one ratio of puts to calls. I am selling deltas similar to Karen's. Plus Karen normally sells two puts to one calls. So I thought I would try to sell ratio strangles where I vary the number of puts to calls. This is partially a Tastytrade strategy, partially a Karen strategy, and a little mix of my own strategy.
     
  236. Ur right Pekelo they are completly unrelated.

    Don't let the SEC investigation or her $100 mill in losses that was described as "Catastrophic" by the SEC affect anything to do with this thread.

    We'll just focus on the warm and fuzzy returns that we landed this month :)
     
  237. I think you should stop deluding yourself, really... It's all the same strategy, which has a variety of names, e.g. "picking pennies in front of a steamroller", "eating like a bird, sh1tting like an elephant", etc etc etc. How many extra puts or calls you be selling hardly matters, in the grand scheme of things.
     
  238. Well so other people don't fall into the same fate of Karen.

    Kind of like lemmings, one lemming falls off a cliff and the rest of the lemmings following that lemming are destined to that fate as well. Unless there is intervention.
     
  239. I am glad we agree. By the way I didn't say completely, but they are related like me owning a Humvee, not having insurance on it and committing involuntary manslaughter with it.One might lead to the other, but they don't have to, that is the point.

    And you wondering about thread closing is just naive...
     
  240. Suppose the SEC are Naive to if they close down Karen's trading operations.

    If they shut her down then this thread should follow suit and shut down as well.
     
  241. CBC, do yourself a favor and stop following this thread. Thus, it will be shut down in your own little world. Now get off my thread and go make your losing trade for the day!
     
  242. So, if you sell for $1, will you take your loss at $2 or $3?

    Thanks!
     
  243. Zion, I would buy the position back at $3 which would give me a total loss of $2 since I sold the options for $1.

    Right after I sell a position, I enter two closing orders, one cancels the other. The first will close the position at a 50% profit. The other will close at a loss equal to two times the credit received.

    Thanks for your question.

    Bobby
     
  244. Well that makes sense.
    How many positions do you have open at a time ?
     
  245. At various places within the thread there is a link to my spreadsheet. I update it daily. Let me know if you can't find it.
     
  246. My only question is if the market gap and it blow past your $3 stop loss when the market is closed (this happened before and sure will happen again in future), what is your plan to deal with this situation?
     
  247. Great question Galvinlee. If there is a big gap I fully expect it to blow right past my stop loss. The first thing I do is remain calm and look at what the analyze tab and the market is telling me. The great thing is that I have several options. Keep in mind, I am stressing the account for a 15% up move and a 20% down move with a 50 point increase in volatility. The key is to stay alive to trade another day.

    My available options are to close positions. Again, it depends on how much of a move occurred and what affect it would have on my overall account. Another option would be to roll the untested side either up or down to collect more premium. I also have the option to roll the entire position out in time. If there was a huge gap down, premium prices would be greatly inflated and it would be a good time to put new positions on.

    The key as I see it is to stay small. Size is what kills with this type of strategy. I look forward to seeing how my adjustment strategy works out.

    My account today is feeling the effects of a significant increase in volatility. This is no surprise since I had a large negative vega. So what did I do? I sold new positions, including a ratio straddle where I sold two at the money calls and one at the money put. If you look at my account after the last few days, I am clearly out of balance. That's ok. I don't have to correct everything in one day. My delta is now positive, so I need to add negative deltas to the account. I anticipate doing that until the account is back in line.

    I'm confident in my ability to navigate the choppy waters. Time will tell. Keep in mind that I know absolutely nothing.
    Thanks for the question!

    Bobby
     
  248. That spike in volatility was something, huh?

    Four trades today. I closed these two positions:

    SPY 01 JUL 16 214C(3)/170P(2)
    SPY 01 JUL 16 213.5C(3)/170P(2)

    The first was closed after being in the trade for 26 days with a $60 loss.

    The second was closed after being in the trade for 25 days with a $104 loss.

    Then I opened two new positions:

    SPY 29 JUL 16 221C(1)/190P(1) Strangle 46 20.00% 6/13/2016 $1.20 $118.00
    SPY 29 JUL 16 209.5C(2)/209.5P(1) Ratio straddle 46 24.00% 6/13/2016 $13.12 $1,309.00

    The first is a strangle and the second is a ratio straddle.

    Theta is 219, delta is 415, vega is -837, and gamma is 69.

    The account is down $1,667 for the day.

    I will be looking to put on negative deltas with any up move.

    Happy trading!

    Bobby
     
  249. How much do you lose on that
     
  250. I don't mean to distract or digress.
    I just stumbled across this old ET post How much do you have to know?, which is a purely put writing strategy. The long term treasury notes in the strategy is of course subject to interest rate risk as pointed out in this article http://fortune.com/2013/02/15/10-year-treasuries-buy-today-cry-tomorrow/
     
  251. Bobby good to see you posting your Trades again. Are you not worried about the Brexit Vote on the 23rd June. I think if the UK votes to leave Europe the markets will react very badly. The poles are saying the exit campaign is in front now.
     
  252. As you can see, my delta is not where it needs to be. I am going to get aggressive with getting it lower. When binary events such as this come up, it generally causes volatility to increase. With increased volatility, comes rich options premium. I will be actively trading through the entire ordeal.
     
  253. One trade today. I sold to open

    29 JUL 16 217.5C(2)/175P(1) for $1.41.

    It is really difficult to get my delta turned around without trading too big. If anyone has any thoughts on this, please let me know.

    Theta is 221, delta is 408, vega is - 856, and gamma is -74.

    The experiment is up $228 for the day.

    Happy trading!

    Bobby
     
  254. Anybody care to comment on this guy? He uses Karen's method:



    Same guy rolling, aka locking in losses:

     
  255. I am familiar with him. Seems like a good guy. He runs the Tastytrade free forum. It is not associated with Tastytrade but just google Tastytrade free forum.

    He follows the logic from one of the Tastytrade research segments which found that selling one standard deviation strangles that collected premium in excess of 19.8% of the expected move had a very high probability of being winning trades. His Golden Gecko plays off of that. As I recall it is an iron condor with the short strikes at 1SD and the long strikes at 2 SD.
     
  256. Bobby, let me try to be constructive here. If you had to explain to a 7 year old why "you" believe this strategy works, what would you tell them? BTW, this is a common interview question in finance jobs because employers find that those who have the most understanding of complex subjects have the ability to explain them in the most simplest of terms.
     
  257. Maverick, this is an excellent question! I have two children, 11 and 6, and two Foster babies. Here's how I would explain it to my six year old.

    Daddy is trying to make money by doing something that has a big chance of making a profit. This works most of the time. It's kind of like dad leaving in my car to go to work, working, and then coming home. You are very excited to see me come home every day. We hug. We play super power wrestling and we have a good time. That's the same way dad feels with trading. Most days everything works out fine and we get happy when we make money because dad can buy you an ice cream cone and take you to the movies.

    But there's that one day a few years ago when daddy didn't come home. You weren't born yet, but I was on my way to work and I had a bad car wreck and my car flipped over and I was thrown from the car. It was awful. I was blind in one eye, my back and pelvis were broken. My ribs and sternum were broken and I couldn't breathe because one lung collapsed and the other one was punctured. They took me to the hospital where I stayed for 51 days and then I came home and had to be in a wheel chair for 6 months. It was tough being out of work for 6 long months but your dad didn't give up. I went to rehab and learned to walk again. I exercised and I got better and today I'm brand new after having a little metal in my spine and pelvis. I'm like a robot.

    You see, most days trading is fun and good. Every now and then we are going to have rough days. Did my accident stop me from driving you to school? Heck no! We buckle up, look both ways, drive within the speed limit and stay focused on the road and our surroundings. I am a better driver today than I was before my accident. I am also a better trader.
     
  258. Thanks Bobby. Let me re-phrase my question. Let's say you have a very bright 6 year old, top of his class and that might very well be the case, how would you explain the mechanics of your strategy in terms of why it works. For example a long only stock trader could tell little Johnny that the reason daddy makes money almost every year is because over the last 100 years, broad stock market indices like the S&P 500 have returned 7.5% annually which is a function of the risk free rate, the rate of inflation plus a risk premium.
     
  259. How sure are you of the optimal theta decay curve for this time frame?

    Why 50%? Why not 60%? Why not 40%?

    Why losses at twice the credit received? Why not 1.5x? Why not 2.5x?


    So is this how you forecast volatility or do you not forecast at all?

    What sort of drawdown do you expect?

    How would you have fared during fall 2008? May 2010? August 2011? October 2014? August 2015?
     
  260. Maverick, I am not sure that this will work. That is the reason for the experiment. I know absolutely nothing and don't claim to be an expert.

    With that said, I am selling options with a high probability of profit, often times with a 90%+ chance of success. I then look to manage the trade in a variety of ways. First, I close the trade at 50% profit. Why? Tastytrade research shows that this increases probability of success. Or, I close the trade at a loss equal to 2 times the credit received. Again, this is based on Tastytrade research. Finally, if neither of the above is triggered I exit the trade after being in it for 24 days. This is somewhat based on Tastytrade research combined with my own little twist. The above should help me to manage winners early and get out of losses before they become too big.

    Ina complete meltdown, I will be actively managing positions by closing and/or rolling. If all hell breaks loose and I have a 5%+ reduction in my net liq then I give myself permission to shut it down, run a Z, and stay out until things settle down.

    Why will this work? I'm not entirely sure but I do have a certain level of confidence that it will be successful. I am targeting an annual return of 25% - 36.5%. Each day I am attempting to move toward a delta of 1/2 of my vega. I would like to have a theta to vega ratio of greater than 0.2. I am often unsuccessful in these targets, but I am mindful of them each and every day and I try to adjust the account accordingly.

    I hope I have addressed your question. If I can be more specific in any area, please let me know.

    Bobby
     
  261. . Members of our group traded similar styles through 2014 and 2015 and did very well. The key is size. You cannot get too big. Size kills.
     
  262. I placed my comments within your original question. I hope you can see them.
     
  263. Bobby, let me address just this statement:

    "Why will this work? I'm not entirely sure but I do have a certain level of confidence that it will be successful. I am targeting an annual return of 25% - 36.5%."

    Historically going back say 100 years (a lot of data here), there has only been two traders in all of the world over a period of 100 years that have made more then 30% annually over a period longer then 20 years and they are Soros and Simons. These people are held higher in regard then Michael Jordan, Tom Brady and Tiger Woods. In fact, there are only handful of guys (sorry women) that have even gone over 20%. One that comes to mind is Ed Thorp of Newport Partners. I believe Julian Roberstson is another. But we are talking about enough people to count using two hands. Even the high teens the list is fairly small.

    So here you are a guy stating that you have no idea if this will work or why it will work and at the same time saying you are expecting to earn returns in the echelon of the highest most exceptional human traders of all time. Have you thought about that? And you are throwing out this 25% to 36.5% return as if you are dialing it down, making a sacrifice to even except such low returns. I think this is a big problem on this forum, certainly not just with you. But the genesis of this logic comes from a deep lack of mathematical understanding. It's why you hear guys say things like all I want to do is make 30% a month. As if they could make much more but don't want to piss off the neighbors. The fact is, this industry attracts some of the most brilliant and intelligent people you will ever meet and I would say 99% of them do not get into double digits. Hell, even the criminals in this business, the guys who steal the money from widows and orphans can't even get into double digits. I just think you should think about that. I can throw a decent football, but there is no way on earth I would presume that I could have been Tom Brady if I really wanted to. That comes down to personal honesty with yourself. And Bobby this is not just directed at you but really everyone on ET.
     
  264. Maverick, I first want to really thank you for your recent questions and comments. This is the engagement and debate that I so desired when I came to Elite Trader.

    Let's first go to my target of 25 - 36.5% returns. This is my target. I didn't say that I am going to hit that target.

    I'm a very confident guy. When I set a goal to be valedictorian of my class, I achieved that. When I set out to graduate summa cum laude, I achieved that. I'm in grad school right now and I have a goal to make all A's. Will I achieve that probably.

    When I started playing trumpet, I was horrible but I worked my tail off and got music scholarships to several colleges.

    I work at things until I figure them out. Trading is like playing a musical instrument. In that regard I can hardly play a scale. However, be sure of this, I will figure it out.

    This is an experiment and I learn each and every day. Tweaks will be made. Mistakes will be made. But, I have a high level of confidence in my abilities. I'm not cocky, I'm just confident.

    In setting goals, one must be specific. I want to beat the market - that's a dumb goal. I want to beat the S&P! That's not specific. Should I set my goal to making 7% a year? That doesn't excite me. I aim high.

    Now, is my goal unreasonable? I don't believe so and this is going to piss some people off. I use theta to help me calculate my expected returns. Is this going to work 100%? Not at all. I have a daily theta goal of between 102.74 (25%) and 150 (36.5%). I use this to help me establish my goals. I also utilize other formulas to help me determine the amount of premium that I should be selling in relationship to my expected returns, but I will leave that for a later post.

    Setting specific goals in life has served me well throughout the years. Why should trading be any different? At the end of this year, I will evaluate the returns and set new goals for next year. Will I hit my goals? Time will tell.

    I am curious? Do you set goals for your returns? Surely I'm not the only one. Keep the questions and comments coming. It helps me to think through my process.

    Happy trading!

    Bobby
     
  265. No, I don't set any goals. I look for opportunities. They are either there or they are not. It's like anything else in life. I can't make opportunities suddenly appear just because I want them to be there. You can't impose your will on the market like you can on a trumpet or your GPA. The market is unique in that most of the variables you are working with are out of your control. If I wanted to learn how to play the trumpet, I can control how hard I want to practice. The market unfortunately does not work that way.

    With regards to only making 7.5% a year, most professionals are not trying to beat the market on an absolute basis but rather on a risk adjusted basis. To accept the 7.5% return in equities you have to put up with 15% annual standard deviations. So most fund managers are trying to minimize their sigma while targeting index like returns. It's actually really hard to do and 99% fail at it. There is nothing wrong with having big goals, but if the goals cause you to stretch your risk out, that is where the issue is. Pretend your 11 year old said dad, I want to move to Hollywood and become a star. Nice lofty goal and you never know right? But would you let them move out there with no money, no where to live, no friends, and no plan? Of course not.

    Most traders on ET only think in absolute terms, not in risk adjusted terms. And what most of them think of as alpha, is really just piling on leverage. You should have seen the outrage when US regulators limited FX margins to 50 to 1 from 300 to 1. They were burning cars and flags. LOL. The key here is not in making the most amount of money, but rather in making the most amount of money with the least amount of risk taking into account all your opportunity costs.
     
  266. Points well taken, Maverick. I go to great lengths to manage risks. It is a nonstop pursuit. Can you elaborate more on risk adjusted returns? Do you think that this strategy is too risky? Is so, what are your suggestions to manage the risks? What type of strategies do you employ? I look forward to your thoughts.
     
  267. Tastytrade doesn't provide their viewers with strategies to mitigate risk?

    Does Tastytrade's refusal to release a P/L for their own trading not bother you? Does Karen Bruton's story not concern you? The two portfolios managed by Tom and Tony that publicly saw significant losses don't concern you?

    I bring them up because your answers to my questions were "Tastytrade".
     
  268. I have learned much about risk management from Tastytrade. I would be foolish however to limit my learning from only one course. Mostly of my risk management techniques were learned from other traders.

    Why would I care about Tastytrade releasing their profit and loss. If you like, follow their trades on Bob.

    Sure Karen's story concerns me. I, among others, am fully convinced that Karen failed to take into account any volatility adjustment while stressing her positions. Ouch! I still believe the overall strategy is still viable.

    I don't really care about Case and Katie's accounts. They were making all sorts of trades, many of which I would not have made.

    This is an experiment to see is Tastytrade methods work in a hybrid environment. Trust me. If they don't, I will be the very first to let you know.
     
  269. Appreciate your earnest response. Tastytrade teaches a lot of good stuff for the uninitiated. Hope you continue to grow. Good luck, my friend.
     
  270. One trade today. I sold the SPY
    29 JUL 16 221C(3)/190P(1) ratio strangle with 44 DTE for 1.56.

    The account is up $695 for the day.

    Theta is 220, delta is 417, vega is -846, and gamma is -78.

    Happy trading!

    Bobby
     
  271. Thank you. That's all I'm trying to do is learn and grow. Happy trading!
     
  272. NP :cool::cool::cool::cool::cool::cool:
     
  273. Bobby,

    Cloud you please with every new trade post
    - realized profit/loss YTD
    and
    - unrealized profit/loss YTD
    Or since beginning of your experiment ?
    It will be very helpful, IMHO.

    Thank you,

    Stepan
     
  274. Yes I will try to incorporate that.
     
  275. Are you trying to get a Karen like accounting scheme going?

    The NAV is already in the spreadsheet and gets updated daily (1st post) - what do you get out of realized vs. unrealized?
     
  276. This made me laugh. It's probably easier (and in light of Karen's recent issues), that I just report YTD unrealized from April 5, 2016.
     
  277. You should start a charity/foundation like Karen and Woodie CCI...are you from the South?
     
  278. You're killing me! Yes I'm from the South! I live in Georgia but I've always claimed Alabama as home. Let's get that charity kick in'!
     
  279. Amen Sweet Bobby! Amen!....Roll Tide!
     
  280. I'm a big Alabama fan. I'm working on my graduate degree from the University of Alabama! Roll Tide!
     
  281. Spreadsheet from first post hard to analyze. My question has nothing to do with Karen.

    With all do respect, am I ask you something?
     
  282. Stepan7, here's the link to my spreadsheet.



    It has two tabs at the bottom. If you click on the Net Liq tab I keep a running total of the Net Liq as well as a nice little graph of the net liq.

    Let me know if you have any trouble accessing the spreadsheet.

    Bobby
     
  283. What is running P/L ?

    Your current positions may have profit/loss. How it's reflected in the spreadsheet?
     
  284. It is on page 2 of the spreadsheet. The running p/l since April 5 is $1,729.
     
  285. Lots of activity in the experiment today.

    According to my mechanical parameters, I was time to buy back my

    SPY 15 JUL 16 206C(1)/206P(1) Straddle

    The trade made a profit of $45.

    My very first GTC order closing a trade at a 2X loss kicked in and bought the:
    SPY 22 JUL 16 224C(1)/196.5P(2)

    The trade lost $320.

    I did some delta adjustments and sold some calls:
    SPX 29 JUL 16 2170C(1)
    SPX 5 AUG 16 2175C(1)

    If my profit/loss targets are not hit, I will close the 29 JUL 16 call after 24 days, and I will close the 5 AUG 16 call after 29 days (for this one that will leave 21 DTE).

    I also bought a little junk SPY put for a nickel.
    SPY 16 SEP 16 85(1)

    My rationale was that since I made $45 from the straddle trade, I would spend about 1/10th of that on a long put.

    The experiment is up $315 for the day and up $1,729 since April 5, 2016.

    Theta is 224, delta is 75, vega is -1033, and gamma is -67.

    Happy Trading!

    Bobby
     
  286. Is this $1,729 p/l on closed positions?
     
  287. It is $3,168 on closed positions.
     
  288. Cool. Where is it in the spreadsheet?

    BTW, AFAIN most Fixed Income managers (aka Bill Gross) literally living on analyze tab.
     
  289. Maybe this is the better way to share it. Just copy the link below and paste in your browser.

     
  290. That didn't work either. I tried to paste the link as plain text. Can you give me your email address and I will email you the link.
     
  291. you can use code predicate

    Code:
    test
    use [ CODE ] test [ / CODE ] and remove spaces.
     
  292. Or you can you add new column in Net Liq tab?
     
  293.  
  294. Thanks
     
  295. A GTC order on highly convexity exposed options is NOT managing risk. One gap down on any kind of black swan/war declaration/natural disaster/etc. and you're dead, completely dead.

    I guess you're just going to have to learn that the hard way here.
     
  296. 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.
     
  297. 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.

    Bobby
     
  298. 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.

    Bobby
     
  299. 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.
     
  300. 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.
     
  301. Oh, well I missed this post - so what is your plan for that scenario?
     
  302. 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!

    Bobby
     
  303. 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!

    Bobby
     
  304. I think there is no answer, thus no answer is forthcoming. ;)
     
  305. 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.
     
  306. This is basically the answer. I did credit spreads for a maximum loss amount I was willing to lose in the absolute worst case scenerio in exchange for the profits I was making. I did maybe 50 to 60% max of my total portfolio so never a blowout could happen. The best way to control risk in selling naked options is to simple control how much of your portfolio you put at risk. Even with naked options this can be controlled to a certain extent.
     
  307. May God be with you Sweet Bobby.
     
  308. Thank you, Maverick!
     
  309. One trade today. I sold the 5 Aug 16 220/196.5 strangle for $1.79.

    The account is up around $900 for the day and $2,400 since April 5.

    Happy trading!

    Bobby
     
  310. So how is this move stressing the positions or the strategy?
     
  311. I probably should have listened to some of the warnings! Would anyone care to guess on how much the account has lost so far?
     
  312. I'll take a stab. I doubt it's "that" bad all things considered. We've had the vix spike to 90 before and in 2008 ES dropped 60% vs the 5% last night. I'll say you gave back all your gains plus some more. Let's say you dropped 4k today and your net overall is down 1500.
     
  313. I mean the VIX is only at 22 right now, you may even be flat overall.
     
  314. I show the strangle at around 3.10 or so right now. Don't know what it was at the open - but the lack of market freak out on cash open surely helped save some of your ass. If it went the other way with a continual sell off after - or worse, ES hammering the 1999 limit down all night and then blowing out to the downside it definitely would have been worse.
     
  315. I think the fact that they are naked rather than spread means they exploded pretty well. Vols did jump from 17 to 22 and OTM puts are skewed higher so there has to be some serious heat being taken today....

    But sizeof these positions appear small so doubt the damage is worse than simply giving back a lot of profit.
     
  316. The regular hours move wasn't even that drastic, we are down only 3+%, so there shouldn't be such a huge loss. Stop teasing us!
     
  317. Bobby your ba&$£ must be made of steel. When London opened I thought things were going to be worse than they are. Hope you haven't taken a big hit. I reckon your Net Liq is at $148K.
     
  318. Day aint over yet..but even if he did 10 strangles the loss is just eating into already acumulated profits plus some capital...
     
  319. What a great day of trading. All of my trades have been posted on my spreadsheet. Most of my activity has been my GTC orders triggering taking profits at 50%. No GTC orders were triggered taking a loss. I did mechanically close one trade at a $92 loss after 24 days in the trade. My total realized profit for the day is $513.

    I was set up perfectly ( according to my parameters only) going into the Brexit vote. My delta was at a 1/2 ratio to my delta.

    I put on one new trade today - a short put in SPY. Of course, my Greeks are way out of line but I now begin the daily process of chipping away to get things back in order.

    Net liq right now is at about $149,500.

    I am selling "I Survived Brexit" t-shirts for $19.99. PM me your size.

    Happy trading!

    Bobby
     
  320. Net Liq of $149,500 is a right result. I bet when you heard the news you thought the losses would be greater. Those Brexit T-Shirt are a bit cheap at $19.99.
     
  321. When I heard the news, I instantly went to the analyze tab to see where I stood. The account was well in line with my stress parameters.

    The exit has brought about increased volatility in the market which I certainly welcome. It is a great day to sell premium.
     
  322. So on a 150k account you've gained basically 1.7% in 3 months with a strategy that can kill you when things heat up. How you think you're going to return 25-36% annually here, particularly when the market context changes, is beyond me.
     
  323. Bobby, I need to offer some advice here though and I do speak from experience. It's very dangerous to look at your p&l as a reflection as to whether this strategy held up or survived. As I said before, the long term historical mean on the VIX is 20. We're at 25. Yes, we had a large drop overnight but it was just one night, not 30 day of straight selling like we have had before. At the end of the day, you are 3 months in to this experiment and all the money you made over 60 trading days was lost in one overnight session.

    Let me give a better example. If you simply bought SPY back in April and held it through thick and thin, you know how much you would be down right now? Zero. Both strategies are simply long risk and extracting the given risk premium that is offered to everyone on this forum if they should so choose to accept it. It comes with a given sigma for sure, but it's available. The question you need to ask yourself is, are you better off simply being long SPY and not generating taxable events on a daily basis along with commissions if you can earn the same return just being long risk. And to add to that, spend more quality time with family or pursuing other things. It's just a question only you can answer and your answer is none of my business, I'm simply trying to provide just objective perspective here. The goal of trading should not be merely to "survive" but to prosper and to do so irrespective of all other opportunity costs.
     
  324. Sweet Bobby must be feeling rather sour :p:vomit: -- I know I would be, with that performance.
     
  325. Did things heat up today? Did I get killed?
     
  326. Why would I feel sour with a realized profit of $3,110.50?
     
  327. Don't listen to all these haters, your an inspiration to all of us struggling option traders..I will take a size medium, I've been working out lately..keep up the great trading.
     
  328. Thank you! A positive comment is greatly appreciated.
     
  329. I don't think these guys are sour traders. I've been doing this for 20 years, most of it in a professional capacity. Some of the other traders here as well. Experience is the greatest gift you can offer someone. The only question is will they be able to properly ascertain it's value.
     
  330. I appreciate your comment.
     
  331. Bobby:

    I do not follow Elite Trader often and I do not have a long history of posting on this forum - I spend my occasional investigation time reading and discussing with those on the Yahoo group that was started to follow Karen. My trading strategy is documented and heavily analyzed by the members there.

    I am writing to let you know that with a stronger hedging strategy, your account will be put into a stressed position, and it's likely one that you cannot get out of.

    Independent of even knowing who Karen was, I devised my own strategy that has been in evolutionary improvement over (almost) 5 years. I just looked up the results, and they were 14% for a half year in 2011, 27% in 2012, 7% in 2013, -9% in 2014, 53% in 2015, and 9.5% YTD. I trade an account that is north of 7 figures. I have these funds spread across multiple portfolio margin and IRA accounts. I trade my IRA account like it was portfolio margin by using $.05 dated long options to box any naked trades. While the mechanics are slightly different trading in an IRA account when it comes to rolling, the size of the positions and where my strikes lie are identical to what I would do in my PM account.

    I'll tell about my current strategy in a moment. But the before I do so, I want to let you know there is no way that Karen is getting the sorts of returns she is making without either:
    1. Having superb timing abilities that let her masterfully choose when puts / calls are opened, or:
    2. Having an excessive amount of risk, that is too many DTE.

    You have to model out what happens to an options position when implied volatility dramatically increases. If the market drops on you, even if you believe you can survive by adjusting your puts down / out / reduce in risk, you do not have as much margin to adjust as you might think. Presumably, if you have puts 45 DTE, you'll also have a lot of calls 45 DTE. And while you may think they are making you money, a huge drop and implied volatility can cause those calls to increase in value and require potentially a higher margin requirement. That margin requirement takes away from margin that you may need to give yourself more room on puts.

    I studied Karen's method. If you want 25% return / year, every year, trading 45 DTE, you need to have 100% of your calls & puts open all of the time - and then you would need to add enough contracts to generate that .5% gain. The sort of contract volume required to consistently get that gain will only give you a 15% downside drop before you are in oh shit territory on the edge of a margin call. There are a number of people in the Yahoo group that have experienced those moments in January this year and it other times where we had huge drops.

    Tom that a lot of the guys follow on that thread - his overall returns from trading the strategy are not that good, and there have been a couple of oh shit moments from him. I have pleaded with him for awhile to change his options strategy. His returns this year are around 25% YTD, but a lot of those returns are coming from something he likes to call delta hedging, which is just a fancy way to say that he's opening up long / short futures positions on /ES when one of his sides is unnecessarily stretched and causing losses. His setups for the futures positions are elaborate and very involved - so much so that it's hard for me to call them delta hedges, and more "opportunistic trend trading." Meaning, that he is trend trading over very short periods of times by looking at chart setups, but only putting on such trades when one of his sides are threatened. But I think his returns have been so good on that, that he is now doing more swing trading instead of the options stuff.

    I started trading my strategy after I had gotten very sick and developed it in isolation. Basic philosophies of options trading should be:
    1. Maximum theta
    2. Minimal risk
    3. Never be in danger of a margin call

    I also make the basic conclusion that markets never crash up, they move up in an orderly fashion. And this gives me a lot of confidence around selling naked calls in a very high volume. In fact in reviewing my records, about 2/3 of all contracts traded over the past 5 years are naked calls while they return 1/3 of my total profits. That is not bad considering the market has moved up in those five years, so have been making money shorting the market all the way up.

    Maximum theta happens when you are close to expiration. Also, to avoid margin calls, I ask myself how many contracts can I open to survive a 50 point increase in implied volatility, a 50% drop in the market, and a 10% rise in the market. This lets me know what my maximum number of puts and calls that can be opened. For every $1M or so being traded at 2000, this allows me to put on 10 puts, and around 50 calls.

    I trade within a few days to expiration. It used to be putting trades on a Friday for next Friday expiration. But the arrival of Wednesday weeklies a coupel months ago have helped to boost my returns so I trade 2x / week now.

    I used to try and stay OTM at any cost. I'd want to target a .4% return per week, so I'd open my puts to get .2% and my calls to get .2%. Any time my puts got within 1.5% of touching the underlying, I'd roll out and down. Same thing for the calls. And each adjustment, since I was at my maximum contract leverage, I'd reduce contracts from puts or calls. The extra cash collected and then the reduction of leverage left me with an overall higher cash position. Keep repeating until the market ended the week in the middle of my strikes and I kept all of the cash. I'd even tighten the calls and puts during the week to get a little more income. But I never wanted to let my positions go ITM - things would be a disaster, right?

    Well, in 2014 the market was screaming up, and I had my calls too tight and I couldn't adjust out and up fast enough. They were caught ITM. And that taught me valuable adjustment lessons, and realized that being ITM wasn't such a bad thing. It took me 4 months to dig out of the -9% hole that I had built for myself (and it was a 15% peak to trough drop, so brutal).
    But when I got on the other side of that mess, I realized that I was working so hard to try and stay out of the money, and you cannot avoid it. And having a lot of leverage go ITM is a dangerous place to be. And that got me thinking about what would happen if that happened on the put side. At the time I was only budgeting for a 30% drop in the market, but then reduced my puts to survive a 50% drop.

    Once I realized that my overall returns were being hurt to stay OTM and that I was being overly paranoid to go ITM, I recognized my trading strategy was suboptimal. I flipped my hat and asked myself about changing mentality. Instead of trading to avoid chaos that happens .001% of the time, instead develop a trading strategy where chaos is happening 99.999% of the time. If you trade like every day is a black swan, then when a black swan really happens, you have all of the skills needed to trade through it.

    So what I do now:
    1. I get as close to ATM as possible.
    2. I open up all of my puts right around ATM.
    3. I open up the same number of calls slightly OTM - about 2 strikes worth, just enough to absorb the 150 year average of growth since the market eventually does go up.
    4. I open up the rest of the calls on Tuesdays and Thursdays to do some call scalping to pick up additional premium, but in a structure where 99.99% of the trades should be safe.
    5. By Wed or Friday, some positions are ITM - it always happens. That is when things are bad, so they are always bad. I then have adjustment activities. Essentially I roll the ITM side to the next expiration. I then open up the OTM side full allotment at the right location. This will generate anywhere from 1-2.5% in cash. If my target is .4% (more like .6% in a single week these days), I can use the extra cash generated to move ITM calls / puts to be in their ATM posture, ultimately increasing their theta.
    6. Separately, because no one wants their puts to really drop 50% and see that happen, I do take about 1/10th of all the cash generated each week and buy batches of long puts 5 weeks out. I have about 2x more long puts in a ladder than I do short puts. These long puts cannot save me from a 10% drop at all. But if the market has a 2008 or a flash crash, it would cap my losses to around 15%.

    Since I have started traded this way more aggressively, I have had an 11% drop from peak to trough, in Jan / Feb, and it took me 8 weeks to recover back to the peak. And overall it's clearly a good year since I am up almost 10% after being down 11% just a few months ago. This week, I returned .6% on the portfolio and gained 3.5% in cash. I have calls at 2030 that were ITM from the market rise, which are now right ATM, and most of my puts were opened up last week at 2100 when the market was peaking. But I did the smart thing and rolled everything out to this wednesday last Thursday because the premium was so juicy. I had no idea which way the market would land, so I just opted to keep all the premium collected and if one of my call / put sides are breached, I'll start adjusting. I'll start moving puts from now being deep ITM to ATM.

    Safe trading to you - listen to people on this forum. Don't blow up your account. And learn how to trade entirely ITM. Find ways to get yourself out of any possible naked call / naked put ITM scenario. I have a trading plan for every possible outcome, even a Black Monday, a flash crash, or another QE that causes the market to rise 5%. I may take some portfolio losses along the way, but I always recover, always collect more premium, and eventually start showing gains.
     
  332. Your whole post, while very informative and helpful, the method seems hard and too complicated. Just short SPXU and some TMV. 30 to 50 percent annual returns. Selling calls can be very nerve racking because you get very little margin of error due to the bias of the skew, whereas put options have a much deeper skew and more room to be wrong. Call premiums are so small
     
  333. The UK is in complete chaos at the moment with the Labour Party imploding now plus the remain politicians stating Armageddon is happening. Volatile week ahead.
     
  334. The skew is not a problem for me because I do not mind going itm and am able to extract the theta that is needed even if itm with losses. My expectation for future years is around 28 percent return gain per year. The nature of this trading has a tax advantage as they are treated as 60 percent long term capital gains.
     
  335. Why is this guy getting some many negative comments? Why is he being lectured that short volatility strategies tend to get "killed" when volatility picks up? That's like telling a Harley driver that biking is dangerous.
     
  336. But if you're only selling 10 puts for every 50 calls it will be a problem if prices keep going up . I remember a long time ago selling a strangle and when the call part got very close to in the money, the losses got big fast.
     
  337. I guess the problem is some people is the risk to reward may not be that great . Long SPY (including dividends) gives almost the same total returns as these option strategies, but without the large risk from selling naked options
     
  338. It is not a "short" volatility strategy, you are also short a ton of gamma and you can lose money even if vols are dropping. I think your comment shows you do not understand the strategy very well and of course do not understand the negative comments.
     
  339. Hope you are doing ok. I think you see why the analyze tab now becomes more of a Toy than a risk management option - with serious deltas like you have after this move hope becomes a strategy - spoken from experience.
     
  340. Tyler, it's very good to hear from you!

    I am certainly very interested in your strategy, and I am glad to hear that you are doing well.

    Bobby
     
  341. I'm happy to be on vacation this week with the family. I managed to sneak in one trade today. I sold the SPY 5 AUG 16 205.5/180 strangle. Two more of my 2X loss GTC orders kicked in today and as you can see from my chart, several of these have triggered over the last few days.

    Delta is 726, gamma is -77, theta is 201, and vega is -618.

    The account is now down $1,061 from its inception on April 5, 2016.

    Happy trading!

    Bobby
     
  342. I did an approximate theoretical analysis using Black Scholes to calculate the option prices stressed by volatility changes and underlying changes using historical price and approximate historical volatility and came to similar conclusions: Without leverage and margins I was not getting very good returns. With leverage and margins, I got good returns but....margin calls wiped me out.
    This is extremely helpful, especially #6. Thanks for sharing.
     
  343. Sweet Jesus, Sweet Bobby! Why keep selling vol unless you're forecasting lower future stat vol? Ever think about buying vol or are you afraid of disappointing Tom Sosnoff?
     
  344. NPTrader

    Though you post here infrequently, I always looks forward to them.

    With all of the time and effort you've put into creating your strategy, do you think it's been worth it from a performance perspective?

    Aside from 2015, the returns don't appear that superior. And taking drawdowns into account, the risk-adjusted performance looks weak too.

    Thank you for posting such great detail of what you do and I apologize if my questions appear brusque, but I ask with nothing but humility.
     
  345. I am super happy with my returns. First I do not mind draw downs of any size because my horizon is infinite combined with a 100 percent confidence that my adjustments dig me out of any hole after 3-5 months.

    Right now after all of my averaging out I am showing a compounded average rate of return of 24 percent. And I expect with the mods to the strategy that I now employ it should be closer to 26-30 going forward.

    I track sharpe ratios of my strategy on a weekly basis compared to sp 500 total return and right now it says that my strategy is about 25 percent better than just buy and hold sp total return and the long term results should be twice the return.

    After ten years of awful returns by investing with a financial advisor these results are stunning for me and I have confidence I will do it for the rest of my life.
     
  346. I'm still enjoying my family vacation. I had four of my GTC orders to close 4 positions at 50% profit.

    I keep chipping away to get my Greeks somewhat back in line.

    I placed one opening trade today. I sold the ES AUG 16 (WK3) 2180C(1).

    Theta is 104, delta is -73, vega is -499, and gamma is -16.

    I would like to see the market go up a little more tomorrow so that I can add some negative delta to the experiment.

    The net liq is now up a total of about $3,300 since I started on April 5. Interestingly, the closed, realized positions show a profit of about $3,400 as well.

    Happy trading!

    Bobby
     
  347. I understand now, Sweet Bobby. You're not trading volatility, you're trying to stay on the right side of theta decay.

    Sincerely good luck with that. The market is too efficient for that theta to be any kind of "edge."

    You're accepting a risk you're not fully appreciating. A risk even I don't fully appreciate and I am further along than you in traversing the markets.

    Good luck, my friend. All the best.
     
  348. Bobby say for example in the future France was going to have a vote about exiting the European Union what would you do differently next time?
     
  349.  
  350. My calls will be opened either right ATM or slightly OTM. They will be opened in a way and in a design to get maximum anticipated theta. If the market has been very stable with little price action, I may go OTM anticipating the market to be more volatile. If the market has been violently trending, then I tend to go right ATM to counteract the trend.
     
  351. Thanks for the quick reply! so sometimes your call/put will be 'crossed' like call spread below put spread and you wait till the mkt stopped in the middle between call and put at expiry to close both or you prefer mkt outside either one so you collect the other side(OTM) premium and roll the ITM again?

    I read your original post while ago and I am a fan :)
     
  352. I never really close positions, whether they are winning or losing. I don't believe in any of the thinking that says you should close your winners and losers quickly. I do not believe that I can anticipate market reversals - so I will lose money if I remove any position. I just let things go ITM and then adjust out of it, by making a lot of money on stuff that is ATM and then using extra cash to move deep ITM stuff to be ATM for more theta.
     
  353. Got it, thanks a lot!
     
  354. I really don't believe that I would do anything differently. For my parameters, I was perfectly situated going into the event. My account experienced some stress, but everything was well within my tolerance levels.

    Perhaps I would have rolled some of my calls downward to adjust my delta, but since I am on vacation I didn't really have the time available to devote to that. I'm not a big fan of rolling positions anyway.

    All in all, I have determined that my strategy was successful during the Brexit event. As I say this, I fully expect the "what if's" to pop up and try to break me down. That's okay, I'm a big boy.

    Bobby
     
  355. Had a close shave myself lately - but have it back to 12.68% return for last month - keep that going and I will be very happy camper!

    Just need to keep calm now and not start risking too much - it is no good unless you hold on to it!

    Keep pecking away like woody the woodpecker:)

    J_S

    Screen Shot 06-30-16 at 02.47 PM.PNG

    Screen Shot 06-30-16 at 02.39 PM.PNG
     
  356. You have my support anyway - how did you get the excel file into the post, is it an online excel sheet in google or something similar?

    I was doing a good bit on ES options lately, but switched to futures with better results as of late - still do the odd few options trades, but my main focus now is on NQ and ES/NQ spreads, and will be doing a bit on FTSE MIB options and futures shortly, as the FT MIB has unreal volatility during normal markets, let alone at the moment!

    Done a lot of option trades on FTSE 100 index in the past and might revisit that also - but have to learn to crawl again before I can walk, as I was away from trading for a good few years and just getting back into it now.

    Thx.

    J_S
     
  357. Can you add a column in excel sheet for time of trade and underlying price at this time - it can be very helpful later on when looking back on trades and results.

    Also, if you can, add delta and theta for each leg - you can use the group/ungroup feature in excel to add these, then collapse them to not take up the whole sheet - but I think you know this already?

    Thx.

    J_S
     
  358. Got it, thx.

    I don't see the grouping features, but if you want you can add a tab for each trade with all the key info - just a suggestion, but I think it can help to refine strategy and improve on timing.

    I was sorry I did not do it for all my FTSE 100 index option trades back in 2007, as I had 85 winners in a row, and now I have to go back thru my diary, get all the details, and go back on charts to get the price of underlying for that day - but that is a good bit away yet, only when I can walk again:)

    J_S
     
  359. I have added the column for delta for each leg. I am rounding this number and I'm not including decimal places. I am actually entering the Probability of In The Money.
     
  360. Are they real trades or sim account - selling calls and puts without protection is very risky business!

    J_S
     
  361. I am not really interested in this Karen person, it is your excel sheet that caught my eye.

    First question for you - why did you sell and ES call with the ES down here - if anything, it was a short put trade, with protection of course!

    J_S

    Screen Shot 06-30-16 at 05.21 PM.PNG
     
  362. Oh, even an advanced level trader have a losing day...but I am more interested in what affected him to make such a decision. The most difficult part of trading I find is whether a pullback is a pullback or reversal but I think now I am getting better with that.
     
  363. I trade in three different real accounts with different strategies. The trades that I post in this thread are isolated in a $150k paper money account. I do implement most of these trades in my live account, but it depends on what the Greeks are telling me in my other accounts.
     
  364. Losing should not matter, as it is part and parcel - it is losing way too much that matters!

    As RN rightly says, no sense in throwing away good money!

    J_S
     
  365. How are the trades highlighted or signaled - by the yahoo group or thru your own analysis, or both?

    J_S
     
  366. I utilize the Greeks to drive my account. As I looked at my account today, I needed to add short deltas. Thus I sold the short call. I also sold a strangle today.

    I don't try to fix my Greeks in one big swoop. I nibble at it each day until I get things in line. I need to add additional short deltas and I hope to do that on up days in the market. Hopefully things will be up again tomorrow and I can sell some more calls.
     
  367. Don't get me wrong, as I am no option expert, but I would like to know how the particular trade is highlighted - adjusting deltas by selling an unprotected ES call for max profit of $117, after market falls hard, well, sounds a bit silly to me!

    I know you have other trades open, but that is a bad "call" in my books!

    J_S
     
  368. Keep in mind that I know nothing as well. This one trade might very well be a losing trade. But it was put on as just one piece of the larger puzzle.

    If the trade is a bad trade, I will close it at a maximum loss of $234.

    I'm not looking for each and every trade to be a superstar. If memory serves me, this particular trade was put on with a 80% probability of success. I like those odds.
     

  369. Hi NPTrader,

    One more question if I may, how did your system do during this Brexit time? Thx!
     
  370. I am up about 2 percent over the past two weeks. But it is complicated to explain why. I already had in them mine puts and calls. And when the premium was very high I rolled all of my positions and kept all the cash. As the volatility settled down the returns came home.
     
  371. Thanks a lot! No need to explain why cuz I think I know: years ago there is this guy created a system in FX he calls it Nirvana, I think yours are pretty similar :)

    Happy 4th!
     
  372. Five trades today. 3 GTC orders kicked in closing at 50% profit. I had two new opening trades.
    upload_2016-7-1_22-51-37.png

    Here's how the Greeks look:
    upload_2016-7-1_22-53-21.png

    Though I'm happy with the relationship of delta to vega, my theta is extremely low. I really need to have more trades on.

    The experiment is now up $3,902 since its inception on April 5.

    Here's how the month of June 2016 looked. Net Liq was down $71.22 for the month. Now to whoop out some Karen style accounting for you. The realized P/L on positions closed during June 2016 is $921.37.

    I hope everyone has a great Independence Day. It's awesome to live in such a wonderful country.

    Happy trading!

    Bobby
     
  373. Two trades today. I had forgot to put a GTC closing order on the SPY position, so I closed it today for a 69% profit. I then opened up an /ES strangle.

    upload_2016-7-5_23-20-47.png

    Here's a look at my Greeks:

    upload_2016-7-5_23-22-1.png

    The experiment is up $3,427.16 since inception of April 5.

    Happy trading!

    Bobby
     
  374. One trade today. I sold the ES Aug 16 (WK 3) 2220/1910 strangle for $8.55.

    Theta is 129, delta is -181, vega is -753, and gamma is -4.

    The experiment is up about $20 for the day.

    Happy trading!

    Bobby
     
  375. Since April 5th:

    Sweet Bobby: 2.6%
    SPX: 2.6%

    Correlation? You make the call.

    These numbers are gross. Take commissions and taxes out for Sweet Bobby and he is underperforming.
     
  376. Maverick its clear to see that Bobby loves Trading Options and selling premium. Okay his current strategy isn't beating the SPX, so what option strategies do u recommend?
     
  377. None. No strategy alone is going to make or lose money. A strategy is just a vehicle. You still need to know where you are going to get there. I know most don't want to hear this, but I am telling you the truth regardless.
     
  378. It's all about execution. Trade better than the next guy and you take his money. Otherwise just load up on beta.
     
  379. Yes but he/she needs to know "what" they are trading.
     
  380. It's a little early to put this strategy in the grave. I am tweaking as I go and I want to give the experiment at least a year to develop.

    I'm sure many hedge fund managers would like to have my performance over the last 3 months.

    If this doesn't work, I will be the first to let you know.

    Bobby
     
  381. The experiment was up $279 for the day and reached its all-time highs since inception.

    One opening trade today:

    upload_2016-7-7_16-57-25.png

    Here's a look at the Greeks:

    upload_2016-7-7_16-56-56.png upload_2016-7-7_16-56-56.png upload_2016-7-7_16-57-25.png

    Happy trading!

    Bobby
     
  382. Maverick so are you saying you not only need to know your strategies + (knowing what strategies to trade under certain market conditions) but you also need to have a traders mindset.
     
  383. You need to understand all possible options (no pun intended), the nuances of all the possible strategies to optimize those options, the optimal pricing of the given strategy and all possible paths the underlying might take. In laymen terms (maybe), to build your house you need to scout the best location, source the cheapest materials, get the best labor cost, at the best financing rate and you better be sure as heck on your timing. So that is the house analogy, move that over to options and you are there.
     
  384. No wonder us small retail guys/gals do not stand a chance in this game, just like I am not capable of building my own house.
     
  385. Four trades today - one opening trade and 3 GTC orders kicked in closing the positions at 50% profit. On a day when my Net Liq is down a little, it's kind of cool to know that positions are still closing for profits.

    upload_2016-7-8_22-28-1.png

    Here's a look at the Greeks:

    upload_2016-7-8_22-28-59.png

    Everybody have a great weekend!

    Bobby
     
  386. I don't think one year is enough for you to find out the flaw of this strategy.

    I know a guy that have a similar strategy as you - targeting approximate 0.25 to 0.5 % gain daily with the max drawdown down of 15% <in his so called one single black swan event) , and he believes he will survive black swan event with a "recovery time" of 2 to 3 months as he will make back his loss after 30 to 60 days from the 0.25 to 0.5 % daily return.

    Well... This guy blow up his account after 2 years of "experiment“, together with some naive investors that follow him. I will let you figure this out in the real world.

    All the best, good luck.
     

  387. In Buzzy's book "The Pit Bull" he spoke about all Option Traders that would be up six and seven figures YTD only to have a Black Swan event wipe out their entire gain plus a chunk of their Grubstake. After decades of playing this game does anything surprise us after seeing the last bastion of hope turn out to be a fraud? I thought Karen was the person who was different, she would prove everyone else wrong.
     
  388. Do you know when his Account blew up and what he was Trading, I am interested to see what took him out of the game after 2 years of Trading.
     
  389. Short volatility strategies are designed to get destroyed regularly. Doesn't mean they're useless in a balanced portfolio. What some of you guys are doing in this thread is arguing that one strategy is better than the other by design. That's foolish. There are many types of market inefficiencies and selling volatility is exploiting one of them. Are oranges better than apples?

    If you go back in history, many of the "carry" type strategies are highly correlated, i.e. it's the same source of beta: FX carry, junk bonds, short vola/put selling and merger arb. They're all quite interchangeable from a risk/reward profile point of view: small gains with the occasional Acapulco cliffdive. I like 20% of these in my account which is primarily long vola (breakouts, trendfollowing).
     
  390. Never disagree. Options selling is only ONE of many trading tools and NOT an edge by itself. You need to use the tools in different situations (long/short options, directional bet on future, buy or short stock, bond and etc) to explore the inefficiency or extreme of the market ( high/low vol, extreme low or high price such as oil price a few months ago, stupidity, and etc). This is the real edge but can only gain from experience, bad news but is a reality to new traders. New traders always thought they can fly immediately after they get their hand on a trading system (such as short vol system as discussed in this thread, chat room, buy a new system from guru andc etc), this is why most of them failed eventually, those who stay for more than 10 years (or shorter time if you are smart or have a "real' mentor) will survive and profitable in long term.

    What really stuck me is so many not too smart people thought they can make " consistent" income by doing the same setup day after day. What they don't realize is they are playing with low reward high risk setup, with the high frequency of winning trade that give you false sense of edge, until one day when the "low frequency" loss trade appears...
     
  391. Galvin no dispute here, fully agree. There is no "consistent income" in any sort of options trading. When people ask for consistent income I tell them to buy treasury bonds. But that's not what they want to hear. They want to make "income" of 2% per month, every month. That's how Bernie Madoff was able to ramp up $15 billion in AUM.
     
  392. The experiment is suffering on the call side. I should have closed several of my calls some time ago. I am accustomed to placing GTC orders, but I can't do stop limit orders on ES options. I wasn't paying attention to how large the price has increased on the calls. If I'm going to sell ES options I've got to do a better job of watching them and closing them if they reach 2 X loss. Live and learn. For now, I'm going to leave them on and try to start getting out of them on down days. This has been a great learning experience.

    Bobby
     
  393. Bobby I think if you try and design and adapt this strategy in real time its going to take a long time and there's no guarantee its going to be worth trading at the end of it. Don't you think if you completed some tests with historical data you could reduce the time its going to take.
     
  394. Are you not going to update your p&l while you're in drawdown? To be fair, regardless of what the reasons are, this is really where people will learn the most about what you are doing so you really should update the results and not just say you didn't follow the rules.
     
  395. Maverick, I update my spreadsheet daily. I update the p&l every day. I also post all of my trades on my spreadsheet to.

    Lately I haven't had much time to post each trade on this forum. I'm taking four graduate courses this semester and it's kicking my tail.

    I am making at least one trade per day. Let me know if you have any trouble finding my spreadsheet.

    Bobby
     
  396. I don't think this is the "real pain" yet for your strategy. The change in the volatility in the past few days is not consider high from history perspective, you WILL SURVIVE this time and I am SURE you will come back to this board with claim of "recovery" from your daily small wins in the next few weeks. Unfortunately all of this will give you more false sense that your strategy works until one day..one day when the real sh** hit. Good luck.
     
  397. What's going on in Turkey right now right near the Friday close is a great example of the hidden risk these types of strategies are exposed to.
     
  398. Hi Bobby and all,
    I am new to the forum and I am following this thread from the very beginning as I am quite interested in this experiment. I was following Tastytrade and employing quite a similar strategy as you do but the many statements of experienced option traders in this thread got me really thinking about the risk I am undertaking.

    As everyone I was not expecting Brexit vote. Unfortuntaley I didn't bother reducing my size in advance. I was thinking I was protected through my diversification because I was selling in all kinds of assets like soft commmodities and so on. I was even so careless leaving a short put on GBP Future on. I was thinking: well volatiliy in beans won't get influenced by Brexit. Not so!
    As everyone says: Diversification doesnt help in a downmove. I learned this the hard way.

    On the morning of the Brexit day I looked into my portfolio and half of my gains of this year were erased. All deep red and volatility was exploded throughout the board no matter what asset class. This was quite a shock since I was overleveraged (80% of margin tied up even before the event!!) and margin was so elevated that I couldn't close legs of my positions and apply any of the Tastytrade defensive measures....

    That was a very unpleasant day and fortunately the Brexit vote was just a shock-like event and not the beginning of a protracted downmove with even more increasing volatility. Otherwise this could have been a very deep bite into my account. Now I am still up 24 % as of today so I should be happy but to be honest this kind of return with this strategy is plainly showing that I was taking unhealthy risk and I just got lucky.

    So I was re-evaluating and investigating a bit and this is what I found.

    First thing I found that although there are thousands of videos on Tastytrade about selling volatility in fact they do not endorse a Karen-like style at all!

    Very revealing for me was the series about the TopDogs Portfolio where Tom explains how he would manage a 250 k Portfolio. Please find his allocation below:

    capital allocation.png
    With Core positions they mean buying/selling ETFs /Futures and selling premium against them to reduce cost basis. This is their suggested basic strategy. So only 6 % of their portfolio value would go into Karen-like undefined risk trades while maintaining 63 % in cash! Sounds not too fancy, or?

    Then from another source ( the Capital discussions Board) a video that I found very interesting:



    This is about a guy "Larry" who was starting out and about to embark on a vol selling strategy. Well, quite experienced option traders were in this Trading Group and they were really honest and helpful. In the end he was talked out of his endeavour by Dan Harvey in person. Dan was (of course) recommending to trade wide butterflies instead which have significant better risk/reward profiles. Dan is offering service in this area too but it did not come across as marketing in any way and the discussion was very interesting. So this is a thing I am definitely going to explore further.

    And then a third point I found: I think this intersting article about "the system Karen" was already mentioned before:

    http://macro-ops.com/karen-the-supertrader-goes-rogue/

    I just mention it because it includes a backtest as well:

    "I went back to Jan 2014 and mechanically sold a 10 delta strangle with 60 days to expiration. For position sizing I assumed a $1,000,000 account and sold 1 SPX option per $100,000 of capital."

    I think this capital curve with this incredibly sharp declines sums it up perfectly. When you are with IB you might get autoliquidated right on the bottom and then have to watch the backlights of the following rally.

    SPX_strangles_sell_backtest-with-enlarged-equity-curve.png
     
  399. Ahh the dichotomy of tastytrading.

    1st you were convinced that you could always adjust your positions, until vol blew up you were out of margin. You were lucky to survive, others not so much.

    2nd you've now found TopDogs to be the grail. Does not seem to follow the mantra of number of occurrences and law of large numbers does it? Where did that go? You do know that "core positions" is a TT euphemism for trades that have gone against you? Then you hold them until a profit comes along. Kind of like risk 100 to make 1, hmmm.

    3rd now we're onto wide butterflies as the answer...well we'll see.

    The TT personality that said it best is gone, Slimmy. In order to make it trading you need good risk management while hitting some home runs once in a while. Do any of the strategies that you've put forward offer that opportunity?

    A lot of the TT mantra confuses activity with accomplishment. I often wonder, but never find out, how much the boys make trading since their floor trader edge was eliminated.
     
  400. I remember that trading group meeting. (I run it on Tuesdays at 12:30pm ET if anyone wants to attend live - its free.). I haven't seen Larry back so I hope he's doing ok with his trading. It was a really good session discussing what others had learned.

    Broken wing butterflies are nothing new. Market makers used to make a living doing 1x2s (BWB without the outer long). It's a very flexible strategy with a lot of premium to play with. Ultimately it's up to the trader to trade it so it makes money. A bad trader can lose money with the best strategies.
     
  401. I'm new to this journal but not new to selling premium. Can't you just do a diagonal roll up on the calls? Just ratchet up until you catch up with the market or the market corrects itself, especially on the call side. What I've found from experience on the call side as soon as I have a limit of 2x or so before I take the hit and buy it back the market inevitably turns shortly after back down. Whereas when I've rolled it's sometimes taken some time but ended up correcting to get your credits back (again on the call side, I've yet to see the market crash up). I've been doing short strangles (with put protection) on the OEX since 08 and that's usually works itself out over time if you have the patience and you're not over levered. It does prove to be profitable especially over a longer frequency (months not days).
     
  402. Yes, quite an unpleasant day.

    I think the holy grail is structuring a portfolio with several strategies to make it immune against vol spikes instead of relying on one strategy. The core strategy should be set up in advance of all other strategies and the basic thought behind is that traders will pick the wrong direction in 50 % of cases. So the expectancy of direction-picking might be zero. But it doesnt matter as long as traders sell premium against the positions to reduce their cost basis and ultimately own them for free. Besides some time traders will become better in picking direction and start earning from direction too.

    You can combine the Core strategy as above with Butterflies as well. Or you use these inventory Butterfly trades as core strategy and sell premium against stocks with another part of your portfolio. You can buy options to hit home-runs with the speculative part.
     
  403. That equity curve is not looking so smooth anymore and to think, the VIX is at 12.42.
     
  404. Percentage of wins is the least important factor in determining profitability. TT pretty much says it everyday or every "study". High winning % means nothing.

    The classic selling of premiums to reduce cost basis sounds great. What if your core position is long since the markets have upward drift? You sell calls above until called away right? Stock goes down you keep the premium.

    Cut your winners short and hang onto the losers in other words. Why? To increase winning percentage. UGGH. One can't spend winning %.
     
  405. And lose on the equity value too.
     
  406. Bobby, any reason why you stopped updating your spreadsheet?
     
  407. Alot of people are too proud...to post failure stories o_O:banghead:
    They only want to show off the positive of themselves.
     
  408. It's not a failure story. But his followers are probably more interested in how this strategy does when it's not working vs coming on here during the theta bleed and talking about the small decay he is earning every day. I won't call him a failure. I just want him to be consistent.
     
  409. My apologies, Maverick. The worksheet has now been updated.
     
  410. And the asshole of the day award goes to . . .
     
  411. Three trades today.

    upload_2016-7-19_21-5-14.png

    Here's a look at the Greeks:
    upload_2016-7-19_21-8-44.png

    Since I can't enter a OCO order to close my ES positions at 2x the credit received, I have added yet another column to my spreadsheet to help me keep an eye on those positions. I never had this trouble with SPY and SPX. I still have several "problem children" but I have some time on my hands.

    Happy trading!

    Bobby
     
  412. Why can't you do this? You should totally be able to submit an order to do that.
     
  413. On my SPX and SPY I set up two closing orders simultaneously. One to take profits at 50% and the other to close at 2x loss, with one order cancelling the other. TD told me that I can't do a stop limit order on ES options. If you can tell me how to do it, I would greatly appreciate it.
     
  414. The put skew is there for a reason, think about this the 87 crash completely changed how options are priced, that's a pretty big deal. There is a paper somewhere that talks about the crash in sigma's some insane number, don't have time to find the paper. On a crash with defined risk you eat the max loss and move on, with naked options you are f&*ked.

    https://www.cboe.com/micro/skew/documents/skewwhitepaperjan2011.pdf
     
  415. I have to say that, on first blush, Karen's strategy is pretty superficial and numerically naive. Without disclosing too much, I can say that I have some insight into Jim Simon's quant shop as well as some other big data/machine learning shops that look for tradable patterns in oceans of data. This kind of pattern, if it existed, would be identified in about five seconds, then traded back down to a signal:noise ratio of 0 in no time flat. No, I haven't run the experiment, but I can say that a scheme this simple has a near-zero chance of success over any significant increment of time. $2K on $150K over a few weeks? In my world, that's noise.

    But I could be wrong. By all means, run the experiment.
     
  416. That is an insane amount of neg gamma for what little theta you are earning. That neg delta will go away with a 1sd move down. Unfortunately, the neg vega isn't going to help much with vol this low if we stay here or go up but it will definitely hurt on a vol pop. Have you modeled your portfolio with the market dropping and vol popping up over the mid 30's? Unfortunately, the TOS software can't accurately reflect the fact that everyone will be wanting to buy those far otm puts you sold but I can promise you from personal experience it will be much worse than any modeling program you run.
     
  417. Yes you are and you don't know what you are talking about either. The guys have been trading this for 3 years nicely profitably, so that is a significant increment of time in my book. Next time read the thread before you post...
     
  418. Slightly offtopic, but if anybody is interested how Tom and Tony looked 8 years ago and how ToS was ran by them (well, Tony was just a teacher) check out Wall Street Warriors season 3 on Youtube. The show is very boring (so skip most of it) but these guys make it a little interesting.

    I liked the 140 monitors wall for educational purposes, which was an overkill, but looked cool. Teaching the new costumers hand signal was also funny, after all they want them to use a software, not thousand years old smoke signals.

    Nevertheless, a bit entertaining and a look back to old days, where they came from.

    Oh yeah, Tony also mentioned that he never had a losing month while being an option trader. That is interesting compared to the fact that TastyTrade is unable to put up a clearly profitable portfolio...
     
  419. I don't believe it. And neither does the SEC believe Karen Supertrader, as she's currently under indictment. You just keep humping that unicorn, sweet pea. Some of us have a more skeptical nature.
     
  420. I didn't mean Karen but the Yahoo boys, who have been live trading the strategy for 3 years. You should really read this thread first...
     
  421. I glossed it. I concentrate on the essential. (You should try it sometime...) My essential point is that a mathematical anomaly that much out in the open in the age of Big Data and Machine Learning is highly, highly implausible. From my end of the telescope, it scans like somebody saying, "Hey -- I found a unicorn! Just around the corner. Take my word for it!" Yeah. Maybe there is a unicorn. Maybe there is something to cryptozoology and medieval myths coming to life. Sure; I can't prove it's not true. Still. I'm not getting out of my chair. The fact that the inventor of this Unicorn Hunting Methodology is under indictment for fraud doesn't help your proposition, but I'll be happy to bracket that for now.

    So, the onus is on the guys doing the experiment to publish their trade logs, in real time, over a statistically significant increment of time. Until that happens, I don't believe it.

    You shouldn't find that threatening. I'm just one guy (one guy who has generated a helluva lot of alpha in his time (He types, from his Hollywood Hills compound...)) so you can ignore me without rancor. Okay?
     
  422. Its not about increasing winning percentage. wins and losses net out over time as you buy or sell markets not stocks and ultimately you earn from the premium. thats the concept. Instead of giving iyour 250 k to a mutual fund. Trading thats what you do with only 12 % of your portfolio. Maybe you should really first watch the segment otherwise a discussion doesnt make a lot of sense.
     
  423. https://www.soa.org/Library/Newslet...8/October/rar-1998-iss31-chandrashekaran.aspx


    Is this the paper? It states that the 87 crash was a 20 sigma event.

    Brexit is considered a 12 sigma event in GBUSD (I had a short naked position). SPX not so much.

    Source with several markets (and doomsday undertone of course):
    http://www.zerohedge.com/news/2016-...bigger-anything-seen-2008-and-what-comes-next
     
  424. They have been doing that on the Yahoo boards. Get yourself together... Or just keep following Bobby. :)

    By the way what is your definition of statistically significant increment of time? 10000 years? You know what? I will wait for someone who has a statistically meaningful number of posts to discuss this.
     
  425. Oh my. You're a charmer. A little prickly, too. You must not be terribly sure of yourself. Your tenor is pretty classic: stentorian True Believer. I question you, and you fall back onto an argument of ... seniority? Really? Because I guarantee you you'd lose that contest IRL. Not that this is a contest. It's a friendly debate. Right? You remember how to be friendly, don't you? And how to debate? Bueller? Bueller?
     

  426. Except your profile says you're a girl. (Caitlyn?) And for someone who "has insight into Jim Simon's quant shop" and considers retail trading success as "noise," it's surprising you can't even spell Ray Dalio's last name correctly in a previous post:
    http://www.elitetrader.com/et/threads/what-is-fueling-the-s-ps-growth.301408/#post-4307512

    Having said that, I agree with your point about Karen and how the big boys would follow her strategies if they were so profitable. But it's too bad ET has so many questionable posters and posers.
     

  427. I thought sigma was the relationship to defects in manufacturing.
    As in 6 sigma.
    What is 12 sigma and 20 sigma and how does it relate to options and stock trading?
     
  428. Yes its similar. Sigma is short for standard deviation. Six Sigma relates to the percentage of defect-free products a manufacturing process creates. A six sigma process is one in which 99.99966% of all opportunities to produce some feature of a part are statistically expected to be free of defects (3.4 defective features per million opportunities).

    Source: https://en.wikipedia.org/wiki/Six_Sigma

    In finance, standard deviation is often used as a measure of the risk associated with price-fluctuations of a given asset (stocks, bonds, property, etc.), or the risk of a portfolio of assets (actively managed mutual funds, index mutual funds, or ETFs). Standard deviation provides a quantified estimate of the uncertainty of future returns. Calculating the average (or arithmetic mean) of the return of a security over a given period will generate the expected return of the asset. For each period, subtracting the expected return from the actual return results in the difference from the mean. Squaring the difference in each period and taking the average gives the overall variance of the return of the asset. The larger the variance, the greater risk the security carries. Finding the square root of this variance will give the standard deviation of the investment tool in question.

    https://en.wikipedia.org/wiki/Standard_deviation

    So a 20 sigma move is a move of 20 standard deviations or a move that mathematically would be incredibly unlikely (2.75 * 10^-89 as stated in the paper) if the market returns were normally distributed. Which turned up not to be the case as these moves happen a lot more often.

    HTH
     
  429. Wow thank you so much for this tip!!! The Wall Street Warriors "lost season" that has finally surfaced! I so much love to watch this: Slick guys in suits talking money, sunglasses, houses in the Hamptons. This is so ridicoulous. And now Tom and Tony inbetween! This is so much fun.
    Lets see how it continues ...in autumn 2008 :D.
     
  430. I think that paper references the 20 sigma, anyway when you start talking 3-5% moves in the indexes you are gonna get hurt. You could look at options on GBP/USD and compare before during and after. Hope you came out okay on your position.
     
  431. This is precisely why Karen strategy will blowup eventually (and so do others such as LTCM). The black swam is actually just a "grey" swam in finance world and happen quite frequently..
     
  432. One trade today. I sold the SPY 16 SEP 16 205P(1) with 53 DTE.

    Theta is 229, delta is -776, vega is -1070.

    My experiment is treading water and is up $2,506 since inception on April 5.

    Bobby
     
  433. Here's what I know: You have 2K+ posts and a single "like". It's not hard to see why. With brittle, cranky pedants such as yourself spreading harmony and understanding, it's not hard to see why I'll be spending less time here.

    I hereby apologize for misspelling Ray Dalio's last name. Cognitively, I used the handle of "dahlia", and my mnemonic spilled over. You do know what a mnemonic is, don't you?

    Poser? I run a family office with around $50M aum. Started much, much smaller. Silicon Valley programmer from the '90s, shifted to working on Wall Street building black boxes. Built a bunch of proprietary stuff with everything from C to Matlab to proprietary ANNs.

    Once upon a time, wrote extensively for the national press, which is why profile obfuscation.

    Of course, all invalidated because I misspelled Dalio.

    I think I know who the poser is.
     
  434. I'm curious. If you have to obfuscate your profile (by saying you are a girl) why do you post that you run a 50MM family office (presumably yours), live in the Hollywood hills, mention that you are extensively published in the press, and then mention your programming background. Anyone who knows someone with two of those qualities will be able to de-anonomize you in 10 seconds.

    On one hand you take great pains to hide your identity (where btw you could have easily written nothing); on the other hand you go out of the way (unprovoked) to mention all sorts of details that make you "special."
     
  435. 1) I don't need anyone's validation, and don't care about being "liked." That's for social media addicts and beta males.

    2) Yes, I know what mnemonic means without Googling it. I could also join Mensa if I wanted, but have zero interest in hanging around blowhards like you at the meetings.

    3) Ah, yet another incognito, uber successful ET trader/quant...or another Walter Mitty? You be the judge.

    OK, now back to the scheduled Karen the Supertrader discussion, or "How aggressively selling options can be different next time...well, until it isn't."
     
  436. I didn't add any trades today because the account is maxed out. I'm still hoping for some significant downward movement in order to take care of my neglected problem children.

    Bobby
     
  437. Hey, I have an idea for you guys: instead of the whole "shoot the messenger" exercise you're indulging in, how about instead you guys put your money where your mouth is and submit your little trading system to Quantopian? If it works, they'll push a ton of money at you and award you 10% of the alpha. If it doesn't, well... let's just say they've got a ton of people who can spot the holes and fallacies in your methodology. Then you can go after them, and throw barbs and trans-gender-phobic sleights. You'll be terribly, terribly popular, I'm sure.

    I'm really not very impressed with you guys so far.

    And yes, I'm sure you can de-anonymize me in ten seconds. That'll be a great trick. You can talk about me when I'm gone. That would be right now.

    TL;DR: put up or shut up.
     

  438. So you come out shooting and when someone shoots back you just quit? Bye.

    BTW, literally no one here is trying to "impress you."
     
  439. Ooh. straw man argument.

    Guys who "generate a helluva a lot of alpha" talk about quantopian and resort to arguments about trading prowness.

    Just to confirm: you want us to put up real trading returns against your fictitious life claims.
     
  440. My thoughts exactly. I guess he/she is too busy talking to Ray Da(h)lio, burning $1,000 bills and cruising in a lambo with a hot chick/guy/trannie* to do the Quantopian thing. But we're supposed to.

    * I couldn't care less about the "trans-gender-phobic" label. But I'm only "going there" because we don't know if our billionaire quant is a 36-year old lady, a 50-ish man or a 22-year old in his parents' basement.
     
  441. Maxed out? As in your personal level or max margin?
     
  442. Back to the experiment, the account was up around $500 for the day and up $3230 since inception. I sold a single SPY put today at 20 deltas. I am still maxed out on the account and my theta is higher than my desired limit. One of my strangles closed today at 50% profit. I will add these two trades to my spreadsheet tomorrow. I'm heading into the final week of my summer classes and each minute of time is precious.

    Happy trading!

    Bobby
     
  443. Great question, Maverick. There are two things that I look out to tell me that I've gotten too big. The first is my theta. My ideal number is equal to 1/10 of 1% of my net liq. My range for this $150k account is between 100 and 150 theta per day.

    The second way that I know that my account is too big involves a look at the analyze tab. I stress the account for a 20% down move with a 30 point increase in volatility. I also stress to the upside by 15%. As I look now a 20% down move would pretty much wipe me out. I got in this position because I've been trading on my iPhone and I can't see the analyze tab. On the rare dates that I am trading from my laptop I check to see where I'm at. So for now, I'm out of ES and into spy until some of my ES positions close out.
     
  444. Last the few posts. Talk about getting off topic. No wonder serious Traders get pissed off with Elitetrader. Too many muppetts high jacking peoples threads.
     
  445. Bobby, you should never have a position on that could blow you out. Even a 50% hit is unacceptable. Remember, you have to make 100% going forward just to get back to even. One of the things most traders struggle with is actually not being able to make money, but rather being able to make money with risk controls. Anyone can ride beta. A good seasoned trader can keep his risk limits within that of the overall market and still earn a solid return. You really need to re-think your risk Bobby. You can dodge land mines for years, but sooner or later, you'll miss one and it will be over.
     
  446. upload_2016-7-28_17-30-49.jpeg
     
  447. Yeah, serious traders usually don't follow a strategy that just blew up a fund. Granted, people could (and hopefully are) trading with much less leverage than Karen, but still....
     
  448. We're all serious traders -- appearances can be deceptive. :wtf:o_O
    who the heck would hangout at trader forums because it's fun and sexy and exciting and entertaining.

    Smart ppl can actually be dumb, and dumb people can be smart.
    and good ppl can be evil, and evil ppl can be good.

    Free Your Mind...as Morpheus would say in the Matrix 1999 movie.
     
  449. Lawrence you look like a real serious trader in that photo.
     
  450. Some of us just have lost our Serious Trader card. But it said on its back that Serious Traders don't post in non-serious traders' journals.

    Also, what if it is the implementation and not the strategy itself?
     
  451. If this is a 150k account that's basically up 3k after 4-5 months of trading it then this strategy doesn't even make time/money/risk sense at all.

    You could literally sit and wait for some mindless S&P rally/trend day, hop on an ES 10 lot and be done with way less time, risk, and controllable exposure.
     
  452. I would imagine that quite a few fund managers would love to be up on the year.
     
  453. Don't think so, consider the potential DD of your strategy vs the potential return.
     
  454. You're right. I'm sure they would much prefer to be down money on the year. Gotcha! Perfect sense!
     
  455. Sometime you would rather have SMALL drawdown from time to time than a lot of SMALL wins with one loss trade that will blowup your account.
     
  456. Bobby, they probably would not want to be up on the year fully margined out on short gamma. I'm sure you understand that. The professional managers only care about "risk adjusted" returns, not absolute returns. You don't need a money manager to simply pile on risk or beta. You invest in a hedge fund to lower risk. People who invest in hedge funds are "already rich". Now they want to protect it. Do you follow? As traders, the only metric you should be focusing on is risk adjusted returns.
     
  457. Here's a couple of take aways I have.
    I think Bobby will land somewhere between a 12 and 15% annualized return three years down the road once he has more data. It is a profitable strategy since you're taking unlimited risk for limited gain - just like an insurance company operates with 8-10% margin.
    Having said that all the other stuff is BS. If you do 30 or 45 days to expiration, if you do 20 10 or 40 delta options, none of this really matters, this is curve fitted and some things will perform better over different time periods. The only real dial you have in this strategy is leverage. The more you risk the more you make the higher the blow out risk. This guy has 40% draw downs on a 50% return (pretty close to 1:1) - based on that I expect Bobby to hit about 15% draw downs if things go sour. Full account blow ups are not very likely imo - it all comes back and as long as you can infuse more capital (temporarily) you'll be fine - however it may take a couple of years to dig yourself back out of a serious draw down.
    Now tastytrade has to hype the next Karen (or rising star) as they need to make money too - marketing a con fund doesn't work well - so you can't blame them for finding new "success". It is unfortunate that they don't put more disclaimers around the interviews - they know very well the risk and success parameters - but the whole idea is to push their story,approach so why would they - it's in everyones best interest to be a little skeptical when they hear 50%/year gains.
     
  458. Rising Star thats funny. I love the part of the interview were he says " I am too Risky at the moment" He had a 40% drawdown in Aug 2015 and didnt learn anything from this painful experience and is still trading the same way. No wonder Karen was named the Super Trader.