starting a journal to see what my thoughts are. I accumulate so much information and notice a ton of it is being utilized to its minimum because I'm not jotting down what I should. so this journal is holding me accountable. lil background: started trading stocks at 19, I'm 29 now trading options. I live on an island so I wake up 3:30am to trade then fall back asleep. I trade options on anything liquid. I buy as much premium as I sell, and scale up and use convexity when I see the opportune. I have many guidelines for my portfolio/strategy which i'll discuss as this journal progresses. but, For now this is a place for recollection, as I $tudy options and the markets daily I will include in here whats on my mind. I will also post trade ideas and also trades i already have on. But this isn't strictly a trading journal (at least not yet). please comment and contribute to the discussion. I am here to learn and grow and make some greenbacks! Mahalo!
"In statistical terms, I figure I have traded about 2 million contracts, with an average profit of $70 per contract (after slippage of perhaps $20). This average is approximately 700 standard deviations away from randomness." - VNiederhoffer
short premo should tend to sell peak gamma and peak vega? ATM has always been the crème de la crème of optionality. It's where the money is at, its telling you straight to your face and you still seem to go in or out moreso! If you're a beast you'll watch higher-order greeks like Volga/vomma (dVega/dVol) to see the rate of change of vega given a change in volatility. But for us commoners we can stick to our first-order's and live decent. so we know the convexity of vega causes short-vol trades to increase. What do we do with this information?
Study the current of currency, the flow of liquidity. The trade desks REACT off market conditions. They flood the markets, what are they trading? If the market is in a decline, what are these trade desks likely to do? As the size of trading desks short vega increases as markets decline, this causes covering. This causes implied.vol to increase.
"Market microstructure encourages implied.vol to be biased high. Market makers make the bulk of their money by collecting the bid-ask spread. They will willingly bias their quotes a little too high to protect their business. In essence, they are buying insurance (slight-long vol exposure particularly on the downside), as any prudent business owner will do." - Sinclair
I) FAT TAILS: I-a)- Randomness at the level of the scale of the distribution generates fat tails. (multi-level stochastic vol) I-b)- Model error in all its forms generates fat tails. I-c)- Convexity of probability measures to uncertainty causes fat tails. ii) Law of Large Numbers(weak): operates much more slowly, if ever at all. "P-values" are biased lower. iii) Risk is larger than the conventional measures derived in alpha, particularly for payoffs of the tail iv) Allocations from optimal control and other theories (portfolio theory) have a higher variance than shown, hence increase risk. v) The problem of induction is more acute. (epistemic opacity) vi) The problem is more acute for convex payoffs, and simple for concave ones.
And that's exactly what creates legends in this game. You make billions and break billions then misplace billions again. The market will feed you forever and take it right back with no remorse. Niederhoffer has proved himself.
I've been long $UVXY put verticals all last week. (just one lots, as I don't really understand vol-etf's/etn's like I should... but I know somehow the cost of carry each month mathematically decays the instrument? Or something like that lol) Also up on $INTC in the NOV 52.5/55 credit @ $1.06 and covered at $0.74.
Following. I'm about 6 months into my own options journey; hanging in there, starting to get some traction, and also keep a journal here with all my trials and tribulations - mostly to keep snapshots of my mental state as I progress and to keep myself honest. Best wishes for good trading!