Progress Report 4 Not a big day for trading today since I had to focus mostly on writing my thesis. I wish I had the whole day to just spend in trading, but I can't do it for now. Luckily I will soon have the time for it. This summer, I will put as much effort as possible in trading options, as I have no real obligations on that period. That means two months full of fun for me between July and August. On September, I will start with my graduate programme in Quantitative Finance, after which I will shoot for going of the big prop trading firms here in the NL. Today, I had the opportunity to attend one company presentation of one such trading firm. They explained a bit of their business models. They make money in the spread between the ETPs price and the price of the underlying securities of the ETP. Regarding trading, they had some good insights: Although they do have quantitative trading models, they never let them run on their own. The reason for this is that all these models are based on historical data. And as such, they can't predict black swan events. Handling black swan events and the response to them requires more of a human mindset that can make sense of new world developments. After all, who is better to understand how a shock affects human psychology? A human or a computer? In this case, the reaction time of a trader is incredibly important. For pricing, you do not necessarily need to make it complicated. You can just follow the price that has been quoted over the past weeks, for example, and modify that estimate upwards or downwards based on your conjectures. But you do not necessarily need to build something from the ground up as the effort invested in such an endeavour is not worth it. One interesting thing they do in regards to pricing, though, is what they call 'implementing signals'. A fancy way of talking about correlation across financial securities. For example, if GLD moves by a lot, you can reasonably expect SLV to also show some movement. You want to take into account these signals in your trading. In periods of high vol, mispricing is a lot more likely and you can bank a lot more money as a trader. Finally news. For their line of work, having instant access to news is of utmost importance since they can use these new data to quickly take a position in the market for them to make profitable trades. This highlights the opportunities of making money in the markets if you keep track and understand well the price movements. For this you don't need HFT. You are banking on your reaction time as a trader to generate a profit, and that human reaction time is more than enough to beat the market, if you are good enough. So, all in all, good insights. Besides attending the presentation, I also opened a collar position on SHOP, as I mentioned yesterday. However, I think I will I have to close it and open it again on Monday, as I am afraid a did a couple of mistakes placing it. Luckily, I am still playing with the paper trading account. And to close this blog entry, I will just share that over the past days, I have also been able to make some progress on the initial goals that I set. I already understand pretty well two options strategies: the covered call and the collar. Next ones to master are the iron condor and the bull spread. I think it will take time to understand all the nuances of the strategies in general, but we we take it step by step. Finally, regarding trades, I have now placed 3 out of 10. This entry has also been posted at bullishwolf.wordpress.com
^^ that, thanks for the update be interesting to compare the performance for all the hedge funds for 2020 even simons,who BTW is no longer at he helm of Rennaisance, the fund cannot always get it right 51.75% of the time https://www.elitetrader.com/et/thre...arbucks-and-amazon-stake.344824/#post-5101123 on computers vs real people trading, in an interview simons says he was more successful with gut reaction than quants
Progress Report 5 Today was programming day. I started building the bases to build a whole library of tools that will eventually aid me with options trading. Note that these scripts will get a lot of performance data and current positions from my IBKR account. At the beginning I am starting simple, just some financial functions to get the return, max drawdown, time decay, delta, gamma and etc of my options strategy. I tried to focus today on the blueprint of the eventual set-up that I will have to write, as well as getting acquainted with some financial data packages such as Quandl and Alpha Vantage. For now, I am writing three different utils files. The first one holds all the scripts with financial functions from which I can get statistical performance, data charting and so forth. The second one will hold the calculators for each of the different strategies that I can use. Think, for example, in calculating the pay-off of a collar. Most of that back-end will be written in the second utils file. The last utils file is the one that holds all functions that connect to IBKR to get my performance data. I am still not sure how much code I will need to write, since the API seems already quite straightforward. I hope it’s not a lot. This gave me an idea for my first ‘backtesting’ project. It will be actually quite simple. So, I have seen that the Eurostoxx 600 index has performed incredibly badly over the past years (also due to personal experience). So my research will focus on how an investor would have fared by investing in the Eurostoxx 600 from 2000 to 2020 if he had taken a passive-investing stance based on the data from 1990-2000. This should be a good counterargument to the people that want to focus in historical averages to assess future performance. You hear a lot of people saying to just buy this recent dip because the S&P 500 always gives returns. Well… If Europe shows a similar trend–--performing and then falling, we can conclude that buying the dip is not a surefire way to produce returns. But plenty of people already know this, I think. It’s more for me to practice coding these new things in Python. Finally, a had a call with a connection of mine, who apparently is a swing trader. He recommended a couple of books, and he also recommended me to look into his system, which is basically swing trading on trends. I have to look more into it, but it seems interesting. For example, I see myself fitting in a trend following system which is leveraged by options trading. But we will see how I will fit best in a certain type of trading. This entry has also been posted in bullishwolf.blogspot.com
Progress Report 6 Today, I managed to get some reading done regarding trading mindset and price indicators. In regards to trading mindset, I am currently reading "The Inner Voice Of Trading", which is a quite light read and pretty funny/enjoyable. Moreover, I also started with "The Traders’ Playbook". The author of the latter wrote the book with rookie traders in mind, to provide them a ‘playbook’ of how they should start their journey. In regards to price indicators, I read a bit of the basis of Technical Analysis. Regarding trading psychology, I was shocked but pleasantly surprised by the advice that the authors were providing. It basically boiled down to becoming self-aware, as well as being stoic regarding all trading circumstances you could encounter. This really clicked with me. For the last three to four years, before even knowing about trading, I have been exactly on this journey of training myself to be more in touch with my thoughts and to listen to my ‘inner voice’. In regard to feelings, I have grown to see them more and more as signals of what is important, and I am now trying to not be consumed by them once adversity happens. And if the recent COVID-19 crisis is any test of this, I think that the systems that I have set up over the last years have really helped me in tackling this adversity in the best way possible. Sure, I felt a bit down and depressed once the lockdowns started and I realized that I would be stuck at home. But I decided that I would not be a slave to neither my feelings nor the circumstances, and that I would make the best out of it. And I think I have succeeded. During the crisis I have learn a lot more about programming in the last three months than in my whole studies combined. I have kept up with doing sports 6 times a week, I have implemented an incredibly healthier diet than before, I have started a new project to set me up for success later (that is Trading), and I have grown closer to my family by being more open to them, and to people in general. But anyhow, back to trading. Human psychology is super important to understand and to manage. NOT CONTROL, but manage. The reality is that you are going to be excited when the numbers turn green, and you are going to feel like a loser when the numbers turn red. And that is regardless of the circumstances. My friend explained this best, while highlighting the importance of a system: It is very important that you do not feel like a winner with each winning trade, and likewise that you don’t feel like a loser in each losing trade. After all, just based on the statistical probability of it, you are likely to stay down days or even weeks in your P&L. What is important is that you have a sound system and you stick to it. You can adjust it, yeah, but you have to take into account that many of those numbers can be just noise. Finally, I also managed to get some work done regarding indicators. I read up a bit on Dow Theory, who apparently is the OG of technical analysis. Afterwards I just went on a reading spree of different blogs and websites to try to do a a general syntopical read of the topic. On the one hand, it feels fun to read and learn about all these things. But on the other hand, I wonder how useful they are. Are they there to give a lot of useful information to the trader? Or as Michael Martin put it, just covering your fear of uncertainty? Each indicator that you add to your trading system tries to preclude you from your feelings about loss and uncertainty. If nothing else, you may find yourself using the technical indicators as little emotional bandages to cover up your true feelings about uncertainty. The point is, I don’t want to get stuck in a circle of learning, learning, learning and never executing. So I need to focus on quickly figuring the first prototype of a system that works and start refining it so that I can deploy in to the markets. After all, learning should be an aid to my execution, not a self-imposed hurdle that prevents me from executing. Learning can many times seem like a reasonable excuse to not move forward. (I don’t know enough! I need to be cautious!). But in reality, this excuse may just be preventing us from taking the necessary steps that will actually make the difference. This entry has also been posted in bullishwolf.wordpress.com
Progress Report 7 After yesterday, I realized that I am not using my time efficiently. I spend too much time in distractions that take me away from my goals and that are completely irrelevant. The first time sink I identified, for example, is that I spend way too much time fixing my Spotify playlist and listening to music. That time could be better spent in the actions that actually bring me closer to my results. So in order to keep a better track of what I am doing, I started an Excel file today where I track the things that I am doing throughout the day. It sounds a bit crazy, but whatever. If it helps, it helps. How it works, is that I have time entries for every hour since I wake up until I go to sleep. In those entries, I briefly explain what I have been doing. Some of the entries today, for example, are as follows: 15:00 – 15:20 | 15:00 – 15:25 Reading updates on the securities in my watchlist, watching the price action due to the news that shook the markets today. 15:25 – 16:00 Syntopical reading on multiple bullish strategies. Checking how to calculate the leverage on options vs. strategies, etc. 18:00 – 19:00| 18:00-18:20 opening an eToro account, 18:30-19:10 replying to the prop trading firm recruiter. 21:00 – 22:00| …21:45 – 22:30 Writing the progress report for today, setting up the MarkDown in vscode. For now, I am just tracking everything. At the end of this week, I will see where are my ‘time sinks’ are and where I can improve. I think it will help, and today I already felt more focused because I knew I had to track everything down. Hopefully this exercise will help me become more efficient and focused. Besides some random things related to my to-do list in options trading, I tried to focus today on understanding the different strategies I could use in a bullish environment. A lot of questions popped up: What is their payoff? How are they leveraged? How can you leverage them? How can you calculate the deltas (possible price movements) of complicated strategies? Can you code the calculators yourself, based on e.g. the Black-Scholes model? All interesting questions, which are guiding my understanding of this whole options trading ecosystem. But, right now, my focus has changed. It is not anymore: "Oh what a cool strategy, let’s apply it!". It is shifting more towards: "Oh, I see that XOM jumped by 8% today, how could I have set up an option strategy that would have allowed me to benefit from that? And I think that is how it should be. We listen to the market, we make our bets based on her movements and we let it roll. We can’t just fit strategies to the data because they are fancy, or because we want them to work. After all, the market does not listen to us, we listen to her. Finally, I also opened an eToro account to keep an eye to some cryptocurrency movements. For now, it is not my focus to get into those instruments. But maybe when I have more knowledge about trading, I will get in there. I see that there are some futures that can be traded on crypto, that may be an option. There are also some ETPs that have cryptocurrencies as underlying. Maybe making a play on those (using options) might be interesting. Anyhow, so much to learn and so much to dive into. But it remains fun and exciting. This entry has also been posted on bulliswolf.wordpress.com
Today was a slow day for options. I stayed most of the day focused on topics related to my studies. In that regard, however, the day was very efficient. My objective right now is to have my two assignments done as soon as possible. The first one has a deadline around the middle of June, but I think I can finish it this week. The second assignment, my thesis, has a deadline around the middle of July, but I will try to get it done over the next two weeks. If these two things are out of the way, I would just need to focus on two exams I have upcoming on July. But the rest of the time, I can just invest in options learning + trading. I did find time, however, to start writing my option calculators on Python. I started with the covered call, and it already gives me quite quick access to its payoff (hooray!), based on the strike_price, security_price and call_premium. However, the attentive reader will realize that this is an incredibly simple arithmetic calculation. Anyhow, this is not where my programming experience adds value. Rather, the secret of my code is in the modularity of it. Eventually, it can be expanded in a straight-forward manner to e.g. include different types of options pricing models for the premium (like Black-Scholes, Heath-Jarrow-Morton), spit out the greeks over time, and allow for straightforward backtesting. For instance, you would easily get access to the theoretical price of an option, as well as a graph of the decay time of such option (it could even work for strategies!) Big dreams, but we take it step by step. I also continue reading the book "The Inner Voice of Trading", and I was aghast after reading the argument of the author against passive investing. Read yourself an extract of his logic. Note that this is written 13 years ago (2007), but still rings true today: "Let’s take a look at why I feel this way (and think this way, too). When I first landed on Wall Street, the saying was, ‘The S&P 500 has historically returned 12.25%, dividends included.’ Clients who took this advice might have indexed their money away. From 1990 to February 2011, the S&P 500 returned 8.91% total return (6.65% without dividends), far below what was suggested and modeled for. In fact, the S&P 500 returned not even three-quarters of what was projected—72.73%, to be precise. Despite the fact that a 30-year-old client at the time is now 51, that client hasn’t hit his goals, despite being much closer to retirement age and probably having most of his biggest income-earning years behind him. His logic is mostly based on the fact that buy-and-hold investor cannot successfully weather black-swan events, and that the mutual fund industry understands this but has no incentive to change their practices due to the way their generate their fees. After all, management fees on AUM can be a lot more lucrative than performance fees, specially when taking downturns of the economy into account. "Investors who hide their feelings behind that ‘buy and hold’ nonsense of ‘I’m investing for the long term’ are parroting what they’ve heard someone else say. They’re denying their fear [of drawdowns]. […] Buying and holding is the greatest gamble you can take with your money*" Good thing that I have already stopped believing the Bogleheads, I guess. This entry has also been posted in bullishwolf.wordpress.com
Progress Report 9 No substantive progress on options trading today. I spent most of the day focused on trying to get the first assignment (the essay) done. I managed to get more than halfway through, so we are well on our way to get it done by the end of this week. I will try, however, to get the first draft done tomorrow and then I can send the assignment on Friday. That should free up a lot of my attention. I did put some effort in trying to learn mental mathematics today, though. Not directly related to options trading, but it is a requirement to be good at mental maths to get a position at a prop trading over here in the Netherlands. So I spent a couple of hours trying to figure out the ‘hacks’. For example, a good one is to multiply big numbers as sum of multiplications. e.g. 43×56 = (40+3)x(50+6) = 40×50+30×6+3×50+3×6 = … I promise a longer progress report tomorrow! This entry has also been posted at bullishwolf.wordpress.com
Progress Report 10 Major strides done today. I have managed to get my first three goals to closure. This does not necessarily mean I followed them and executed them to the tee, but I did pursue them to the point where I gathered enough information to ‘close’ them and decide on new steps forward. To a great extent, this is how I approach goal-setting. I set myself general goals (e.g. become a professional options trader), which I back-up with a myriad of small goals that I think will bring me closer to that general goal (e.g. read market reports on GLD, USO, SLV). However, I always allow myself the freedom to make these support goals mutable. What I mean with mutable is that my supporting goals are always allowed to transform into something different, provided I have gathered enough information to adjust them. The reasoning behind this is that, whenever I start a project, I really do not know what I am getting into. Of course I have a feeling of what it will entail, but the intricacies of that project are unknown to me unless I start engaging. To exemplify, let’s take my current situation. I have given myself the goal of becoming a professional options trader. Now, do I know what that entails? No fucking idea. Trading… I guess? See, I am completely clueless regarding what I am getting myself into. But this is where the supporting goals and their mutability can be so powerful. I define supporting goals as small tasks that I think are important to achieve the more general goal at hand. Note that since I am starting with zero knowledge, these small tasks might completely miss the mark of what is actually needed. For example, I might set myself as a supporting goal to learn the basics of charting, and it might sound reasonable at the beginning to do so. However, it could be that in due time I realize that charting is quite pointless because I can write code to program signals that give me all the necessary information. But do I know this at the beginning? No. Yep, tough luck. But there is a way to arrive to that knowledge: by doing it. Only if I start learning about charting, will I understand its purpose and assess whether it is reasonable course of action. And only then would I learn that programming is a better choice. And here comes the mutability of my supporting goals: I need to be able to give up in the small tasks to refocus my aim in new tasks which are more valuable. I need to mutate my goals, evolve them. In the previous example, I would need to completely give up learning charting to refocus on programming signals, as this is a better strategy to achieve the general goal: to become a professional options trader. So, as I see it, is an endeless cycle of supporting goals->execute->learn->reassess goals->execute->learn->… These continuous small ‘shots in the dark’ allow me to continue learning, create progress, and move closer to my goals. So, with that caveat out of the way, here is an account of my initial game plan: > Place ten trades in a paper trading account. They are going to be simply long call/put options at strikes near the money. Each trade links back to ten underlyings that I have already chosen before based in liquidity. These are QQQ, SPY, EEM, MSFT, BA, XOM, JPM, SHOP, USO and SLV. This goal has been fulfilled, but with a slight modification. I first placed 7 strategies on my paper account based on a very basic analysis of momentum. In particular, I placed bull spreads for the securities I assessed to possibly profit from a price increase, and I placed bear spreads for the ones I thought would decrease. Moreover I placed an additional strategy (a covered call) on the TQQQ and an additional two long positions on the UDOW and UPRO. I will follow them and see how they perform. > Read ten market reports, and annotate them. One for each underlying. I could not find market reports, so this was not done. What I did instead was to place the tickers on my watchlists of all my news subscriptions and try to stay up to date with them (Marketwatch, WSJ, Financial Times, etc.). And well, I realized this is a disaster. This is not going to work out, and is not smart to do. The problem is that I cannot reasonably expect to follow all the developments of 12/13 tickers and understand completely what is going on without investing a massive amount of time. What I think is a better idea (and also between the lines suggested by never2old) is to use a stock/options screener to look for opportunities that I might find interesting. This seems more powerful for two reasons: (1) I will not have to spend a bunch of time staying up to date with news that might turn out to be irrelevant and (2) by using a screener I will have access to many opportunities that would have been lost if I had stayed fixated in my initial 13 tickers. > After this, I want to build 4 options strategies, see which ones are the ones that provide the least risk and backtest them. I am closing this goal because it is way too general. I cannot find a way to provide an answer to this that is straightforward. I will reopen it with another focus. However, in regards to this goal, I did manage to learn a lot more about option strategies. I learned there are strategies for bullish/bearish and neutral scenarios. I learned that there are many different types for many different types of risk. I learned that you can use them as part of a long-term investment strategy as well. Etc. Further, I have become well acquainted with the bull/bear spreads, the covered call and the naked put. I can already consider them part of my "arsenal", although I still need to refer to flashcards to remember the details of them. Now that those three goals are closed, I am opening another three with the focus on "Momentum swing trading with options, is this a good idea?" As I understand it now, this strategy would be following the momentum trend of securities to profit from them. The role of options is dual in (2) leveraging one’s position and (2) defining one’s risk. This may be a bit vague, but I want to see where it goes. Maybe it’s profitable, maybe it’s a disaster. The supporting goals are now: Learn how to apply option strategies to benefit from price action: upwards, downwards and sideways. Learn to read momentum and trends from price movement. Currently, I’m dipping my toes in the water of technical analysis (charting), but there might also be some interesting programming ideas to assess trends/momentum. I need to understand how options provide leverage. In particular, I need to understand better the delta and gammas of options/options strategies because these represent the link of the price movement of an option in regards to the price movement of the underlying. So with those three goals as guidelines for this next stage, I continue my journey. This entry has also been posted in bullishwolf.wordpress.com
Progress Report 11 So today I managed to get the first draft of my essay for university done. If you remember, I had set myself a deadline on Sunday, but finished two days in advance. Perfect. More time for trading for the following days. However, the next tough cookie is finishing my thesis, to which I am setting a personal deadline in 2.5 weeks (actual deadline is second week of July). Regarding trading, I did some math exercises that another trader sent to me, which are related to the strategy of what I am calling ‘options as a insurance business’. I am deeply thankful for those exercises as they allow me to identify where the ca$$ is to be made. Note that this is a different options strategy that the one I mentioned I wanted to pursue yesterday (options as a way to leverage momentum). However, there might be a powerful of combine these two. Or maybe just one of them suits me. We shall see. Further, I followed up on the trades that I did yesterday, and my P&L for today is up $550 on around $24k money invested on my paper trading account (So up by around 2%). SPX is up by 0.16% (what?!). I can be lucky, or just dumb or overleveraged or any combination of all those. (But then again, I did cover my downside by buying some puts). I also practiced a bit of mental mathematics and created a system I can follow daily to continuously improve on this area. I am thinking of doing every day 12min-30min bursts of deliberate learning to slowly consolidate all the small strategies that allow you to do quick mental maths. Eventually, I will also write a post about them in my blog, if you would be interested. Finally, I signed up for a 24H hackathon for one of the trading firms here in NL. It’s an individual assignment where we are asked to come up with some programming solution for a problem that they actually experienced in their business. I am looking forward to it, it should be fun. This hackathon is on the 30th of May (next week). Tomorrow is the weekend, so no trading to be made. But I will try to chew on some of the goals that do not necessarily require the markets to be open. This entry has also been posted on bullishwolf.wordpress.com
Progress Report 12 Today, I spent most of the time cleaning up some of the things that I was doing over the last months but are not enjoyable anymore (or irrelevant). That means I had to decide to cancel some subscriptions, memberships, etc. And then I set some new goals/deadlines for what I do want to do. So basically, I was just refocusing on the things that really matter in regards to my life in general. You know, university, trading, friends, etc. I managed to get the small exercise done regarding the price movements of the Eurostoxx 600 and there are a lot of interesting bits of information I gathered from it. Firstly, that index rallied from 1989 to 1999. Probably due to the promise of the euro and the European Union that we all realize now is a disaster. The index made an annualized return of 40%! Now, if you were an investor in the 90’s thinking ‘damn, that’s a good return I can get into’ and you invested your money from the 2000s until last week… Well, you would have incurred an annualized loss of 1% (oops!). More strikingly were the bull/bear periods’ behavior. The bull periods between 2000 and 2020 where sometimes quite aggressive, sometimes from through to peak netting you a 210% return. However, all these gains were wiped out by bear markets with drawdowns of up to 50%. Strikingly, the bears weren’t necessarily shocks as what we recently experienced with the COVID-19 crisis. Some of them were quite slow bears. For example, the bear market that started in the 2000s took four years (4 years!) to reach its through. And people go and say ‘hold, hold, it will go up’. But the index had a bear of 4 years! Imagine the opportunity cost of that capital. Someone could build a business and franchised it in 4 years. 4 years! Besides the Eurostoxx exercise, I did not do much else. Tomorrow, I will try to focus on my thesis and then try to figure out more of the "options as an income strategy" area. This entry has also been posted in bullishwolf.wordpress.com