Trading Notes - SPX Weeklies Edition

02/15/17

SPX stomach churner

I need to get this off my chest.

I've been having good success lately trading SPX FD's (faggots delights; weekly options). I buy them with as little time premium as possible and leverage the fuck out of the SPX. A 0.2% move equals 100% gains etc etc.

Anyway, a couple weeks ago I made 100% in under an hour doing this. It fucking works. This morning I went for it again and it went beautifully and then I made two mistakes in a row and I knew they were both mistakes as I made them. So I am writing them down so I can hopefully avoid them in the future.

The setup

The setup is simple. In the first 10-15 minutes of trading, if the S&P is showing a clear direction one way or the other, just bet on it. Buy 10-20 SPX FDs. It's so simple it's retarded but the S&P tends to follow its initial trend throughout the day.

This morning

This morning I thought I saw this setup so I bought 16 SPXW170215C2340 for 1.70 at 9:55am or so. You can see the opening bell volume at 9:30 in pic related. After watching a mild but consistent climb for ~25 min, I went ahead and bought those calls. Then I walked to the studio.

On the way to the studio, I checked my phone and saw my calls went down to 1.10. I said fuck it, this is just a minor retracement and it will continue to keep going up. So it did. And then it fucking climbed until the calls were going for 5.0, 5.3, 5.5. I felt smug as fuck because I had just tripled my money right?

Well I was feeling greedy and waited to see if it kept climbing. This is when it settled out where I have the 5.5 label on my chart. I could have taken a $5,000 gain but I didn't because I thought the position still had some juice.

After it went sideways for about 15 minutes, I decided the move was over and I should take profits. I opened a sell, but it was a little greedy. I opened it at 5.50. I saw it go up to the point where 5.5 was the best ask. I was sitting there staring at my monitor watching the 5.5s get filled, and yet mine didn't. I was begging it "just go up a little bit more". That's when it started to crash (around 11:30).

I was cursing out this sell-off but it seemed completely rational that it would happen. After a move like that there's often a retracement about 30-50% back down. I waited to see if upward volume kicked back in after it seemed to bottom out and it fucking didn't. I was sure it would continue on the uptrend throughout the rest of the day, so I just opened a stop loss at 2.2 and told it to fuck off.

Well the stop loss gods fucked me and somehow it fucking filled. I never saw when because it was a split second when it hit 2.2 and came right back up to 2.6. So I got completely fucked out of my profits.

And then wouldn't you know it. It's back up now much higher than it went before, and I basically fucked myself out of 400% profits by staring at the chart and panicking like a little bitch. Had I just bought these and taken a nap for the rest of the day, I would have made 6-8 thousand dollars only having risked 2.5.

Lessons

  1. 30-50% retracements after a move are normal. Ignore them unless it retraces more than 50%.
  2. Ideally take profit when the move has run out of steam (this would have been at 11:15 this morning), or sit through the inevitable profit-taking and wait for the move to resume. Don't fucking sell at the bottom of the profit-taking like a loser.

Feels bad

The hardest part of this for me is I already knew that the market moves in patterns like this. And yet I was too much of a pussy to just hold, and too much of a greedy cunt to take 200% profits when I had them. So both of these combined cucked me hard core. I should have made 200-400% here but I didn't. Hopefully I never make this mistake again.

Trading Notes - Feeling Better Edition

01/14/17

Trading Update

Feeling a lot more level headed and optimistic about trading. The mistakes I made in November forced me to think a lot more critically about what I'm doing, and I had a good month in December (+8k). January is looking to end up as good or better.

Most of the reason why is I've become more patient and less greedy. After November I just said "fuck it I'm opening these positions and not logging in to Fidelity until January". Worked out well.

I realized I needed to regulate my risk by setting a monthly goal and being consistent. I landed on the number of 3%. Every month I am trying to achieve a 3% gain on my trading account. I realized that that's still damn good - about 25% annualized. If I can do that steadily that would be beating the market 4 times over.

My main approach now is just sinking my cash into solid bullish stocks with good volatility (almost exclusively tech stocks) and selling OTM calls on them for the end of the month, always above my cost basis. It's a win-win. That fueled most of my gains last month and this month is looking the same so far.

On top of that, just to keep things exciting, I've been finding success with quick YOLO trades on SPX weeklies. These are awesome because I actually find them (so far) pretty easy to execute and they are extremely exciting to do. So far 3/3 of my attempts have ended up in gains. These are small positions but with big returns.

30% in 23 minutes
85% in 37 minutes

...and then I made about 10% yesterday but that was too unremarkable to even document. It's a very simple setup. When I see SPX start to move with relatively high volume in a clear direction, I buy faggots delights betting on that same direction and hold them for 20-30 minutes. The three times I've tried it so far, it has resulted in double digit gains. This is the first time I've ever had a "trading setup" so it's mostly an experiment.

Projects Update

But more valuable than the four grand I made doing those trades was the reinforcement and crystallization of the web project idea I had last Spring - a trader's diary website. I'm now 100% sure I want to pursue it. It will start off as a private tool for people to keep a trading log, and it will be the best trading log ever. It will be tuned to just that single use case - writing down trades, reasoning, and retrospective. It will analyze and visualize your activity/performance for you in a satisfying way, and make it very easy to input your trades (and import them from brokerage exports).

That's how it will be sold in the beginning. Then, once enough people are using it and it's stable, I will open it up and allow people to publish their logs and follow others, thus turning it into a network of sorts. Then there are many possibilities for improvement and interaction between users. Eventually it could be like a trader's public portfolio.

If it works out, it will replace peoples' spreadsheets and twitter accounts and whatever else people use to do this. And if it doesn't, at least I will have a tool that I like to use.

The name I had originally for it was dear.market. But after talking to Mollie I realized that name is kind of corny and much better would be the name I'm currently using for my prototype options visualization tool: burning.cash. So I bought a new, much better domain for that site, explainoptions.com. I'm kind of amazed it was available.

So I will now have two projects: the trading log/trader network called burning.cash, and explainoptions.com. Explain Options will sort of be like explainshell.com combined with gobyexample.com. There are two parts: an interactive & visual tutorial that explains options to a complete noob, and a calculator tool that visualizes all aspects of an options position.

The calculator is a full-screen tool consisting of visualizations like burning.cash plus several others. It will have charts that visualize time decay, how that impacts the break-even point, etc. You will just input a position, and it will visually tell you exactly what you can expect out of it. Maybe it will eventually even do the opposite: draw a break-even line and have it tell you what to buy/sell.

The tutorial explains mostly how options and option pricing work. I'll cover Black-Scholes and IV and all of that. It will have React components scattered throughout the text like images in a book, but they will be interactive/animated to explain concepts like time decay. The tutorial will link to the calculator at various points and vice-versa, to tie the two together.

My hope is the calculator will out-do this POS and take its traffic. Judging by its Alexa ranking (391,000 global, 72,000 US) and Cryptowatch's (55,000 global, 29,000 US) I can probably pull that off in a year or two. My biggest competitor will be investopedia.com and I will never outrank them overall, but maybe for options-specific things.

There's also sites like fintools.com and erieri.com but those barely even register on Alexa. So we're probably talking like a couple thousand visits per day or less for them. It's hard not to notice how much all of these suck. They've probably been around for 15 years and haven't changed. I bet I can use my UI/UX skills to blow them out of the water and provide the best options tutorial and calculator on the web.

The tutorial is huge IMO, because when I was learning options I found it incredibly hard to find a good, easy to read source that walks you through it. There's plenty of blog articles, shitty youtube vidoes, and online forum posts. I ended up just reading a book, but that took a long time and did not benefit from rich visuals like a website can. It's surprising nobody is trying to fill this niche well because there's so many noobs on wsb asking "what's an option" "explain options to me". Hopefully I could capture traffic from search terms like "what are options", "options tutorial", "black scholes calculator", "implied volatility" etc. So the tutorial is basically the SEO funnel, and the calculator tool will be what keeps people coming back.

In terms of monetizing, maybe ads this time. Maybe something else. Who knows. I'm not worried so much about that part. The hard work will be establishing another high-traffic site.

Trading Notes - Election Mistakes Edition

11/23/16

After several months of actively trading I've only managed to dig a hole. Roughly $20k. What a fucking waste of time and money. I feel like shit today because the second half of that was just realized, but I have learned some valuable lessons the hard way (the way everyone learns them). I'm writing this only to force myself to process them and write them down to look back at later.

Lesson #1: DON'T GET GREEDY

I had already heard this a dozen times before even trying to place a trade, but somehow still had to learn it the hard way. A couple weeks before the election Comey re-opened the investigation into HRC so I opened a TVIX position that got up to like +10%, which was ~$5k. I got all smug and kept it open thinking heh heh heh what a good position. I'm gonna let it grow some more and cash the fuck out later. This brings me to the next lesson.

Lesson #2: CUT LOSSES, DON'T BAGHOLD

So then Comey let HRC off the hook over the weekend (see lesson 2.5), and VIX immediately sank. Gapped down hard the next day. I figured fuck it, might as well keep holding through the election. I had the opportunity to sell at like a 5% loss, and refused. I was sure Trump was going to win, and VIX would shoot back up because what the fuck Donald Trump is leader of the free world? People always say markets don't like uncertainty, and Brexit already had a negative impact on markets. In retrospect I wish I had just cut losses because the trade was too risky and volatile, but I didn't.

Lesson #2.5: DON'T HOLD VOLATILE SHIT OVERNIGHT

TVIX, JNUG, shit like that.

Lesson #3: THE MARKET PROBABLY WON'T DO WHAT YOU THINK IT WILL

So Trump did win and at 1am on election night, VIX futures were soaring. I started feeling smug again, full of how much of a fucking genius I am. But when the market opened the next morning, it completely recovered and hit all time highs. What the fuck? By all accounts I deserved to win big in that position. I had taken an underdog position (Trump winning) and correctly predicted that volatility would go up. But it only went up in futures, for a few hours. Then it did a complete 180. So with lesson 2 and 3 combining into a torpedo of bad luck, I lost even more money.

Lesson #4: DON'T RISK MONEY ON A COIN TOSS

Betting on binary events is literally a coin toss, and not worth it. Earnings, gold price, oil price, etc are not worth getting into. On any given day JNUG can gap up or down 10% and nobody knows why. Lesson 3 also applies here.

Lesson #5: DON'T GET IMPATIENT

The other half of the whole was dug yesterday. I put $80k into JNUG, just to see what would happen. I literally had no good reason for doing it. I was just bored. Well it went down 10% overnight for no apparent reason, and I lost $9500 (row 114). This time, slightly wiser man that I am, I immediately just sucked it up and sold, but it still fucking hurts.

I am not bitter

I might sound bitter - I'm not. In fact, I'm glad I got through this phase and survived with relatively small scars. I'll never go back to making those mistakes. There's a silver lining in all of this, and it's October 2016. It was the only good month I've had, and it was because I was consistent, and patient. I made like $5k selling options against TSLA, and taking profits when I had them. It was a far more mature Artur trading than the one trading in November. So now I have a strategy I like, and I'm going to stick with it. The strategy is as follows:

  1. Pick a stock you actually believe in, like TSLA
  2. Allocate cash to it, and let the market throw you around; sell puts against it until you're forced to exercise, and then sell calls until you're forced to sell.
  3. Use common support and resistence levels and sell strikes just outside of them to avoid being exercised

That's it. Unless the stock sees a fucking 30% drop while you're short puts, you'll probably be fine and just collect premiums the whole time. Best kind of stock to use IMO is one with ~40% IV, but which you're not worried about crashing and burning anytime soon. This is how I actually went green for a split second in October. But alas, I got greedy and bored and cocky and lost it all and a lot more this month. Never again.

Set a goal...

Final note, I think it's worth setting a monthly goal, to help maintain patience and manage risk. I haven't decided on mine yet, but I imagine having a monthly goal of something like $3000 in profit would help keep me from doing the kind of stupid shit that I just did. And with decent capital, that kind of goal is very achievable by selling options.





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