The Lonely Trader

Currency trading update

In Journal on July 1, 2014 at 21:55

A simple arithmetical error has me pretty embarrassed today. I have under-reported annual (and monthly) gains. The error was dividing the difference between the current balance and the previous balance by the current balance. I should have divided the difference by the previous balance. So at least I have that to smile about, however sheepishly.

201406 Currencies

Gains for this month were 3.34%. For the year, a solid 14.34% realized, which annualized is on track for 30%. Position interest came in at just under 9% of this month’s gains. Very healthy given that this month the carry was not a conscious strategy. I have resolved to watch for more trading opportunities and as a consequence I’m in more losing positions, but trade rotation has kept realized gains apace. Still carrying more than -2%. I’ll just have to get used to this “new normal” until I can work my way out of a few poorly trades. Accounting for NAV (at a little more than -3% as I write this), the Knotty has earned a smidge over 11% for the year, if marked to June 30th. Not bad.

201406 Trades

July will prove challenging, with several deadbeat positions still to turn around, but with a healthy yield to mitigate somewhat. I expect a bit of a resurgence in the desire for the positive carry, which I’m badly positioned for. And of course, I expect this to happen only when prices are more favorable for fresh longs, which means my positions will have gone from bad to worse. I should be averaging about -5% in daily NAV if this occurs. If this doesn’t play out, I suppose I’ll have to stick to last month’s plan and add more positions with neutral to negative roll, if the right setups present.

I’m not making any sense to myself, so I’m sure I’m not making sense to anyone else. Good night all.

Currency model description posted

In Trading Methods on June 29, 2014 at 16:00

A brief description of the currency model has been posted to the Currencies page.

201405 Currencies


Weekly option method

In Journal, Options on June 16, 2014 at 22:29

Throwing a few ideas out there in search of the elusive long theta play. My thinking is that selling options with a duration of longer than 10 days is asking for trouble in this environment. (Maybe in any environment now with HFT?…)

Until the big turn, in my opinion it’s play for mean reversion on dips (if you can get it), but hang onto your butt (no matter what). Hanging onto my butt means playing for shorter duration. Weekly plays are the best bet at this point. There are (I think) less than 200 weekly optionables. Most underlyings trade over $1M shares per day on average.

The scan goes something like this:

>> All optionable stocks,
>> All options with less than 10 days to expiration,
>> All underlyings with volume greater than 1M per day on average,
>> All underlyings with a market cap of greater than $200M,
>> All underlyings with implied volatility rankings of more than 40%,
>> No corporate actions in the next 8 days, and
>> Expected ROC > 14%.

The first part of the scan is performed on the ThinkorSwim platform, with the rest done in Ninjatrader and Excel. I hate ThinkorSwim, NinjaTrader, and Excel. All of them for different reasons. But I also love them. I digress.

From there, I drill down on the top 20 or 30 IV rankings and look for setups — a confluence of prominent supply and demand levels, 20 SMA bollinger bands (with the SMA as a short term trend indicator), CCI (as an oscillator), the S&P TICK indicator (when I am able to view intraday price action), and a historical range pattern analysis tool that you’ve already seen. It’s all viewed on weekly, daily, four hour, and 60 minute charts.

A few more trade selection rules:

- Credit spreads only,
– Implied OTM probability of at least 68%,
– Max profit cannot be less than 33% of the Max loss, and

As implied above, only out-of-the-money calls and puts will be sold. The time for entry is between seven and three days before expiration — or between Friday of the week prior and Wednesday the week of. The sizing will be very small, with profit taking usually by Friday morning if 50% of profit has not already been achieved. If the underlying prints a daily close inside the spread, I immediately close the position (usually at the market) to minimize my losses.

My hope is to go for a delta-neutral book overall, but that’s pretty hard to do with the market the way it is. Hard to find a dip to buy. Too easy to find a rally to sell. I have to keep my wits about me.


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