Saturday, November 20, 2010

NOV10 NDX Iron Butterfly - Day-by-day Review

NOV10 was a wild month, the market started moving higher and higher, without any stop in the horizon. In addition to this, we had the FMOC meeting event, this kept vols up while the market traded higher and made the butterfly further difficult to manage.

I've adjusted, rolled the call side up, added the butterfly. In my mind I did everything I could to keep my money in the game and working for me. In the end closed with a loss of 6%, not bad given the market conditions. For the most part my management was good, I do have some lessons learned that I can share with you:

1) Trading is 100% in your mind, you need to do whatever it takes to stay sharp. Take time for yourself, workout, manage work-life balance.. The brain is the machine and if you're tired, you'll operate at less than optimum capacity. I was tired during most of the nights when I was doing my reviews. I had quite a busy month at work, pulling 13 hour days for weeks in a row. This reduced my ability to stay sharp in the evenings and sit with a good mind to review my positions and plan my adjustments. There was limited time during the day where I could pay attention to the market. Once again, the 13 hour work schedule forced me to start working at 7 am and roll through lunch.

3) Keep an eye on GAMMA at all times: There was one or 2 days where my gamma exposure was twice what I usually see. I didn't notice them until it was too late. Of course, the market did what it does when you're not paying attention: It moves quickly and far, takes away your money and leaves you frustrated.. Notice my postings between 11/10 and 11/11.. In two days I was thrown back in bad shape. I managed to keep my head cool, and got in with good adjustments, in the end I had another 2+ standard deviation movement, but because I was watching the GAMMA exposure, this move did not wipe me out, on the contrary, I actually recovered another 2% that day.

Ok, these are my two very important lessons learned. Need to incorporate them in my day-to-day management so they stay around.

10/20 Daily Summary

10/21 Daily Summary - High point of the trade, 4%

10/22 Daily Summary

10/25 Daily Summary

10/26 Daily Summary

10/27 Daily Summary - Kept going higher, Vols are high due to FMOC

10/28 Daily Summary

10/29 Daily Summary - Larger intra-day swings, vols up

11/1 Daily Summary

11/2 Daily Summary - Hit up-side adjustment just prior to FMOC day, flat VEGA

11/03 Daily Summary - Took advantage of high vols, cut and rolled a few contracts, negative VEGA again

11/04 Daily Summary - Large up-side movement

11/05 Daily Summary - Added butterfly in the morning, well positioned for Friday

11/08 Daily Summary - Rolled 1 call side, good recovery, back to -4%

11/09 Daily Summary - Kept condorizing, market moving to down-side

11/10 Daily Summary - Pumped back up, down 2%, did not notice 2+ Gamma exposure

11/11 Daily Summary - Down-side move, triggered adjustment, gamma around 1.89

11/12 Daily Summary - Took big hit (from -4 to -12%) with large price movement

11/15 Daily Summary - Good recovery, gamma now around 1.15

11/16 Daily Summary - Another large move, no major P/L slippage, closed the trade


Anonymous said...

Fantastic performance over the last 12 months Gustavo - well done!

Just thought I'd share something I use (I got from Mark Sebastian at called a Reverse Harvey (Dan harvey fame)). Not sure if you have considered this - if the underlying is say moving up, roll up your long Put on the downside - it costs money of course but can really cut down your risk from 1/2 to 3/4 in case of a reversal.

All the best and thanks for the great blog.


Gustavo's Trades said...

Hey Doodelzack, I appreciate your suggestion, and in fact I might start doing so in the next few months.

I'll start to watch a few things in addition to my traditional studies:
1) Gamma
2) Total of capital at risk
3) Emotional states (i.e. tired, rested, alert, sleepy, relaxed, anxious, etc)..

For items 1 and 2 above, the reverse Harvey does make sense, and I will certainly look at it next time I'm in a similar spot. This will really reduce my down-side risks and total capital exposure.

Anonymous said...

Nice one Gustavo,

You're right, emotional state does make a difference. I was like you for Nov expiration - lots on at work and home and just tired. I didn't focus enough on my trade and got "Roostered" in the big down move! Just a learning experience..


Gustavo's Trades said...

Yes, I think it is important to dedicate some time during open market hours, so I'll make the effort of creating a routine at work that allows me to sit and watch the market early AM. It will probably have to be in the opening hour, but it is far better than nothing.

Should track how many days I was able to do so. The more I think about this, the more it seems that a trading journal would morph into a database where I can pull reports such as these type of statistics..