Thursday, March 3, 2011

3/3 Daily Summary

Today my dear reader, is my worst day in the trading business thus far! Don't get me wrong, the contingent orders did what they were supposed to do, I did my job with the plan last night, yet the modeling I had Yesterday failed to reflect the true life impact of a gap up + continuation of Today. The blow to the trade P/L was much higher than forecast, and all I have left to do is execute an orderly retreat. My job now is to take my risk off the table. Perhaps the spreads are just wide? Who knows, I'll see what Tomorrow looks like in the morning, but at this point the thing to do is start peeling off spreads.

It is a feeling of inadequacy that bothers me the most.. I'm not kidding around here, feel I left my family down with this one.. On the bright side, it will take me about 3 good months to fully recover, so it is not like it is a fatal blow and I'm out of business... Just a matter of time, and since this is for the long run, I shall pick up the pieces, come back Tomorrow and continue moving forward.

I have lessons to learn here, so will have to do some soul searching this weekend for sure.


Anonymous said...

I looked over your screen shot and I have no idea why your P and l dropped so much. You first hedge hit and at most with the vxn coming in over your estimate, 700 dollars, and Im not including any theta. The only thing I can think of is the IV came down a lot more in your longs than the shorts. Did you figure out what happened?

David said...

Hi Gustavo, hang in there.
1. You certainly didn't let your family down. You work all day to provide for your family. Just like I do. To answer your question from a few weeks ago, I think it would be very hard to be an independent retail option trader for income. The pressure to bring in a monthly gain would lead to poor decisions.
2. You're making the right trading choices, it's just a tough month to trade. Kind of like playing blackjack and holding on a 20 only to find the dealer gets 21.
3. It's alright if you closed your position as you reached your max loss, usually a good idea. But you have good theta and are still under the tent, and of course the market is down now, so I hope you didn't pull the trigger.
Best of luck, I've learned so much reading your blog.

Vern said...

Hi Gustavo, I've been reading and enjoying your blog for some time now. I can definatly relate to the feeling of inadequacy after a really bad loss. I admire your rigor and planning of your trades. One thing that has kept me in business trading is always holding a number of what some market makers call "units", which are basically far out of the money front month puts, usually with a delta of 3 to 5 or so. These puts explode in value on a move like we had last week, or the "flash crash" etc. I usually hold 1 for every $10000 of margin on an income spread. They will cost you some profits every month, but they eliminate unexpected drawdowns and let you sleep easy at night. Modeling software like thinkorswim or any other won't acurately calculate the greeks for these, but an IV pop has an exponential effect on thier value. Anyway, just my 2 cents, but holding a few of these every month has been worth every penny for me and then some. Happy trading,

Gustavo's Trades said...

First of all, thank you all for posting encouraging words here. This blog is one of the best support systems, I give some to you with the charts and daily studies, but rest assure you give a lot more back to me! It is thanks to the blog I've been honest with myself and really making the extra effort to keep on keeping on!

All and all, what I think happened Yesterday was a combination of a fast move with wider spreads. This morning, with the market really little changed I saw the P/L back on normal levels, and this gave me the cool frame of mind to hang in there and not simply cut the cord!

I've learned in past trades that closing down a position right after a major move, with wider spreads is usually not the best option. Market makers can make your P/L much worse than it actually should be.. In my case Yesterday I saw it looking really bad in the morning, but stuck to my guns and let the contingent orders do the work with the decision of evaluate the exit strategy the next morning.

I still plan on exiting the trade if it continues to move against me, at this point it is a race against time... When I exit, it will be what I like to call an orderly retreat, with me peeling off spreads slowly, holding some theta (well-hedged) from day to day and let the time work itself in my favor.

Dave, thank you for your great words here! I truly appreciate, you have no idea!

Vern, I liked your comments and suggestion on holding some extra puts out of the Money.. I had done that before in Iron Condors, but not quite sure I did it right, as I may have gotten them not too far out of the money.. I will say this: When the flash crash happened, a few days later I had an extra put that exploded in value just like you described and allowed me to immediately exit the trade at a profit. So I see your point about the modeling systems not really representing this well..

For the anonymous reader: Yes, I don't know exactly what happened. My first reaction is to think it was the spreads, but I still want to do a detailed study on this scenario during the weekend.. You only learn if you do it so you can sort it out...

All and all folks, THANK YOU!!!