I’m in London making my way back home to Cayman. I don’t think I’ll be traveling for at least a year in any major way (more than a week). During the travels, I had a lot of downtime due to newborn naps etc and during that time I’ve been backtesting PC2 and other things like the variants of T5. Probably put in 200-300 hours total of backtesting. Lots of dead-ends but came up with a solid plan for the rest of the year. It was kind of a necessary evil.
Going to start full deployment into the PC2 this week for all my accounts. I am content with the backtesting, the risks and well the no, literally 0, recorded losses 🙂 I’ll be adding one long put at 12% to help with margin and act as a real hedge on a down move. I’ll sell enough NPs to cover that and the black swan hedges. I have to add in another portion of backtesting as I want to switch how I manage it on the downside (might do bearish STTs). But I’ll do that next week and switch when satisfied.
Slow ass year but I hope the next 3-4 months with the combo boost up the returns and gives me a good end to the year and a 2018 that does 5% a month plus. I’ll be doing opportunistic T5s at a very small amount to boost some of the PC2 returns. As I get further down the rabbit hole, the amount of return I reasonably think I can return on large accounts goes further down, there’s just no free-lunch w/out risk and I don’t really like risk anymore 🙂 Non-compounded I am guessing it’s closer to 45-50% a year for the core PC2 trade after slippage and all that. Compound that and it’s eventually going to crush anyways. Three years at 45-50% and you’re at 225% or 75% annually ish. The T5 should add in a lot of boost and maybe we can get up to 75% non-compounded, who knows. We’ll see!
Had a really rough mid-Aug with starting the T5 trade at the worst possible time (before the NK issues) and back month vol sky rocketed. I had a max draw down of 3k a unit (and I had lots of units on) but I’ve recovered nearly all of it since. Back to all time highs but that’s been stagnant for the last 6 months.
I played in the Barcelona tournament, I did get to add a Spanish flag to my Hendonmob profile by getting 102nd out of 782 in the 2k NL tournament. I exited that one with AK vs 66 and the board was AK6xx. Too bad, had I got that one, I’d have had a shot at the final 20 and a much bigger cash. In Bahamas last year I had AA vs AK and the guy flopped KKT. That was a big one, the hand itself was worth 40k in cash no doubts re payout ladder. Ah Poker…
Patrick, please take this with a grain of salt. I’ve really enjoyed your posts over the last few years, and learned a great deal following you, but more and more, the trading jargon makes the posts hard to follow.
I think the world of ron bertino and the work he’s done on options, but I’ve not yet purchased his course, and I’m therefore not in the know with regard to new variations of both his income and hedging trades.
What I’ve learned from you over the years relates to your philosophy and the sharing of the day to day challenges of actually trading options. And also how you approach possible modifications or tweaks to your game plan as the market changes (e.g. premium or skew or whatever).
I sincerely hope the blog doesn’t become something only geared towards Ron’s trading dominion community….as I think you have a lot more to share with a larger audience – and while I have no doubt of the power of the “trades” that are being created and improved by the TD community, to me trading is only a small part about the trade and mostly about the trader. Best, Lee
Hi Lee,
You’re absolutely right. I’ve been pondering a lot of things during this trip and a few things that have been sitting on my mind. I feel like I want/need to have more diversified trades alongside some of the Bertino stuff. I did create my own little combo out of his theories (PC2 = Patricks Combo) and it’s a great base trade and I’ve combined it with the T5 (which is just a cross expiration skew mean-reversion trade) that he created but I want to re-introduce the Rhino back into my plan since I feel we’re getting a more volatile trading and the environment suits it. I’ve always said I’d trade it opportunistically, when the environment is right, that trade on PM can crush.
I think the key to trading a large account is having trading diversification not just one core trade. I’ll start posting my rhino trades when I start them back up and all the trials and tribulations I am having managing things. I won’t be traveling for some time as the newborn turns 6 months and that becomes the more difficult period (plus I am burnt out of traveling). Thanks for sharing and being honest with your comment.
Patrick, thanks for your nice note back.
I hear you on the slowing down with travel…. I now live in a pretty small Mexican fishing/touristy town, and I appreciate the very slow and simple way of life.
I’ll look forward to seeing how you incorporate diversity in your trading…. Why not something like Locke’s bearish butterfly in the mix? The trade kills in 50-75% of market conditions…it’s more or less mechanical, and if you see market topping and/or weakness coming wouldn’t it be a great companion trade to anything neutral to bullish, or to say a traditional stock portfolio (like divided aristicrats)? Best, Lee
What is a NP trade? You mentioned you are selling these?
Enjoy reading your updates. Just starting out and planning to take Ron’s course in the near future.
The NP is just a naked put that is used to finance the BSH.
Thanks for the update on your backtesting and plan going forward. For your initial setup, are you entering all of the different pieces the same day? Or are you entering when it’s more advantageous based on volatility?
I just watched the latest Mastermind update on the mechanical setup. Have you looked into that at all?
I like a mechanical setup but I don’t like not doing downside and upside adjustments at least according to some mechanical plan. The PC2 will evolve to a mechanical non emotional trade where I’ll use bearish STTs as downside adjustments and so on. As it stands right now, I think the MC trades need more rules and work to reduce the drawdowns. I would kinda like to use a John Locke style of trading plan with the STT configurations.
Hi Patrick,
Thanks for all of the info that you post here. I am a fellow STT trader and I moved away from the horizontal (TTT, etc) trades simply because I didn’t like the volatility of the returns. One of the concerns I always had was that the midprice on options this far otm and out in time wildly fluctuates. Even a .10 slippage on 100 contracts throws things off. It sounds like you did a lot more backtesting than me, did you find that your p/l was dramatically different even when stepping through in 5 minute increments? While I love the concept of the STT and horizontal time trades combined, I have spent a lot of time the last few weeks soul searching if it truly is the best use of capital. For example, if making $350 per unit requires 70-80 contracts am I just better off putting on a butterfly and adding in a cheap 2-3 week dte put for margin control? I guess the main question is, in your live testing are you seeing a large fluctuation in your P/L on the entire portfolio (large being greater than 5-10% down since that is your monthly target)? Just the net liq, not what you would actually close the positions out for.
Thanks again for all the info!
Hi there,
That’s been on my mind too and I have it on the list of things to investigate. Looking at a more ATM type trade be it a Rhino/Front STT/M3/Roadtrip and seeing if we can apply BSH protection, margin and draw down reduction.
From Jan till about August I had standard STTs on with BShs that were half financed and I didn’t do that great. Very stagnant but the environment prevented me from putting on more risk and following the plans I had set out. Wasn’t an easy environment for those types of trades but I do think Ron crushed it despite. I know a lot of us struggled through the first half of the year re getting our financing to cover the BSHs. Was such a strange market. Anyways besides the point, I still haven’t gone live with the combos w/ any large size yet. I was/am waiting for more high vol entry during September which is supposed to be a volatile month historically. But slippage does worry me a bit given our P/L is so small for the number of contracts required.
I like the T5 in small size, I like the BSH factory and I like some small portion of my portfolio to be ATM trades like a Rhino as if we don’t have a runaway up market, they’d do really really well relative to PM required the rest would be in PC2 type trades until I find something better.
I am in the same boat with the returns this year in my STT trades and trying to get the financing on for the BSH. Whether using a naked put or putting the STT on for a credit, I now make sure that I fully fund the BSH hedge up front. I then go in to the weeklies (20 or so DTE) and buy some cheap puts to hedge an immediate move down. That gives my STT trade time to build up and if the market shoots up I don’t lose anything.
I’m still trying to understand this. How does one learn this? What is a TTT and T5?
Hi Ted,
T5 and the TTT trades (time trip trades) are trades that the mastermind group over at Trading dominion developed. They’re quite POSEV but also quite volatile and depend on good entry timing.
Thanks. I’ve still in the STT portion Trading Dominion lessons.