Tag: m3

A complete reversal. Looks like my lotto’s are out of play…or maybe not. If the market had fell today, I’d have been forced to close them at whatever profit was there as leaving them on with any significant profit would have been gambling. Now, if we actually had a black swan or big 5-6% move, it’d be significantly more as time is ticking on them. Anyways, lots of potential market moving news out there (Hilary, North Korea, etc). A complete waste of time talking bout them but hey, whatever, it’s kinda fun.

Huge Ramble and verbal diarrhea below. Maybe someone can relate to them.

Today’s reversal actually wasn’t too bad on my P/L as I had bought some hedge calls yesterday towards close that paid off reasonably well on the reversal. Sort of internally thought that this would happen re three feds talking today but thought the down move was too harsh for anything significant (I was wrong). Still, Oct/Nov trades are all perfectly positioned. If we can sustain the up move to no more than another 3% we should be sitting very pretty with nice trades that will make the entire year. It’s possible the year ends up at 50% after the Nov and Oct trades, if we have any normal movement from here till mid Oct. If this market screams up to 2240+ then that won’t be possible and we’ll be treading water as we have been.

I am trying to explain to some friends (when they ask how my trading is going since Feb) why the results have been less then spectacular. It think all of us market neutral BF traders agree, it’s a very difficult market for market neutral trading, it really is. I think John Locke is negative 3-4% for the year on his core Bearish Butterfly, M3, V-Condor and Rock trades combined. It’s just a shitty market for these trades. Why specifically for the Rhino? Well, it’s the fact that the market has moved up significantly in every single cycle since February and this strategy really is a mean-reversion based strategy. It expects normal market action with normal volatility where somewhere in the cycle, the market falls into the tent enough to generate the profit targets in the plan. Of course, some months it won’t and you’ll do break-even or slightly negative but other months you’ll get lucky and do 10%. In general, it will do well in each cycle if the cycle moves 10% or less to the downside and 5% or less to the upside. THat’s a huge 45 day range potential for decent results! The crazy thing is, each cycle since Feb has had the latter requirement violated each time. Since February, the trade has not gone back to the tent long enough to generate the profit targets. It’s moved up 34% in 5 or so months. That’s an average of 6% a month or 8-9% a cycle! So, how could any of our trades end anywhere near the tent to where it generates a significant profit? In the Rhino, if the market moves outside of the tent on an up-move, and it sits 3% or more away from the tent without mean-reversion or a move back, the trade is pretty much dead. That’s if you follow it as per the guidelines and original intent of the Rhino. Of course, you could adjust the upside to generate a return via things like RH (Reverse Harvey’ing the upside) but there is trade offs, and to me, when we’ve had significant up moves, we are at risk of quick moves to the downside..and well..I’ve backtested the trade to death and I like it as it is, I don’t want to deal with downside exposure especially now, I mean, it’s kinda already too late 🙂 I believe that over time we mean revert and overtime volatility will come back into the market. If you turn the right wing weak area of the Rhino into a more income generating area, like RTT traders do, it’ll expose you on the downside significantly. I know some of the RTT traders did much better in this environment by reverse harveying but at the same time, these trades will suffer in a larger down move, in fact, I saw several talk about how they were at limits on Friday. If it fell another 3% on Monday, they’d suffer greatly. I prefer to keep managing the Rhino the way I manage it. Eventually it’ll pay off.

I’ve backtested the Rhino to death, and if you go back to 2007, it does extremely well, it’s extremely resilient and it generates an average of 5% a month. It struggles in run-away up markets but little else. No matter how you slice it, if you backtest the last 5-6 months, you’ll get similar crappy results UNLESS you were very liberal on your upside adjustments and didn’t follow the original guidelines (IE RHing the trade). So, when I go through this period with live trades, and I am frustrated with the break-even results (which is only really the last 5 months) and then I backtest and get the same type of results, while having had 70+ months backtested with fantastic results, well, that tells me it’s just the current market type. The trade will work over time but it struggles in times like this..I mean 34% UP in five months, how could I expect any better in the trade result. In fact, its so extreme, shouldn’t I expect to be quite negative during that period?

So the point of all this unedited jabbering, well it’s meant as a cathartic check for myself to remain patient. The next year will not be the same as this year, and if it is, well fuckn’ hell, I’ll just endure it. But I believe that the market goes through cycles and all cycles end. The point is, I have a trade plan, I am going to follow the trade plan and I will continue to trade the plan for years to come. I am confident in the trade. This applies to the Rhino trade, I am actively looking at other trades to compliment.

Here is a few of the trades I have on

1. The Monster SPX Rhino

This one is quite healthy. It’s got a P/L of about 34k right now. It hit 53k yesterday. If in 20 days we are sitting anywhere between the 2034-2142 area, it’ll be up between 130k-410k If it’s at 2070 area, it’d be up 410k! That would put my account up almost 50% for the year. Not a bad result for one winning trade in 4-5 months. See, it’s about waiting for some mean reversion and for some luck in having the trade end within the tent and this tent is very large..2040-2140 would generate a hefty profit. If the market keeps moving up and we get to the 2230 area or above, yeah I mean, it’ll do slightly positive (15-30k) and that’s it…and that is exactly what’s been happening the last 5 months. You just can’t win too much on relentless up moves.

Here’s my Nov RUT Rhino

You can see here..we’re about 2% out side the tent and well, we have no real profit potential if we go another 1% out. Of course, I’ll add some call BWBs to help hedge it but it’s likely we’ll just hit break-even if we sit out here and don’t move back in the tent. If you have 4-5 months like that, you have to ask yourself, what are the odds that the market moves up and away from tent and does not enter back into the tent enough to generate the profit target? It’s actually quite rare, it’s just a symptom of an extremely bullish market like this has been and some bad luck with timing. The last 2 down moves worth any salt since Mar lasted 2-3 days and were in such a time where we couldn’t yet close the trade.

I just joined Bruno’s new service for Rhino trades. He has a fresh interesting outlook on the Rhino trade that interests me. I highly suggest it for anyone that trades Rhinos. I think it’s $900 for the yearly membership today. The Baby rhino looks like a nice addition which I haven’t traded yet. I need to diversify a bit and I’d love some more short term trades as I am not traveling and basically at the computer all day. I’ve started to look at some simple rules based trades to add to my repertoire as well. Just something that’s low stress and management that has a very consistent track record. Specifically the super simple spreads which I just saw a 15 year back test that was fairly impressive. I want to add some tweaks of my own (specifically a STT like addition to it).

Coming towards the end of Aug, I felt like my trading and the methodology was “a solved thing” but as I started getting more time late August and I started watching fellow trader videos/presentations and reading group conversations, I found ideas and data that proved that wrong. I’ve been inspired recently I guess. I mean, the Rhino is a very low maintenance type trade that’s both resilient and very powerful. I didn’t really want to put any serious capital outside of it in other trades and I felt like I hadn’t really needed to explore much more on the Rhino trade in specific. Find something that works and is resilient and leave it alone type thinking. But I think there may be interesting things that we can take away from the new Road Trip Trades (RTT) while adding Space trip Trades (STT) in for downside crash protection. The Rhino has a serious problem with runaway markets to the upside and addressing that weakness would be nice while not over exposing the down side. I don’t know if the STT would help in that as it’s meant for Crash protection, but I want to explore it. I also am not loving the calendar adjustments on the upside and have been mostly using call BWBs.

I’ve had a mostly unemotional hands off approach to trading it since the summer. I follow the trade plan and mitigate risk as needed. I haven’t profited much since the meteoric rise from the February lows since it was a 33 % or so move. The way I trade the rhino doesn’t allow for profit in a runaway market like that. I mean, how could I expect to profit much when each cycle had a 5-7% up move. It’s just not possible for me to make money in my trade plan for the rhino if the market has 7% up moves in each cycle of the trade or if it rises 33% in 5 months 🙂 All that said, I am looking to add some strategies for my upside and I’ve started to add some mechanical strategies I used to do.

Here’s my September trade that’s basically closed down pending any significant down move before expiry, it’ll be closed at a loss. If I get a 5% down move ANY time before Sep 20, it’d be a profitable month 🙂 If I get lucky and have a 10% move, I’ll be up massive amounts.

Here’s my October trade

It’s up a tiny bit and I think it’s in a good position for the cycle. My upside risk is quite low and any decent down move will get it right in the tent (hopefully later in the cycle so the T+0 builds in the tent).

Finally my SPX October trade

This one is my biggest trade with the most potential. If we get any 4-5% move in the next 30 days, It stands to make several hundred k. The upside risk is low but I’ll have issues if it sits between 2170 and 2200 and will have to address that sag.