m3 – Page 3 – Travels and Trades

Apr 18 – EOD Rhino Trade update

June Rhino M3 (P)
# of Units: 30
Planned Capital: 750,000
Current P/L: -15,000
Current P/L(%): -2%
Loss @ 1145: -17,200

June Rhino M3 (D)
# of Units: 16
Planned Capital: 400,000
Current P/L: -9,600
Current P/L(%): -2.4%
Loss @ 1145: -11,500

June Rhino M3 (M)
# of Units: 25
Planned Capital: 625,000
Current P/L: -14,000
Current P/L(%): -2.24%
Loss @ 1145: -18,000

I got partial fills for the 1160 BWBs when price dipped to about 1128 for (P) and (D) trades but none filled on the (M) trade. I upped the price a bit and waited for the day but got no fills (not surprising since RUT pretty much moved up and up the entire day). We’re testing a huge downtrend resistance line (RIGHT NOW) and are extremely overextended. My guess is we’ll turn around around 1140 to 1145 ish area (overshoot and fail). I am hesitant to adjust more right here right now without even a 4 point pullback because of how much the RUT has travelled. The technicals are all quite bullish but we’re historically over-extended and haven’t had any reasonable pull back. I’ve said this a thousand times, but this move is truly historic. I do have have positive gamma and my negative deltas are decreasing as we go up. I am going to give it till 1145/1147 area before throwing in the towel and adjusting heavily. If we fall, and as we fall, i’ll be adding adjustments for the negative deltas to get the trade balanced. I think the risk/reward favours a hold-off for more favourable conditions for upside adjustments.

The may trades are all approaching break-even and don’t have too much upside risk. Though as it moves up it does remove my profits to date. Still, as May expiry approaches, any 3-4% pullback will put the trade in such a great situation. I mean, if you wanted to map out a perfect trade, it’d be putting the trade on and having the market rise and hold for 20-30 days only to fall back within the tent right near the time to take it off. So I mean, we really are not sitting too poorly from a R/R standpoint. If it bumps around 1130-1140 for a while and then falls towards 1100 in a few weeks. I mean we couldn’t ask for a better result. Anyways, I had removed the 1120 call calendars on Friday which removed some of the upside risk. I added some 1160 call calendars in their place but I want to add more on a pull back.

So IF we had a 3-5% down move any time in the next 50 days, the May and June trades would profit very nicely. I’ll continue to put on Rhinos for July and onwards as we go and when we do get that pullback, we’ll be sitting well.

We’re four months into the year and have no profits but given the market conditions and just how bad they are for this type of trade, well, I guess I can’t complain, these sorts of conditions are incredibly rare. I feel a lot of pressure to have the trades perform but I think it’s most important to focus on trade management and risk than it is to try to force anything. The trades can handle an 8% move within the time period but they just can’t really handle 22% moves well in general (especially when we’re whipsawed around). I don’t think anyone managing these trades appropriately could have done well in those periods. Even our March expiry trade would have done extremely well if RUT just moved 8% up instead of a straight shot to 1070 from 940. So essentially, our March expiry did slightly negative, our April expiry did slightly negative to break even and now our May expiry is approaching break even while our June expiry is ~2.2% negative. Not a great year.

Here’s the RUT chart that I am looking at:

My thesis is that we’ve run up too quickly to adequately break the downtrend line and maintain a sustained break of the 200SMA. If we get up to RUT 1145 and hold for a day or touch 1151, I’ll have to rejig all the trades. That’s my plan. IF we get any sort of pull back, I’ll be adjusting on way down to get things balanced for any potential bounce.

Apr 18 – Trade Update

The market is now very green. I’ve heard that this is the strongest up-move since the great depression bounce, especially in the RUT. To start the year, we had a 22%+ decline (from 1200 to about 940) within a very short period followed by a 22% up move, again in a very short period (strongest in history) and preceding those two events we had the Aug 24 crash and THAT subsequent huge move up. I posted the SPX graph earlier, note that the RUT chart is much more pronounced and extreme. As you can imagine, this is the most frustrating 6 months imaginable for trading market neutral strategies. It can, hopefully, only get better. I’ve heard in groups and chats that many people have given up (frustrated) and I’ve felt like that at times recently too. I understand the environment is extreme and it’ll pass so I am trying to just manage risk and get out of this thing profitable – Easier said than done. If you backtest the Rhino back 7 years and you backtest it through the latest period, you’ll see that it truly has been a terrible period to trade these things. The RUT is now at 1134 (nearly 200 points from its Feb low) and nearly 22% up in 2 months our June trade are underwater and our May trades went from decent profits to about break-even or slightly above. If we get ANY pullback of 2-3% in the next 20 days and don’t rise too much above 1134, we’ll be profitable for the year. If we continue onwards and upwards, we’ll be negative by some amount. Again, its short-term pain but as volatility re-enters the market and if we are at any sort of top, that’s when we’ll start making a lot of money in the trades. It’s not unusual to get 8-10% returns in the Rhino if we’re under the tent. A few of those and we’ll be at expected value for the year.

June Rhino M3 Trade Update

Been a while. I’ve been traveling and when I get back its insane catch-up mode and I always tend to leave this blog behind,regretfully. I just got back from a 3 week trip which included a week in Barcelona, 2 weeks cruise in the Canaries and Madiera as well as a quick stop over in London and Toronto.

The trades for June are underwater as the relentless 22% rise in RUT is exactly an environment which does not allow a Rhino to profit much. Been a frustrating year but no mistakes were made and the trades are behaving exactly as they should, they just aren’t profiting. That’s expected. If you look at the SPX chart (RUT is even more pronounced!). It’s an environment which in backtesting or in live, will not make money and should be slightly negative. That’s where we are. In June (as you can see below) any 2-3% pullback will bring us well positive. Just a patient waiting game. The year will end well, I am confident in that as I don’t think we’ll have another 20% run up, and anything else is great 🙂

I was hoping the unsuccessful DOHA and the Saudi threat of selling treasuries would bring the market down more than 1% this AM but it doesn’t look like that will happen. Today, I am looking to add some call BWBs to my June trades to reduce negative deltas and add theta and a tent to the right side of the trade.

This chart says it all, this is just not an environment (since Aug) that would be a good one for market neutral trades. It’s, in fact, probably one of the worst. Patience is key. I am trying to exercise it.

Rhino M3 Trade (M)

I’ll be looking to add 20x 1100/1150/1180 call BWBs to this trade to reduce negative deltas

Rhino M3 Trade (D)

I’ll be looking to add 10x 1100/1150/1180 call BWBs to this trade to reduce negative deltas

Rhino M3 Trade (P)

looking to add 20x 1100/1150/1180 call BWBs to this trade to reduce negative deltas

Mar 27 – Traveling Trade Update (Rhino)

Been traveling and haven’t had time to update the blog. When I travel, I am in constant catch-up mode with both my business and monitoring trades. It leaves little time for this. I’ve been in Barcelona for 6 days and we get ready to board an 11 day cruise tomorrow to hit Tangiers and the Canary Islands.

The April trades are making some headway despite more challenges in the market. It’s just not cooperating. Through out the week I adjusted the trades more and more conservatively without market opinion so that I had the best chance to recover while maintaining solid theta and lower risk deltas. We enter next week with a slight delta negative thus a downside bias. We’re not fully recovered YTD but I am happy with the result. The market moves have been historic and extremely difficult to trade with market neutral strategies. Nearly all the market neutral traders I know (even the “gurus”) have posted losses in the March and April expiries. I mean, what the hell, we started the year with a 22-24% decline in the RUT within a few weeks only to have an absolute epic up move that is a record in its ferocity again in a few weeks. It’s been unrelenting in each direction. It pretty much moved from 1200 to 940 in a matter of days and then moved 18% from 940 to 1105. This all somewhat happened during the April and March trades which were the only ones active this year. Our result? Somewhat negative for the year but if we have any normal decent range bound market, I am talking about like what we’d have 95% of the time, then I’ll start to crush. Handling an absolute nightmare and being down only a little bit is exciting and a testament to the rhino resiliency.

I’ve got great trades setup in May for both the SPX and RUT as well as June for the RUT. Any semblance of a normalized market should get us well profitable in the next month. The market is like a bull in a pen, after it moves a bunch, it tires. We should see less pronounced moves. I’ve got a lot of downside hedges active (very cheaply) and should be covered on most large down moves. I’ve also got some upside hedges using mechanical stock picking to help ease any more upside moves.

Mar 16 – Rhino Trade Updates

Making serious headway with the P/L of the April trades which is nice. I won’t stay in them past Mar 28 and I am eager to close them at break-even and happily call the month a wash. The May trades will do very well if we can have any sort of pullback in the next 3-4 weeks.

So happy to be done with this looming Fed meeting. They are not raising rates today (as expected—>they always telegraph this!) and they’ve lowered the number of raises in 2016 to two from four. The RUT is basically unchanged after the meeting. I neutralized the trades and added some more upside hedges on Monday which I could have gotten a better price for on Tuesday. I also converted my bearish butterflies to M3s as I just had too much upside risk across the portfolio.

I am traveling to London, Barcelona, Canary Islands and Morocco in the next 3 weeks so I can finally add more to the travel section of this blog.

Mar 11 -April Trade

We have 37 DTE and the trade is sitting way outside the main tent. I’ve built up a tent on the call side that helps but the risk vs rewards here are starting to get unattractive. I’d have a much much better T+0 in a May trade. That said, I think as the market gyrates through the next week, I’ll adjust by removing large portions of the trade and getting the risk profile more attractive to conclude the month. It may mean we won’t recover everything in April trade but we will make up for it in a solid May trade (with the capital we would have had in April).

The worst of three is posted below. I have a strong theta, but any move up will hurt and all my profit zone is 6% lower in the tent which is not likely with the fed meeting coming up (things will likely range until then). So I just can’t see much odds for a recovery in this trade vs just unwinding it to a more attractive smaller position and move those funds into a May trade.

Mar 10 – May Rhino Trade Initiation

Here are my three Rhino May trades. I initiated them bit by bit through the last week or so. I think they’re all setup and I probably won’t add much more..

I’ve got some Bearish butterflies on and some new cheap hedges to protect on any downside.

Mar 10 – April Rhino Trade Update

The RUT has resumed its downside move and is @ around 1061. This is positive for our trades, it gives us a ton of upside breathing room while maintaining good theta and even a large correction would still be profitable. Lots of room on each side, though we are in the sea of death on one of the accounts. The sea of death is that little dip area between my original Rhinos and the call hedges. In this area the T+0 line will start to sag as time goes on. Ideally we have another 2-3% down move to get us in the tent. I am going to look at how I can correct this a bit. On my bigger account, the goal is to break even and we’ll do this if RUT stays in a decent range and we’ll profit significantly if it falls another 3%. On my other two accounts I should be able to profit decently unless RUT breaks 1105 and continues upwards. All in all, we’re now likely to have a modest month overall with no loss despite the 16% up move after we put the trades on around 950-960. I guess I shouldn’t jinks myself but I am happy if we get out of this at $0. That was a rough start to the year. A 20% correction followed by a 16% up move while in both expirations. Challenging and probably what I’d call a “Trader maker” if you can survive it.

Mar 8 – Rhino M3 Trade Update

Finally, we got some semblance of a pull-back (-2.5%). It’s what I needed but still I could use another 1-1.5% 🙂

I adjusted in two lots, one at the beginning of the day and one towards the end. When we were at around 1075-1077, I felt it responsible to start adding some call BWBs and some calendars at the beginning of the day. I then added in some more ATM rhino’s to add theta to the trade. I then removed some of my very most bottom Rhinos towards end of day. I obviously wish I adjusted everything towards the end of the day but with the way RUT was moving, I didn’t want to take the risk. The down move allowed us to recover a bit and I added more theta into the trades. Tomorrow, I’ll continue to get the trade more neutral and in a good place for any upcoming move in any direction. I am probably about half way to break-even now on the trade from its lowest point. We’ve got 2-3 weeks and a lot of theta. Crossing fingers. Hopefully we can end the month break-even on a 16% up move.

Looking at May trades tomorrow as well.

Mar 7

Good read below: Update from Jim Rickards

http://us10.campaign-archive2.com/?u=bab7d5ebc117a80098fe99529&id=ce073921d4

Fed Fischer just gave a speech at 1PM citing that “We may be seeing the first stirrings of higher inflastion,” the immediate short-squeeze ended and everything reversed. Let’s hope this is the start to the much needed pull-back. Patiently waiting.

I saw a bearish butterfly alternative on our Skype group today from Ron Bertino:

SELL -10 VERTICAL RUT 100 JUN 16 880/840 PUT @2.00 LMT CBOE
BUY +10 VERTICAL RUT 100 JUN 16 980/960 PUT @2.90 LMT CBOE

I liked the risk profile so I put a tranche on:

I have to take the over-bought levels as an opportunity though my other trades suffer. This adds theta and its got a June expiry so it gives us some good room to the upside.