Tag: spy/tlt

Both the momentum and SPY/TLT trades are now closed for good. We’re left just with protector alpha and the modified iron condors.

I closed the SPY/TLT pair trade for -14.4% for February and +10% for March. Those aren’t terrible results for the amount of volatility present in TLT and SPY during those months. Not to mention that SPY/TLT both fell for a while there in late Feb/early March. As well, TLT was up 11% in January and fell the same in February, that’s a lot of volatility for treasuries. It’ll be the last official pair trade for a while.

The momentum portion is also now closed at 0.25% profit. I don’t leverage this and its not attractive for me at this time. I like to use leverage with low-volatility strategies that have low max draw downs. Owning any equity unprotected is just too much risk for me 🙂

This months MIC is up 2.4% so far and I typically leverage it about 3x.  The previous month I did 5.7%.  I took off 14 1180/1200 debit spreads yesterday.

The protector Alpha is up about 1.4% for the year including the hedge.  Spy is up about 1%.  We’re outperforming the broad market AND we’re 100% hedged. Good result indeed.  My expectation is that this will chug along and end up 10-15% for 2015. I leverage this at 7x usually so it’s up about 10% for me on the year.

On that note, what do I expect going forward?

I expect to do about 3.3% a month on the MIC and an average of about 10-15% a year on the Alpha protector. I leverage the MIC about 3x and I leverage the protector about 7x.  So with leverage I expect about 10% a month on the MIC and about 7.5% a month on the protector. This is the return on the actual equity I have invested. My position and take on leverage is this: If I’d normally invest 250k in some strategy but I can do it with leverage and have only 50k tied up, then why would I tie up 250k?  First, I determine my max draw down that I’d be comfortable with and then I put the least amount of money I need to work to achieve this level of risk/volatility.

As an example:

Let’s consider the protector. Let’s say I am comfortable with a 100k draw down and I figure that this is the MDD on 1MM of hedged equity.  I first must accept that I will likely have a 100K draw down at some point in time and be comfortable with that. Next, because I have portfolio margin, I figure out how much cash I need to put up to achieve that goal and I put the least amount down as possible which, for this example, is roughly 150k at 7x leverage.  Now I have 1MM worth of exposure at 150k and I am comfortable with the likelihood of a 100k draw down. It’s a concept that Scot bilington built into his optimum fund at Covenant capital. That’s a 66% draw down on original equity!  That sounds crazy but it isn’t IF you’ve put down 7x less than you normally would have.

With the protector, I am comfortable with a max draw down and while I don’t suggest other people use this amount of leverage, it can be quite useful when handled with absolute care. I do it because I understand the draw downs and the risk and I can afford and stomach the swings.  When you leverage the protector at 7x, you can expect 25%+ draw downs mark-to-market. With the MIC, if you set a 7% max loss, you’d have a 21% draw down.

As for the travels:

Tomorrow we hit London for a night, followed by Toronto for a night, then the final destination – Grand Cayman!

 

~P

 

 

Looks like a bad day a’ brewing for the markets.

I spent the last few days sick in bed really contemplating my plan going into this week. Having read a lot of really good analysis (like the one I posted earlier),  I planned on adjusting quite a bit on any bounce move with the presumption of another leg down. I did just that, not in such a way where I was trading discretionary but in a way to start moving towards getting out of several trade types I no longer want to to do and to position my overall portfolio in an appropriate way (overall deltas etc).  I am feeling pretty good on this huge gap down today.  I had entered a small amount of April TLT/SPY about 2 weeks ago, I closed out the majority of that yesterday having become sick of the trade and having taken advantage of the bounce in SPY and I also closed off all but maybe 3-5% of the March SPY portion (a small handful). I also adjusted and rolled my protector/anchor spy appropriately.  All in all, feel like I used all information to weather this small correction.  We probably got the TLT/SPY March trade down to a manageable 15% loss as compared to SOs 41% loss!

The April MIC is obviously affected by volatility right now but we’re managing the trade like a boss. I had entered 15 debit spreads yesterday on the bounce to get the delta closer to about +10. Today I entered another 15 on the fall (I definitely over paid a bit this AM  but it was falling fast). I paid 7.00 for 1200/1180s with RUT@1208.5  It’s now 1209.23 and the MID is 6.80.

Current Greeks

Delta: 23

Theta: 83

Vega: 370

The trade is currently positive by about 1%.

Soon come, I’ll probably just be managing protector and MIC trades with the occasional earnings trade.  Keeping it simple.  Keeping it rule based. The SPY/TLT trade is out for me as is momentum. Don’t get me wrong though, momentum based strategies (or trend following) is a very very good strategy,  a place where 99% of the population should put their energies. I put a shit ton of time into learning about it, read about 5-6 great books, been following and listening to a lot of great podcasts etc. It’s got its place but I am a leverage guy, I like to leverage and I can’t sustain even minimal draw downs.  So it’s just not for me.  I’d highly recommend it to just about anyone that, well simply put, is not me. I leverage, I manage and I understand risks. It’s got buy and hold crushed. You’re getting 14-16% returns and you’re getting max drawdowns in the 12% range. Rotational momentum strategies is the place to be if you’re a regular investor/trader who wants to do minimal trading (once a month.  The momentum strategy I followed would rotate between the top 3 of the following ETFs

TLT, VNQ, LQD, GLD, VEU, VWO, IVV, VB, IEF, DBC, BWX, JNK, IJS, IVE, EFV

I stole this from Steady Options. That’s the idea of the returns of the above trend following. 14.55% avg CAGR with a 9.47% Max draw down over the period.  It’s solid.