Managing risk; Strategy review - Weekly summary (July 29 - Aug 4)
I've realized a couple of things:
I am really bad at cutting losses, and managing risk.
Those are the two things I believe that are stopping me from being consistently profitable.
I tend to lose all my profits and more on one or two bad trades.
Typically, it is because I failed to cut losses on time, OR the position simply jumped way too fast before I could do anything.
So, I have decided to adjust my position sizing on everything...
First, here are the trades for the past week:
Opened #
| Ticker | Action | Type | Date | Expiry | Sell Strike | Buy Strike | Premium | Qty | Fee | Net |
|---|---|---|---|---|---|---|---|---|---|---|
| QQQ | open | BCS | 2024-07-30 | 2024-08-30 | 471 | 473 | 0.960000000000001 | 1 | 2.13 | 93.8700000000001 |
| SPY | open | BCS | 2024-07-30 | 2024-09-20 | 566 | 569 | 0.88 | 1 | 1.41 | 86.59 |
| SPY | open | BPS | 2024-07-30 | 2024-09-20 | 507 | 504 | 0.22 | 1 | 1.41 | 20.59 |
| SPY | open | BPS | 2024-07-30 | 2024-08-09 | 530 | 526 | 0.42 | 1 | 2.1 | 39.9 |
| CSCO | open | Short Put | 2024-07-30 | 2024-08-09 | 47 | 0 | 0.22 | 1 | 1.05 | 20.95 |
| IWM | open | BCS | 2024-08-02 | 2024-08-23 | 215 | 216 | 0.37 | 1 | 2.11 | 34.89 |
| QQQ | open | BCS | 2024-08-02 | 2024-08-23 | 458 | 460 | 0.9 | 1 | 1.42 | 88.58 |
| SPY | open | BCS (IC) | 2024-08-02 | 2024-09-20 | 551 | 554 | 1.14 | 1 | 2.12 | 111.88 |
| SPY | open | BPS (IC) | 2024-08-02 | 2024-09-20 | 511 | 508 | 0.58 | 1 | 2.12 | 55.88 |
Whole bunch of trades from Option Alpha "trade ideas". Still on the fence of whether this strategy will work o not.
Reduced size of weekly SPY trade, as mentioned above. Naked put on CSCO again.
Closed / Expired: #
Other trades #
| Ticker | Action | Type | Date | Expiry | Sell Strike | Buy Strike | Premium | Qty | Fee | Net | Profit/Loss |
|---|---|---|---|---|---|---|---|---|---|---|---|
| QQQ | open | BCS | 2024-06-17 | 2024-08-16 | 500 | 505 | 1.41 | 1 | 1.42 | 139.58 | $97.48 |
| QQQ | close | BCS | 2024-08-01 | 2024-08-16 | 505 | 500 | -0.4 | 1 | 2.1 | -42.1 | |
| QQQ | open | BPS | 2024-06-17 | 2024-08-16 | 450 | 445 | 0.54 | 1 | 1.41 | 52.59 | $3.48 |
| QQQ | close | BPS | 2024-08-01 | 2024-08-16 | 445 | 450 | -0.47 | 1 | 2.11 | -49.11 | |
| PG | open | BPS | 2024-06-25 | 2024-09-20 | 155 | 145 | 0.55 | 1 | 1.4 | 53.6 | $25.50 |
| PG | close | BPS | 2024-08-02 | 2024-09-20 | 145 | 155 | -0.26 | 1 | 2.1 | -28.1 | |
| MRVL | open | BPS | 2024-07-24 | 2024-09-20 | 60 | 55 | 1.04 | 2 | 2.82 | 205.18 | -$248.23 |
| MRVL | close | BPS | 2024-08-02 | 2024-09-20 | 55 | 60 | -2.26 | 2 | 1.41 | -453.41 |
- Closed Net Profits/Loss: -$121.77
Another losing week. Damn.
At least it wasn't a big loss.
Notes and Lessons #
Market has suddenly become very volatile and bearish. Good for selling options, but also bad if you already have a bunch of bullish positions (like I do).
I am going to start adjusting my strategies this month.
Maybe, will also abandon some that are not doing so well.
Risk control / position size #
First, I am going to reduce maximum risk for every trade to around 1% of portfolio size.
My portfolio has been stuck at $30k+ for a really long time (it should be $40k+ right now, but I kept fucking up). That means my MAX risk per trade should only be around $300 (i.e. 1% of $30,000).
For long term trend strategy, I will set risk to around 3% since I only make one trade per month on those.
I am still mainly just selling spreads, so I will simply make the risk equivalent to the width of the spread.
For example, if I'm selling a bull put spread, then the spread can only be around $4 (e.g. sell 100 put, buy 96 put). Depending on the premium received, my max risk will be $300+ (i.e. 100 - 96 - premium).
By reducing the width of the spread, I also do not need to constantly monitor my positions to cut losses when things spiral out of control. I just let it die.
Before, I was selling much wider spreads like $5-$10. I thought that I could simply cut my losses when it hit my max loss, but I was never able to do it because I was mentally weak, or the price just spiked up/down too quickly.
Strategy review #
I am also reviewing my strategies.
My most profitable strategies so far have been weekly SPY, and MSFT strategy.
This is mainly because the market was in a great bull run for the past 6-7 months. Not sure how they will perform in a bear market.
My long term trend strategy has not done so well; mainly because of a couple big losses I took on MCD trades (it actually recovered after I ate the loss, FML). If I don't include MCD, it has been mildly profitable so far.
I have removed MCD from the trade list because I realized it doesn't have enough option volume, and bid-ask spread is too big.
My original stochastic/trend/support strategy has been quite unprofitable so far. This is due to not being able to cut my losses on time, which results in some HUGE losses.
I will give it one more chance using my new position sizing.