2018 Incident Report (Part 3)

Today I continue with an unfinished July 2019 draft evaluating my 2018 trading performance.

—————————

These possibilities aside, one thing I can do is have a system for when I get into trades and when I stay out. Maybe I use something like the STFS and never enter when the trend is going against me. Maybe I use a simple pivot system and only enter long (short) at a buy (sell) signal. Maybe I watch the price for a time period and enter a limit order that seems reasonable based on recent trading activity. While none of these ideas will guarantee I get better fills, they would all provide some objective framework to follow. If nothing else, at the end of a trading session I could say “I followed my plan.” Ultimately, that may be the most important thing anyway.

Related to Goal #3 is a thought I’ve had about day trading futures. This would give me extended face time with the market and help me to become more comfortable watching. Trading futures can also hedge my option portfolio if I am trading the trend while having theta positive option positions in place.

Trading futures may also help me find some “co-workers.” I’ve had one heck of a time finding serious option traders around. I might fare better finding futures day traders since “day trading” seems to be a stronger buzzword than “options.”

In addition to having a defined approach, all of the above would require me to spend more time looking at the market. This brings me back to Goals #1 and #2 described previously.

With regard to the worst sales pitch ever, here are some ideas I have for potential trade indicators:

1. IV % increase (consider closing if IV has increased 30-50% when the position is losing money)
2. Option price (regardless of M/S, I’ve found level of comfort and strength of discipline to be inversely proportional to option price. Delta may be a confounding variable as higher-priced options move faster in terms of gross amount)
3. Distance OTM (some efficient frontier exists between moneyness and days to expiration. This may be hard to define but I know it exists)
4. Number of contracts (I dare not call this “position size” since other things play into the latter like notional risk, PMR, etc. I may look to change my trading to a fixed number of contracts per month rather than a dynamic approach where I trade every day despite the DD improvements enjoyed by the latter from time diversification. PMR is proportional to number of contracts)
5. ATM IV:10-delta IV (the idea here is to take note of vertical skew. A steeper skew may or may not be the time for me to be in the market: need further testing. Another approach could be to monitor delta X% OTM. This would change with DTE. I may have 12 data points per year, however, and it might [not] be useful to determine a percentile rank for where the current ordered pair fits into the whole distribution)
6. Technical analysis. While I won’t believe in untested strategies, I may be able to specify criteria for entry, to stay out, to add new positions, or to sit on my hands. Things to watch could include trend direction (e.g. 8/34 crossover, price closing above/below 5/20/200-SMA, slope of 50-SMA), $TICK strong or weak (tags of +/- 1000), etc.

I will continue next time.