Prudent and Rational

This post may also be read at: http://www.cboe.com/blogs/options-hub/2017/12/26/prudent-and-rational

Going back to December 4th, I left off in the middle of the day and promised to be back soon and detail the trading for the remainder of the day.  Though time has passed, has SVXY been doing anything different?  Have stocks been doing anything other than more of the same (new all-time highs) and has VIX been doing anything other than pedal like a bicycle between 11 and 9 and back again like the rising and setting of the sun, reliable and repetitive?  VIX nearly reaching 12 (a big spike, these days) on December 4th enabled me to have a little fun in the afternoon before bringing in all my chips and doing a final tally.

Follow the numbered steps and note the timing, down to the minute, that was required to bring in a few dollars on this ship-in-a-bottle.

 1. At 11:25 in the morning, I sold short a modest mess of SVXY at the price of 114.05.

2. At 1:13 and 32 seconds I bought calls for the 115 strike, December 8th expiration, for 2.75 each in a quantity to match the aforementioned mess plus the disaster-sized portion I planned to sell short immediately after purchasing these.

3. At 1:13 and 58 seconds (pretty close to immediately after the above step), I sold short 2.5 times the quantity I had originally sold short, this time at the price of 115.38.  If you are good at algebra, and if you knew my final basis, you could probably compute the quantities.  Anyway, I now had a landfill-sized mass of short SVXY at an average price per share of 115.00 even.

4. Way before the end of the day, at 2:45 and 48 seconds, I sold to close the calls for 1.94 each or translated into the multiplier of 100, that's $194 against my $275 buying price, or a loss of $81 per contract.

5. Nineteen seconds later at 2:46:07, I covered all shares at 113.75, or a $1.25 profit per share, coming out to $125 profit per block of 100 shares.  My net profit equaled $44 per block of 100 shares.

Why did I do any of the above?  Well, obviously, I was trying to capitalize on some downtrend in SVXY when I sold short mid-morning.  When, an hour later, it appeared obvious that I had mis-timed my short, I decided to get trader's revenge by doubling (plus) down.  But this would be an unwieldy amount of short shares. To limit risk I bought calls so that, should disaster strike and SVXY rise to the moon every day the rest of the week without stopping, I could cover at the same price I had sold shares short by exercising the calls.  My cost would be the total cost of buying the calls.  So, I bought calls at the 115 strike and then rolled up sleeves (kidding; I was working so fast there was no time to roll up sleeves) and shorted the appropriate additional number of shares less than 30 seconds later.  Funnily, without trying to achieve this down to the penny, when I sold the new shares at 115.38, this averaged out with my original shares to produce a new basis of exactly 115.00.

Now I had a small country's GDP worth of SVXY short and protective calls to match that risk.

After a nice trip down the stairs around 2PM, and not being clairvoyant, I decided to exit the whole set of obligations (referring to the shorts) and expensive privileges (referring to the calls). It looked like I could sneak out without anyone realizing I had cut a city-block corner by going in one revolving door and out the other and in between, had been lucky enough to see cash sticking out of the lobby trash can.  I played with fire and escaped being burned and decide to get out while the gettin' was... well, possible.

Of course, seeing the rest of the day unfold made me wish I had left the shares uncovered a little while longer; outrageous victory would have been mine.  But notice that hike up right before the tumble down the mountainside right after I exited the position:  Could I have withstood the red ink on those shares, had I dispensed with the calls and just held the shares naked?  With SVXY touching 114 and a half compared to my 115 basis, and having just taken a calculated loss by ditching the calls, I'd say NO.  Since I had booked an $81 per contract loss on the calls, I couldn't close my shorts for less than a 0.81 difference, or I'd go from gain to even to loss faster than a one-minute candlestick can form.  114.50 from a 115.00 starting point would put the whole deal solidly into money-losing territory, and how could I know how much higher SVXY would climb?  This illustrates the necessity, in the prudent and rational side of my mind anyway, of being disciplined enough to close the whole trade out at once, or at the very least, watch it by the second if choosing to go naked-and-reckless.

With the calls sold at a loss and the shares covered at a gain bigger than the call loss, I declared the day a success, resolving that I wouldn't play with dangerous quantities of volatile securities again, at least until the next day.

Click the Crypto to profit

This post may also be read at: http://www.cboe.com/blogs/options-hub/2017/12/06/clicking-on-cryptocurrencies

I'm not normally a multitasker, but let me tell you, when procrastinating, I can really do it.  Last night, while doing some boring but necessary tasks on the right screen of my desktop and wanting some mental stimulation on the left screen to liven up my evening, I logged into my gemini.com account and starting clicking around.  First of all, anyone wanting to know how easy it is to trade bitcoin or ether may be assured that it could not be more streamlined.  I believe my cat could do it.  Hey - wait!  While I was in the kitchen, who sold for that price?!?  Just kidding.  The truth is that some crumbs must have been present on the keyboard recently and my dog "helped" by cleaning up and at the same time, adding a bunch of new people on Twitter.  (Joke there, too, about the unsavory Twitter contacts - but it could happen!)  Keep pets away from your keyboard to ensure you are the one making the trades.

Everyone loves Bitcoin, but it so happens I wanted to vanish into the ether last night.  Let me explain how I set my account up: Online, by filling out some fields and providing some proof of identity, and it took just a few minutes - I was shocked at how fast I was up and running.  As to how I funded it: The simplest way you can imagine, by transferring (via ACH bank transfer, although you can also wire) funds from my checking account.  In my case, $400 cash was sitting there (more like $402 and some change after having done some trading earlier in the fall).

Here is what I did last night as an exercise, challenging myself to simply buy, sell, buy, sell, and bring my account up by at least $1 each time.  Of course, the greater purpose everyone (including myself) would have in mind would be to trade more or less frequently than I did, pay more attention to entries and exits, and maybe increase the size of trades in order to get better returns for the effort.  For my purposes last night, though, I wanted to pay the least amount of attention possible to my left screen while I did other things I had to do, and demonstrate to myself that in a semi-automated fashion, I could pull a few dollars out of thin air.

Let's get right to the buys and sells:

To simplify things greatly so we don't get bogged down in math, the fees for these trades were running about $1.01 apiece, so my goal was to set my sell prices $2 or so higher from my buying price, to allow for the fee and some profit.  Then I'd turn around and set a limit order to buy at a few dollars lower than where I had sold - again, to allow for a fee and to get in lower.  "Buy low, sell high."

Of course, after buying, if I saw nice high prices, I would go ahead and get one instantly, rather than set a limit order and walk away.  Previously I had used market orders exclusively, but last night I learned the advantages of limit orders.  Currency moves fast, and it's not inordinately risky to examine the current bid/ask pool and set a limit for something that seems within reason at the moment.  Very frequently the fill comes sooner than you'd think.  Unless unloading a position at a certain juncture in time (like, immediately) is critical, setting a limit order is a valid/convenient method.

As you can see in the detail above, I raised my account in steady $1 increments by hitting the sell button only four times most often using my simple formula of , "What did I buy for?  Add $2 and set a limit order to sell for that."

Gemini allows users to download spreadsheet data and here is a sample showing the above detail in a different format:

One transaction appears different than the others and it's only because it was split into two; this must have been some kind of internal accounting and was visible only in the xls data and not on the user end as it does not affect anything I do.  In viewing the transactions, you can see that whether I chose to end in cash or in ETH, my value increased:  Greater cash value, greater ether balance.

If you are interested to see what the trading screen looks like, I have captured one; see below.  I believe you may have to click to expand it, since it's too large to display in full detail in this column.

In this screen capture you can see:  My open limit order at the very bottom, and if you look at the trades competing to execute you'll see mine at the next-to-bottom line.  On the right is a series of alerts informing me of current status of my account and open and executed or cancelled (if I were to cancel one) trades.  The tabs at the top confer the ability to transfer funds (linking a checking account makes it easy to electronically transfer or wire money in or out), and obviously to buy and sell.  Upon clicking buy or sell, the pull-down bar offers a few options - choose one and you're good to go.  In this case I was using buy ETH with USD and sell ETH for USD.

I decided to leave my account in cash overnight, since I didn't want to take the chance on ETH declining while I held it.  I think I could have sat up all night and traded, but people have to sleep some time.  I'm not putting down people who play games, but I simply cannot relate to wasting my time collecting the bananas or blowing up the imaginary island.  I witnessed (in the reflection I could not avoid seeing it) the person one row ahead of me on the train the other day playing solitaire or some other move-the-cards game for the entire 40-minute ride.  If I am going to be clicking and scrolling, I want the prize to be some money.  I find great motivation in the prospect of advancing myself financially, especially when I can do it with nothing besides my brain and a display.

For more detail on the trading platform, see this shot of a trade I placed this morning:  A limit order to buy ether using the total amount of USD in my account (this is the way I placed each buy order) at a price no higher than 443.77 (thus, it's called a "limit," since that's the top limit of what I agree to pay.)

I outlined my bid in yellow.  I placed the bid under the current, but just a penny over the next guy in line behind him.  Very soon it was filled, and note that while I had been working with a quantity of ether in the .87 to .88 range last night, I now have 0.91358172 ETH.  I'm currently waiting on a sell order to bring my account up yet higher.  Then I'll set a limit order to buy lower.

While these amounts gained are small, my point in performing this exercise was to make sure I'm well familiar with the platform (and there's nothing to it, so the warm-up is almost instant), experiment with low-effort strategies to generate return just by riding the waves of bid/ask prices, and gain insights into buying and selling habits that may enable me to move larger amounts around for greater gain.

Don't trip over the dip

This post may also be read at: http://www.cboe.com/blogs/options-hub/2017/12/06/don't-trip-over-the-dip

Not sure what everyone else was thinking/doing/cursing about during Friday, December first's Big Dipper, but it just so happened that I had set up something I expected to be far less exciting than it turned out to be.  On what I thought was just another regular, normal, tired-bull-run morning where every day is approximately exactly like the one before, I had paid for expensive insurance so that I could play a little game and take my chances on picking up some goods.  I paid admission so I could spin the wheel, in other words.  Sure, I could have done it without paying, but I wanted a guaranteed exit, should the game go south.  I hoped I would not have to use my exit ticket, and that I could sell it to someone else.  Actually, my real hope was that the ticket would burn to wispy ashes and float away in the wind, with my shares rolling so far downhill that no one remembered why they liked that security, ever, in the first place.

As pictured, on what seemed like a do-nothing, experience-no-fun regular old day, I sold shares of SVXY short at 9:45AM at the price of $111.10, and then at 9:50AM bought the appropriate number of December 8th 111 strike calls to protect those short shares at a price of $3.80 each.  This means I spent $380 for each block of 100 shares of SVXY sold short.  The worst outcome to me, after a week, would be that I'd lose the full value of the calls, exercising them to cover the shares at just ten cents less than I had shorted them for, and my profit on the shares would only offset my loss by $10 per contract.

Imagine the expression on my face when returning from the bathroom or somewhere to see the purple bars.  Although watching them intently and intensely, I didn't catch the ideal profit.  I had to make a judgment call on whether the move might continue or might evaporate completely, and I exited at a place that really, only I could rightly criticize.  This is because I criticize myself irrationally at times; I wish I caught the bigger profit, I wish I got the lowest tick, I wish I profited x1000.  But...  for a trade intended to last a week, that could have lost $370 per contract, it wasn't such a bad way to spend an hour.  I bought SVXY to cover at 104.57 and then recovered $2.00 per contract by unloading the calls on some willing buyer. Tallying it up, $180 was lost on each contract and $653 gain was booked on each lot of 100 shares.  Set them against each other and it came out to +$473 per group of 100 shares shorted.

Later in the day (see inset) I snacked on some pretzel stix... oops, I mean TVIX, by shorting at 7.94, then covering at 7.88, and later shorting again at 8.00 and covering during the last minute of the regular trading session at 7.79.

Traders don't say "TGIF," they say "TGIM" and like a kid asking "Are we there yet?" I wasted time reading tweets and drinking coffee until the market opened today, December 4th.
 
Second trading day of December, and everything feels funny.  It's the perfect kind of day to go hunting for some money. Okay, I promise - no more rhymes.  They're way more fun to write than read.  Let's go ahead and contrast prudent caution / reckless greed.

Discarding and ignoring all the online, news story, and water cooler (if I ever got near a water cooler) chatter I'm sure took place over the weekend (let's consider some of that to be coffee pot chatter, as I chattered to myself in my own mind near my own coffee pot), I decided to do a little intraday top-calling.  Let the charts tell the story:

Not one to wait and watch for too long, I took a clean shot at the tires of the bandwagon that all the Twitter bulls were boasting about so hard that their coat buttons popped and put each other's eye out.  It was as if they had accomplished this gap up by their own cocksureness; to listen to them was to need to clutch a bucket.

SVXY short from 114.66 hit my account in a quantity I really shouldn't be dealing.  So I bought the other side by plunking down $266 per lot of 100 shares in the form of December 8th 114 calls. This way SVXY could go parabolic and I'd know my maximum possible loss, which would be $2.66 per contract minus $0.66 profit on the short if I ended up exercising those calls to buy to cover, or $2.00 per contract translating to $200 per lot of 100 shares. Of course, I hoped I'd slink my way out of this one, too.  Well - soon enough, some action got started and I counseled myself into admitting to myself that a profit right away is better than a possible loss situation every day from now until Friday.  Computing that I could book a nice profit by closing the whole deal out immediately, I thought about that but instead decided to get my unwanted chaperone out of the way by paying him to leave and go bother someone else.  Taking only a $66 loss per contract, I disposed of the calls for $2.00 each.  Now I could let my short shares run.  Tell me: Wouldn't you want to, having shorts and looking at a chart like that?

Well, having forgotten that I had saved the above graphic, I made a new one just now with information repeated, except you can see the trajectory of SVXY for the remainder of the day and the ugliness of the chart with the yellow stop-set line gone (as, once again, I returned from momentary absence and experienced outrage to see that my stop had hit.)

Note how nice and neat that turned out (and I didn't plan it that way, but orders were filled for slightly better than my limits.)  Having lost $0.66 per contract on the 114 calls, I knew I could take a profit as small as $0.66 from my shorting start point of $114.66 and break even, so I simply set my stop on quote for $114, knowing it would execute for some price a few cents above or (probably not) below that trigger.

In hindsight I wish I had taken the fat profit staring back at me as I set the stop.  But none of us know which way the ticks are going to go, and this time they made somebody else's dream come true.  If you think I just sighed and said, "Oh well..."  Well, not quite.  "Trader's Revenge" for me means looking behind door 2.  The next post will detail the remainder of the afternoon of Monday, December 4th.