Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

Welcome to the Ann Arbor Algos

I wrote this back in April 2012 but it never got finalized. I did post it on Meetup.com without any success. This group concept is different from those discussed here or here because trading system development is the primary focus.


I have seen a number of Michigan investing/trading meetups over the last few years and inevitably, most of them ultimately fail.  In some cases, the organizers just gave up. In other cases, the organizers were for-profit entities electing to move in new directions to market their wares.

I am an independent trader in search of other independent traders without any commercial interests. My hope is to form a small group of traders working together to develop trading systems.

This group is for a very specific type of trader. You should:

     –Be knowledgeable about trading strategies.

     –Understand why a trading strategy does not necessarily make for a trading system.

     –Be practiced at critical thinking.

     –Have experience working in groups.

     –Be willing to purchase AmiBroker (www.amibroker.com) and data as desired.

     –Have AFL programming expertise and/or be willing to spend time learning the language.

     –Have trading strategies available to be systematically tested by the group.

     –Have hours available every trading day for project-related phone calls and e-mails.

     –Not think this will be a place to steal profitable ideas without contributing anything of your own.

     –Not be looking to enroll our members in your educational company or investing service.

     –Have a general understanding of what system development entails.

My hope is to find 3-10 investors/traders to work together on this project.  Please contact me if interested or sign up at http://www.meetup.com/Ann-Arbor-Algos/.

RUT Weekly Calendar Trade #15

On July 21, I bought a JulWk5 1255 calendar for $7.37.

With the market trading lower near the expiration breakeven, I rolled half to 1230 on July 24 for a $0.50 debit. This cut NPD from 18 to 3-4.

Less than four hours later, the market was at 1227 so I rolled the other 1255 calendar down to 1235. This was a mistake: I should have rolled to 1230 but it really did not make a difference. I now had a 1235/1230 double calendar to be closed either at 15% loss or if an expiration breakeven was hit.

Shortly after the open on expiration Monday, the market traded under 1213. I closed the double calendar for a max loss of 19.4%.

They say in trading, one has to be able to accept losses. This is now three in a row.

From a few who are now supposedly in their second year doing this trade, I hear it’s not out of the ordinary to have three consecutive losses once or twice per year. I’m trying to give this trade a fair shot so while now bordering on apathetic (not good) with regard to my outlook for this trade, I will keep plugging away.

RUT Weekly Calendar Trade #14 (Part 2)

Today I conclude discussion of weekly trade #14.

Around 11:05 AM ET on expiration Tuesday, the market dropped quickly from 1255.80 to just under 1255. I did not really want to roll the second 1270 calendar to 1255. Because the trade had only 2+ more days and because I might be down over $100 on expiration Tuesday with a max potential profit at expiration of $400 or less (usually closer to $1000 at trade inception), I did not want to roll the other 1270 to 1255. I was guestimating on post-adjustment max potential profit. I find it difficult to model these positions and track the PnL. It was the heat of the moment too.

A couple minutes later, RUT sank below 1253 and I placed an order to close (not roll) the 1270 for $6.70. By 11:10 I had caved $0.50 and still was not filled. I wondered whether I should even be trying to chase at this point because: RUT had breached the lower BB (I’ve really learned this is a bad time to trade but it’s when my emotions run hottest compelling me to trade). Also, I noticed the bid/ask on the calendar was close to $3.60. If I waited then the market would calm down, bid/ask spreads would narrow, and I’d get a better fill. I therefore canceled the trade.

As the market drifted a bit lower, I felt I just had to get the damn thing off. I put in a 4-legged order for the remaining double calendar and caved $0.40 over 2+ minutes. I got filled 0.10 off the then mark for a loss of $74 (4.71%) with the market at 1252.37.

At 10:00 ET on expiration Thursday, the JulWk4 1255 put calendar was trading at 8.40/9.60 at 10:00 ET. By 11:30, it was 9.36/10.27 as of 11:30 ET. I would have gotten the full 10% profit had I rolled the second 1270 calendar to 1255.

Once again, I failed to follow the trading plan. The trading plan says nothing about how I feel about a trade, where the BBs are, how wide the bid/ask is, etc. This time, as previously discussed, what should have been a winner was closed at a loss.

This trade was a big confidence zapper.

RUT Weekly Calendar Trade #14 (Part 1)

On July 14 with the market at 1269.25, I bought a 1270 calendar for $7.35. I got filled $0.10 off the mark.

Adjustment points were 1258 and 1283. While I felt it was not fun being back to narrower breakevens, last week’s trade with wider breakevens lost!

The market traded sideways for a few days but trading down to 1260 on July 20, I had to roll to 1255. I did not like only getting an additional five points but modeling the 1250 showed significant sag that would make the trade implausible. In retrospect, now with only a 15-point range, this trade itself may have been too narrow and implausible. A slight breeze is all it would have taken to force a second adjustment.

When I looked at the risk graph before market open on Tuesday (July 21), the expiration curve was much lower. That held after the open, too. I think this was more a subjective perception than anything else, though. I had a bad attitude about this trade from the very beginning because of the relatively narrow breakevens. TOS also makes it hard to determine exactly where the red [expiration] curve is at times on the risk graphs because they can vary from moment to moment. In retrospect, I noticed the 10:30 graph looked more pumped up than those earlier in the day. Unfortunately, I feel this negative attitude factored into my trade management.

I’ll conclude discussion of this trade in my next post.

RUT Weekly Calendar Trade #13 (Part 1)

This trade was placed on July 7 around 11:10 ET for $8.40 with the market around 1230. This is the most expensive calendar I had bought to date. That could be viewed as a sign to keep out of the trade in case elevated IV were to subsequently mean revert. A positive horizontal skew was poised to benefit this trade, though, as was seen with trade #12.

I found myself in a quandary on Friday with the market four points from the upside BE at 1254.

According to plan, on a continued move higher I should have adjusted to a double calendar. With real money on the line and facing the reality that a big upside move could land this trade down $250 or more at Monday’s open, I ended up closing half the trade.

This is why trading is difficult. Given the Greece referendum/vote on their financial crisis, I felt I had to act defensively. I figured if the market pulled back in such a way that I could have taken full profit but then couldn’t because I already closed half the trade at a big loss, I would be frustrated. It almost seemed irresponsible to leave on the entire risk or even to try centering the trade as a double calendar given a “market-related earnings announcement” being due over the weekend.

The market did indeed move higher on Monday and I closed the rest of the position at 9:45 with the market around 1261. This trade lost 16.2% in seven days.

RUT Weekly Calendar Trade #12

On June 30, 2015, I bought a 1250 calendar with the market right around that level. I placed the order $0.05 off the midprice and caved $0.10 over two minutes.

My contingent order to close triggered around 1 PM the very next day with the market at 1251.67. The trade made 10.2%.

This is the first time I have seen such a positive skew on the trade. Simply reverting to a normal horizontal skew would have probably hit the profit target; that may have been precisely what happened.

As testament to the horizontal skew, the breakevens were over 55 points apart at trade inception!

RUT Weekly Calendar Trade #11

On June 23, 2015, I bought a 1290 put calendar for 6.65 with the market at 1291.57.

My contingent order to close triggered at 3:11 ET on June 26 with the market at 1281.1. The market traded mostly sideways over the four days:

This trade made about 10% profit.

Weekly Iron Condor Trade #5

On July 1, 2015, I placed my fifth weekly iron condor trade. I placed this order $0.025 off the midprice (10:57) and caved a nickel two minutes later (filled $0.05 off the then mark).

Unlike the last JulWk2 trade, which should have been JulWk1, this position progressed without incident. The market drifted lower and volatility increased but this trade is negative delta at inception so that is okay.

This position made 5.4% in eight trading days.

Weekly Iron Condor Trade #4

On June 24, 2015, I placed my fourth weekly iron condor trade. I placed this order at the midprice (10:41) and caved 0.05 over three minutes (filled 0.10 off the then mark).

The market fell 2.5% over the next five days, which forced me to close the put spread for $2.20. This trade lost ~9%.

I found this trade disappointing because I do not consider 2.5% to be a large market move. This is one or two big down days or perhaps even one really big down day. Volatility definitely hurt me as VIX increased from 12.16 to 17.62. The market was 60 points away from my short strike at trade exit. I could have remained in the trade but another big down day could have halved my margin of safety and forced me to close for a larger loss, etc.

Debating the pros and cons of particular option trades can always be done. No right answer exists. If I hold on longer then I win a greater percentage of the time but my average win/loss ratio is worse.

Bottom line: I have my trading plan and I’m sticking with it. This is most important. I want to understand how this trade does over the long-term so I don’t want to try and optimize any one trade. For any single trade, I can always point at one or two things that would have markedly changed the outcome. This is unfair and unrealistic, though, because making the same tweaks of all other trades would have an impact on them, too… and not all for the better.

Having said all this, I do need to address one trading error. This trade should have been placed in the JulWk1 series but I placed it as a JulWk2! This might be significant as I would expect vega to be higher with more time to expiration.

At trade inception, I found vega to be about -45 for both. Delta was more negative for the shorter-dated position but theta was greater as well. A quick backtest revealed a similar outcome either way.

Weekly Iron Condor Trade #3

On June 17, 2015, I placed my third weekly iron condor (IC) trade. I placed this order $0.025 better than the midprice at 10:56 and caved $0.05 after one minute (filled at the then mark).

The market traded up over the next few days but then pulled back, which allowed the trade to expire worthless.

This position made 5.4% in eight trading days.