Planning My Next Meetup [hopefully not MIS] Adventure (Part 8)
Posted by Mark on August 19, 2019 at 06:52 | Last modified: March 14, 2019 14:29Further deliberation over the promotion for this Meetup still leaves me skeptical.
I could therefore try for something more to the point:
In 2002, I got my Doctor of Pharmacy degree and began work as a retail pharmacist.
For the last 11 years, though, I have been trading options full-time out of a home office. One
thing I miss is my patients and co-workers, and I have had little success finding other
advanced traders with whom to collaborate.
Since I can’t find such traders on my own, perhaps I can help to create some. For those who
have been interested in learning to trade and invest for yourselves, my challenge is your gain.
Welcome to the Michigan [Index?] Option Trading Workgroup.
The goal of this group is to present some basic option income strategies and to practice them
repeatedly until we feel comfortable employing them in personal accounts (if so desired).
I am happy to teach what I know. Beyond that, there’s still plenty for all of us to learn.
I strongly encourage data science practitioners along with programmers and statisticians to
look into this group. Beyond practicing individual trades, I have more advanced research
planned that can really help to develop existing strategies for live trading. In exchange
for expertise, this group can teach you the ins and outs of option trading and
self-directed investing.
Cost for this group will be $12/month, which should cover group expenses. In addition,
you may choose to buy or lease third-party analytics software to study/track simulated
positions. We will talk about ways to do this without purchasing software, however.
Spots will be limited. You should be highly motivated and able to commit regular time to
this group. Those with the technical expertise described above will be given priority
[free] admission. With regular participation and diligent effort, I expect those who
participate can become capable option traders within a relatively short period of time.
Please answer the profile questions and send contact (phone or Skype) information
when you join. Before we begin, I want to make sure the group is as good a fit for you
as you can be for the group.
Thanks, and good trading!
Categories: Networking | Comments (0) | PermalinkJames Cordier: Tragedy or Laughingstock? (Part 2)
Posted by Mark on August 16, 2019 at 06:50 | Last modified: March 5, 2019 11:19Last time, I began telling the catastrophic fate suffered by clients of James Cordier and his service OptionSeller.com.
We don’t know the full story, and most articles and/or comments I have read on the matter have failed to acknowledge this. “Illini Trader (IT),” from my last post, claimed Cordier made 60% the year before IT first looked into investing with him. Their stated target was 20-25% p.a. so longer-term investors may have still come out ahead despite the events of Nov 2018.
Appropriate client allocation would also put a totally different spin on the situation. Allocating a small fraction to Cordier’s firm would have been a responsible thing to do, and we can hope all/most of the 290 investors did just that.
Appropriate disclaimers to ensure clients knew in advance what they were signing up for would have facilitated appropriate allocation. Cordier should get off scot-free if he gave clients my “worst sales pitch ever” (see second paragraph here). He needed to be absolutely clear in explaining this as a high risk/high reward situation that could leave them in negative territory (being separately managed accounts rather than a hedge fund). Accepting only accredited investors might further bolster Cordier’s defense from damaged investors.
We simply do not know what took place beforehand. This puts us in a strained position from which to judge.
I have since decided that Cordier is just a business and not worthy of our tears. He previously worked under a different name (why?) and he’ll probably work this space again (unless found guilty of mass deception?). Depending how much he has earned in the past and built up in savings and investment, it’s hard not to think that he’ll be fine. Indeed, some viewers have criticized his gall in wearing a Rolex watch while giving a tearful apology seen in the video.
I want to make one final comment about leverage.
Some gurus have criticized Cordier’s excessive leverage, but I don’t think that is specific enough to be meaningful. I can sell ten 2700/2600 vertical spreads for $100,000 gross risk. I can also sell one 2700/1700 vertical spread for the same. The former can easily get wiped out whereas the latter is very unlikely to be.
In Cordier’s case, it was specifically the futures leverage associated with his total number of contracts that resulted in catastrophic loss. The total number of contracts generated a huge drawdown that triggered a margin call. Selling fewer contracts NTM could have prevented this occurrence (see fourth paragraph here).
Categories: Option Trading | Comments (2) | PermalinkJames Cordier: Tragedy or Laughingstock? (Part 1)
Posted by Mark on August 13, 2019 at 06:57 | Last modified: March 2, 2019 11:14Today I want to discuss the title of this post.
To give some background, James Cordier and OptionSellers.com director of research Michael Gross co-authored three editions (last in 2014) of The Complete Guide to Options Selling. The book discusses the potential rewards of selling naked options and tells investors they can produce consistent results with only slightly increased risk. Cordier has also advocated the approach in articles published in Futures magazine and Seeking Alpha.
Unfortunately for Cordier and his investors, natural gas experienced a Black Swan event in November 2018 that led to more than complete losses for his 290 clients (totaling over $150,000,000 per one lawyer’s estimate). He published a video apology on YouTube discussing his mistake. The video was taken down soon after, but it was reposted by others. As of this writing, you can do an internet search for “James Cordier nat gas video” to find it.
My initial reaction to the video was horror and sadness. I walk around with constant awareness that I could lose everything on any given day. This is one reason I am so grateful (see first paragraph here) for what I have and why I would be so hesitant to trade other people’s money with some of the same strategies I have employed for myself. This has been discussed (see second paragraph here).
On the flip side, some outspoken commentators have been heavy on criticism in viewing the situation entirely different. Financial parties on Twitter were very “I told you so” about what they called an exceedingly risky option strategy lacking proper hedges to make such a collapse “inevitable.” One macro hedge fund founder blamed Cordier and his investors. He claimed the strategy to be one where you slowly make money until you eventually blow up with the probability of total loss being “fairly significant.” He believes Cordier “took advantage of guys who didn’t know any better.”
Retail investors usually don’t know any better, which is why they hire professional money managers (for better or for worse).
On the Elite Trader investing forum, “Illini Trader” (IT) dissected the day-by-day progression of natural gas (NG) prices and concluded Cordier’s catastrophic loss did not have to be.
IT first claimed communication with Cordier eight years previous while working for a different firm. Cordier then indicated closing positions upon reaching 1x loss (i.e. down the initial credit of the trade).
Fast forwarding to 2018, with NG closing at 4-year highs the week of November 9, at 3.724, IT observed the position was probably around 1x loss. November 12 took NG to 3.935, which certainly would have triggered 1x loss. Even on November 13 with NG closing at 4.072, Cordier had plenty of opportunity to close the position. Holding to the next day when the parabolic move took NG to 4.93 is what sealed his fate:
> He chose to jump in front of a freight train hoping it would stop.
> IF he had only followed his own rules he would still be in business.
I will continue next time.
Categories: Option Trading | Comments (1) | PermalinkPlanning My Next Meetup [hopefully not MIS] Adventure (Part 7)
Posted by Mark on August 8, 2019 at 06:58 | Last modified: March 12, 2019 14:58Propelled by some serious writer’s inspiration, I want to take one more stab at this option trading Meetup proposal.
For 11+ years, I have traded options full-time for a living. I work independently and trade only my account without the help of a financial adviser.
Over the years, I have searched high and low to find others like me with whom to collaborate. You could say I miss my pharmacy patients and co-workers. Whatever it is, the struggle is real (see here, here, here, and here).
Since I can’t find similar traders out there, perhaps I can create my own. If you have been interested in learning to trade/invest for yourself, then my challenge is your gain.
Submitted for your approval is the Michigan Self-Directed Option Trading Syndicate (MSDOTS).
The first goal of MSDOTS is to teach option trading strategy. You can pay several [tens of] thousands of dollars on trader education programs. One thing I have learned is the most critical lessons will not be gained from any such class no matter how much they charge. I will present several commonly-employed strategies in addition to discussion about why the more exotic strategies may offer no added benefit. We certainly do not need to reinvent the wheel.
One thing we must do, however, is stick with said strategies and repeat them over and over. The second goal of MSDOTS, therefore, is to practice. I will present ideas on how we can make this happen in simulated (paper trading) accounts and collectively study the results. Working together will give you the support and accountability necessary to trade real money in your personal accounts if so desired.
The final goal of MSDOTS is to research. I want to further develop related option trading strategies. To that end, I have written an entire automated backtester research plan. In order to accomplish this, I need people with data science and/or financial engineering expertise (e.g. working with spreadsheets, programming, and statistics). I have basic skills in some of these areas, but I need more to carry it through completely.
For the initial attempt, I want to limit MSDOTS to 10 people. No experience is required as long as you are motivated and committed to learning. Advanced traders, who may be able to work with me as content contributors, are also welcome. Preferential selection will be given to those with data science/financial engineering expertise as discussed above. I strongly encourage women to join as well. Much has been written about how trading/investing has traditionally been a male-dominated endeavor (see here, here, here, here, here, here, and here), and I would like to do my part here to challenge the status quo.
If you join, then please schedule a voice call for further discussion. Once we have enough people, I will arrange the first Meetup where we will structure activities.
Thanks for your interest, and as is often said in these circles, “good trading!”
Categories: Networking | Comments (0) | PermalinkStatus Update
Posted by Mark on August 5, 2019 at 07:54 | Last modified: January 30, 2019 10:16Today I will detail my current tasks and projects.
I want to do more butterfly backtesting, but I’ve found this extremely cumbersome to do in OptionVue, which drains my motivation in a hurry.
Instead, I will go back 12-14 months and start backtesting several different strategies.* I will track various parameters in a spreadsheet and generate equity curves for the whole portfolio. The goal is to see what is working and to try and get a sense how they perform together.
Strategy #1 will be the NP. I will sell 1 SD NPs (if backtesting alone, then I would do one contract per day to minimize margin or concentration concerns). I will close at 2x. I will watch for IV increasing by 30% or first backwardation in 30 days (arbitrary) as a signal to hedge (e.g. close half the position). Exit at 21 DTE.
Strategy #2 will be a 16/25 IBF. Consider requiring UEL to be no more than 5% LEL (arbitrary). Watch for IV increase of 30% or first backwardation as signals for potential exit or adjustment. One potential adjustment is to buy LP to cut NPD by 67% on a 1.6 SD (arbitrary) or larger downmove. I will close LP on a move (close?) above the high of the entry candle. If market falls and remains outside BE for three days (arbitrary), then close trade. Profit target 10% with max loss 15%.
Strategy #3 will be a monthly ATM calendar. Profit target 10% with max loss 15%. I can adjust into DC if market moves to BE (or down 7% on the trade).
Strategy #4 will be a 30-64 DTE ATM straddle. As above, I will monitor for IV increase by 30% or first backwardation as signals to hedge (e.g. close half the position, neutralize delta, close puts). Exit at 21 DTE.
Strategy #5 will be a 1 SD strangle. As above, I will monitor for IV increase by 30% or first backwardation as signals to hedge. Exit at 21 DTE.
Strategy #6 will be a LP unbalanced IC per my guidelines.
Each strategy needs to be allocated appropriately (perhaps 10% of account for 50% total). While diversified with regard to time, they are not diversified with regard to underlying and they are all delta neutral (or bullish).
In addition to backtesting, I want to pursue leads at both U of M and MSU. Once the move is complete, I should be more focused and able to concentrate my time in one place.
I will continue trying to assemble a trading group, as I have discussed.
Finally, I will once again look into ONE as December approaches because my OV subscription will expire.
* I initially wanted to backtest daily trades on four strategies, but this really makes for a
headache. I tried entering the respective trade ID for each strategy in OptionVue, but it
defaults to “all” upon every refresh. I also find there to be too much stuff to monitor
on each day: 20-30 trades per day per strategy and multiple parameters on each trade.
If I want to get a sense of trading a portfolio together, then the best way is probably
to keep it to the six open trades at a time. I can get decent portfolio diversification
by opening positions for each strategy every 4-5 trading days.
Planning My Next Meetup [hopefully not MIS] Adventure (Part 6)
Posted by Mark on August 2, 2019 at 07:24 | Last modified: January 28, 2019 06:02I will conclude the mini-series with this post to muse about a couple loose ends.
On January 25, I spoke with someone who has connections at the business school. I told him I have interest in forming a group to research, discuss, and teach option trading (see here). I said this would be great information for business students. He gave me a couple names and asked me to let him know if I have any trouble making the connections.
I need to be clear about my endgame in order to take these steps forward.
I have many research questions in need of answering to further my own personal trading. I can’t believe everything I see on TV because people get things wrong (see past blog mini-series here, here, and here). Long-time readers will recognize this as one of my fundamental theses (it’s #2 here). Doing this research should give me the confidence required (see second-to-last paragraph here) to stick with trading systems through challenging times (third-to-last paragraph here).
Others can certainly benefit from this research along with me. Many conclusions will be clear to all, and different individuals will draw further conclusions particularly meaningful to them.
The additional piece I would enjoy throwing into the mix is time spent teaching. I tutored math in high school, and I have often thought that in another life, I was probably a math teacher. This would absolutely fulfill that desire: nothing selfish about it. I don’t want to change the world (probably couldn’t even if I tried), but people have a ton to learn when it comes to options (e.g. mini-series here and here) and from what I have seen, the old-school financial industry isn’t helping much.
On a different note, Michigan Option Traders—while not a complete misadventure—was my group that did not last. In the second paragraph here, I discussed issues I had with the other experienced trader in the group and thoughts about failing to discuss losses in general.
My advanced-level compatriot never talked about large losses, which should have occurred due to volatile markets at that time. I interpreted this as a reflection of inflated ego. You can only get lucky so many times. Over the years, I have often heard things like “I wasn’t around in August 2015 because I was on vacation” or “I didn’t trade in February 2018 because work was too busy and I had scaled back.” Survivorship bias may explain it: those stepping forward to present successful trading are those lucky enough to have missed the rough markets. I do not pretend to have missed them (e.g. here and here) and I think most pretenders will eventually meet their maker and [all too often] disappear from the landscape altogether (third-to-last paragraph here).
While perhaps a slight oversimplification, as an innocent bystander the trader services/education landscape appears to be different strategies pitched by a relentless march of traders who are either lucky enough to miss ugly market environments or who have (inadvertantly?) inflated performance by curve-fitting measures.
Categories: Networking, Trader Ego | Comments (0) | PermalinkPlanning My Next Meetup [hopefully not MIS] Adventure (Part 5)
Posted by Mark on July 30, 2019 at 06:42 | Last modified: January 28, 2019 05:55After further review, I like the Meetup proposal I wrote last time. One concern is that its intensity may scare people off. I discussed this in the paragraph following the first excerpt here as well as the third-to-last paragraph here.
Another possible approach is to lighten it up by leaving specifics for an initial orientation meeting. I would then be using the website to get people in the door for a detailed PowerPoint (?) presentation. I might also be able to do some screening at the orientation by going around the room and having people answer a couple questions about what stokes their interest, past experience (if any), and available time for group work.
I can imagine one potential downside being attendance only by people for whom time and place is convenient. I can try and offset this by crafting an alluring pitch to encourage sign up. I can also offer the orientation different times in varied locations. Since the bulk of our activities will be online (something to explain at the orientation but not on the website per paragraph #2 of Part 4), I don’t want geographic distance to rob me of potential group members.
Here’s a rough draft for a revised Meetup pitch:
A pharmacist by training, I have been trading options full-time for a living in my own account for the last 11 years. I have been happy with my overall results, but I aim to be better.
Such is the motivation for the Michigan Option Trading Work Group. The purpose of this group is to teach option trading strategies and to develop option trading systems.
I believe this group has lots to offer beginner and advanced traders, alike.
Regardless of experience level, this group needs people who will participate on a regular basis. Those planning on lurking in the shadows and gleaning pearls of wisdom will not be welcomed.
This group also needs people with spreadsheet, programming, and/or statistical expertise. Data analysis and backtesting will be cornerstones for our trading system development.
In return for your participation, I hope to deliver substantial education about the fundamentals and intricacies of option trading and investing. Nobody can guarantee profitability (see SEC website), and I will not be trading for you. However, if the content discussed and activities pursued do not help you understand self-directed investing on a whole new level, then I will truly consider the group to have failed.
My vision for this is like no other trading group I have seen in 15 years. Since prediction is an endeavor that sees professionals fail time and time again, we will spend little time discussing events pertaining to world economies or debating stock selection. Instead, we will spend our time planning actionable trading strategy to prepare us for whatever the market throws our way.
The sentence in bold is debatable. I think it is honest. If I want to make this more enticing, then perhaps I leave it out. On the other hand, perhaps leaving it in will give people more confidence by preventing them from misinterpreting the group as being something it’s not.
Categories: Networking | Comments (0) | PermalinkPlanning My Next Meetup [hopefully not MIS] Adventure (Part 4)
Posted by Mark on July 25, 2019 at 07:26 | Last modified: January 23, 2019 13:38After some effort, Meetup finally admitted that my group idea does not fit their guidelines.
Nevertheless, their ambivalent tone (first sentence of this first excerpt) makes me think the opportunity exists to start a group with some caution. I want to avoid obvious red flags such as the phrase “online work group” (see sentences 3-4 of excerpt just linked). I will avoid charging a large upfront fee (see here), which might be viewed as a product sale. I will omit reference to a selective interview process and small number of members, which may suggest limited revenue for Meetup.
The time has come to compose a rough draft of what I have in mind:
The purpose of this group is to teach, to analyze data, and to develop option trading systems.
We will teach through use of simulated trades that we design and monitor. We will couple our observations with discussion and analysis. We will rinse and repeat. By practicing a finite number of option trading strategies over and over, my goal is to become comfortable with common approaches that can be used to invest real money for those interested in doing so.
Lots of ideas from financial professionals and investment gurus sound good, but I believe the only way to understand what has truly worked is to analyze the data. I have many research questions that cater to spreadsheet analysis. If you have spreadsheet expertise and want to learn about investing, then this group is calling your name.
Development of option trading systems–the third area of focus—will depend on available programming skill in the group. I have specifications for what I seek in an automated backtester. I also have a detailed research plan. Results from this backtesting will help us to create (modify) the simulated trades mentioned two paragraphs above and offer a much broader context than following one trade after another in real-time. If you have programming expertise and are interested to learn about option trading, then this group is calling your name, too!
Advanced option traders can benefit from this group. You’re only as good as your last drawdown. To that end, you probably seek improvement just like I do. As an experienced trader myself, we can discuss various facets at a very high level.
Beginners can certainly benefit from this group. I could never guarantee profitability, but I can promise the potential to learn a great deal about the fundamentals and intricacies of option trading and investing. The information from this group will be shiny arrows for your financial quiver(s).
Regardless of your experience level, I want all members to participate. As I think back across the many trading groups I have attended over the years, most members lurk in the shadows with the hope of gaining free knowledge for themselves. In this group, even beginners can participate through things like daily trade tracking and/or data collection, monetary contribution, or IT support. I want us to be a community—a team of which everyone is an integral member.
And let me reiterate: if you have expertise with spreadsheets and/or programming, then I want you! We can do beautiful work together, and you can walk away with the skills to become a self-directed investor. Few can escape the fetters of the financial industry (i.e. AUM fees, expense ratios, etc.). This group has the potential to provide those essential tools.
My vision for this is like no other trading group I have seen in 15 years. Since prediction is an endeavor that sees professionals fail time and time again, we will spend little time discussing events pertaining to world economies or debating stock selection. Instead, we will spend our time planning actionable trading strategy to prepare us for whatever the market throws our way.
Categories: Networking | Comments (0) | PermalinkPlanning My Next Meetup [hopefully not MIS] Adventure (Part 3)
Posted by Mark on July 22, 2019 at 07:32 | Last modified: January 21, 2019 10:53Following my e-mail posted last time, Meetup responded:
> Hi there, sounds like a great potential group! Many groups
> cover metro areas, and not just a single city. Meetups should
> be offline and in real life. but online meetings are okay as
> long as they’re not the majority of the group’s events.
I was really describing multiple metropolitan areas (Ann Arbor, Detroit, and Lansing).
> Perhaps you could have a Slack group for your online
> correspondence and use Meetup to access our community
> and gain new members, and plan in-person events?
I replied:
> Thanks for your input.
>
> From what you describe, though, would this be acceptable for
> Meetup? The purpose of this group is to learn and/or help each
> other with their trading by working together on trades. Trading
> really lends itself to screen sharing, screenshots, and other
> things that can be posted on something like Slack, Yahoo! Groups,
> etc. Most of our regular work would therefore be online. The
> Meetups would perhaps be quarterly to allow us the chance to
> visit in-person those people with whom we work every day. My
> hope is that Meetup can bring us together in the first place.
Meetup replied:
> While we’re not able to offer specific advice or coaching on
> creating on your group, we recommend closely reviewing our
> Meetup Group Policies to ensure when you create your group it
> adheres to… [our] guidelines…
>
> Once you submit your new group, a member of the Community
> Experience team will review the group for approval.
I felt like we were once again miscommunicating as described in the first paragraph of the excerpt here. Their initial response (second paragraph, above) clearly expressed a conflict, but they seemed to be encouraging me to go forward regardless.
I responded:
> I’m not looking for advice or coaching. I’m trying to figure out
> if my group meets your guidelines. You wrote, “perhaps…
> [use]… a Slack group for your online correspondence and use
> Meetup to access our community… gain new members, and plan
> in-person events?” That is exactly what I would like to do.
> However, the previous paragraph says “online meetings…
> [cannot be] the majority of the group’s events.” That is
> problematic since the group would mainly be a daily online
> work group. Occasional in-person events would also give us
> the opportunity to meet face-to-face people with whom we
> have been doing daily work.
>
> I’ve been attending Meetups for over 10 years and I see
> Meetup as the perfect tool for this. I looked at your
> Standards document, though, and saw: “Be Local. Meetup
> is intended for building local community. Meetup should
> not be used primarily for scheduling online meetings,
> conference calls, or WEBINARS ACROSS GEOGRAPHIES…
> Meetup’s features should be used to build the group’s
> capacity and create opportunities for meaningful connections
> within a local community.” [emphasis mine]
>
> That also suggests this would not be a viable Meetup. As
> mentioned in my initial inquiry, I feel the need to cast a
> wider geographic net to find the few people who would really
> be interested/benefit from a group like this.
Meetup replied:
> The focus of a Meetup group would be in person interactions,
> and at least 50% of the interactions should be local and
> face to face.
Finally, a resolution! Meetup is not a direct solution for the kind of blended (online and face-to-face) group I wish to create.
Categories: Networking | Comments (0) | Permalink