Luke's Trade Journal

Discussion in 'General Discussion' started by Luke, Mar 9, 2017.

  1. Luke

    Luke Well-Known Member

    Hey guys,
    This is my first post here. I just came over from another forum that's kind of dried up on the options training and that's what I'm looking for. The short story of where I am now is that I'm done gambling with options and I'm pursuing a more balanced risk management approach and taking some directional trades to supplement the delta neutral, theta positive trades. I am definitely still in the learning phase, but I'm now learning with live money, which I've been trading now for about two months. That's not including the 13+ years of options "trading" where I experienced some wild swings and some great highs and big lows, but I forced myself into paper trading and now I'm back to live trading.

    The purpose of this thread is to solicit feedback on trades I'm putting on, prompt discussion and/or questions about my developing style as a trader, and help to keep me accountable. I've learned a lot from KevinS and I'm on this site because of his prompting. Two things I've heard him encourage us to do is develop and stick to a trade plan and document your journey. This is my attempt at that. I won't post everything up at once, but I'll add my trades and will post trades I'm thinking about testing or backtesting and I will always appreciate feedback and discussion on the trades.

    Mods: If this thread belongs somewhere else, please let me know. Anyone else who's reading this, I encourage you to journal also and please be active in the discussions.
    David C. and kevins like this.
  2. Luke

    Luke Well-Known Member

    Weekly SPX Hot Sauce Trade 3/24 cycle
    Inception: Trade opened 3/8/17 @ 14:42
    Direction of Trade: Neutral, with slight bullish lean at open - BE@EXP is 2336 & 2393
    Trade: <7 day SPX Iron Butterfly, 2 contracts - 4 wide to upside on one with shorts centered at 2270, and 7 wide to the downside centered with shorts at 2260. $23.90 in credit, resting order in at $21.51 for 10% prior to commissions
    Max Capital: $9220 in use, max of $14,000 (margin)
    Target Profit: $400 if reached by Friday, would like to target $500-700 but can scale out or close all at once if target is reached
    Max Loss: $1000
    Plan: No adjustments, will seek to close when +$500 profit is in the trade, but will take around $400 if reached before Friday. Will hold 7-10 days +/- 2 days to see how the risk looks. Generally expecting some range bound trading getting down to 2350 and up to 2385. Guideline is to close the trade if it closes above or below the BE@EXP levels.
    Comments: This is a hot sauce trade, which I a name I picked up from KevinS. I've learned that it can go well or go bad pretty quickly, but it's best to just scalp off a bit as soon as possible and close the trade. Kevin has used the term "Gamma risk" which I don't necessarily know what it means, but I do know that it means you can make or lose profit quickly, so this trade is kept on a short leash and I prefer to close it 2-4 days after opening and taking 4-6% profit (before commissions). I generally open this trade on a Wednesday and target 15-18 DTE. Sometimes I center the shorts on the ATM call/put, sometimes I do two Iron Butterflies shorts centered ATM on one and either 10 points above or below the ATM. Wings are 4 wide on the calls and 7 wide on the puts. I've also used 5 wide on calls and 10 wide on puts, but I'm going to keep that trade separate and stick closer to the two variables mentioned on this trade. This very well may be another trader's strategy, so please let me know if you've seen it and what other aspects of the trade you've seen.
    Chuck likes this.
  3. Luke

    Luke Well-Known Member

    RUT Unbalance Iron Condor 5/19 Cycle
    Trade opened 2/28/17 @ 15:10
    Direction of Trade: Relatively Neutral, bullish leaning profit zone at open - BE@EXP is $1325 to the downside & full upside protection
    Trade: 45-55 day Unbalanced Iron Condor, 1390/1400 calls & 1340/1320 puts 10 contracts
    Max Capital: $9450 net in use ($20,000 margin)
    Target Profit: $1000 if reached in the first two weeks. Will put resting order in but I think this trade has $2000+ in it.
    Max Loss: $250
    Plan: No adjustments planned, but will seek to close when +$2000 profit or if $1000 is reached in the first two weeks. The trade has no upside risk and will make $550 @ EXP for anything above $1397 and a good profit window between 1397 and 1330, which is just below last support levels. Will close if 1330 is touched or breached. This trade needs some room to work and shouldn't be over-adjusted, but there is a possibility of moving the structure down if the cost isn't too high and the profit is worth the risk, otherwise shut it down.
    Comments: This is a bit of an exploratory trade for me. I was looking for a way to create a trade that had little to no upside risk and a profit window below the market, since I thought the run as getting a bit tired and needed to pull back a bit. Not sure if a full $2000 is in the trade, but that's what I first targeted when I built the trade based on what OptionVue seemed to indicate was a potential if I would hold hit out into mid April. We'll see if I go that far and stick to the plan, or adjust as I go.
  4. Luke

    Luke Well-Known Member

    COST April BWB
    Trade opened 2/24/17 @ 14:45
    Direction of Trade: Neutral, with bearish leaning profit zone at open - BE@EXP is $155 & $164, max loss is $25 @ EXP
    Trade: <45 day Broken Wing Butterfly, 5 contracts - 5 wide to upside and 10 wide to the downside, shorts at $160.
    Max Capital: $2439 in use (margin)
    Target Profit: $200 if reached in the first week. Will put resting order in. If price moves down substantially after earnings, I'll look to take $400+
    Max Loss: $75
    Plan: No adjustments, will seek to close when +$200 or $400 profit is in the trade, but will watch as earning are announced on 3/2.
    Comments: This trade is a couple weeks old today and has been hovering around $200 in profit, but I've decided to let the theta decay and see if price comes down a bit more or where it starts to find a range. I put this trade on expecting a move down and wanted to build a profit zone below the market, although I didn't really care if the market went up, down, or sideways, I just wanted to find a delta neutral, theta positive trade while taking advantage of the high implied volatility prior to earnings. I built this trade on the call side since the skew was more in my favor and required less capital, but not sure if puts would have reacted better to my view of a pull back after earnings. Will test this and seek to find similar trades to duplicate this type of strategy.
  5. ACS

    ACS Well-Known Member

    Luke Gamma is a measure of how quickly Delta changes with movement in the underlying. At The Money (ATM) options usually have the most Gamma and it tapers off as you move away. Gamma also changes with time; increasing as you get closer to expiration. This is why a 7 day iron condor/butterfly, where the options are close to the market, is a high Gamma risk trade. Of course it is also a high Theta trade since Theta tends to behave like Gamma and why almost all strategies that generate Theta will also be negative Gamma.
  6. Luke

    Luke Well-Known Member

    Thanks, ACS. I think I understand the definition, but not sure I understand it in practice except that because these trades close to expiration already have more negative gamma when I enter them, I have to keep them on a short leash.

    So the main point is, the closer to expiration, the more negative the gamma is, and that will cause the P&L to move up or down more quickly because the trade is more sensitive to price movement in the underlying.
  7. LukeTheDuke

    LukeTheDuke Guest
    I'm resurrecting this thread to get back to regularly taking screenshots and journaling my trades. I have updated the RUT trade (I learned the basics from Kevin S. as the T3, but I'm seeing it's pretty much an M3). I'd like to get feedback on the situation I'm in. I opened the trade with 13 butterflies as opposed to 10 because it gave me a better T+0 line and slightly bearish delta. The risk chart looks fine, but I modeled peeling off 3 of the butterflies and I almost pulled the trigger on it because I like that it gave me good upside protection over the next 7 days or so. I chose not to because I still have negative delta and I think there is support between 1350 - 1340 and that should help me out if we get down there, then I'll likely take off a few.

    Is there another way to pull off margin and protect against a move up or is there anything else to consider when taking offer three butterflies? Doing so today would have brought my delta from about -38 to -9, taken off some gamma, and taken about a third of my delta, which ultimately is why I chose not to just yet. Any thoughts or guidance here? I'm still a newbie trader here just finding my way...

  8. status1

    status1 Well-Known Member

    Just out of curiosity how did those trades work out ?
    Were you able to stick to the plan and achieve your objective ?
  9. LukeTheDuke

    LukeTheDuke Guest

    Each of those trades worked out well. I stuck to the plan and each was profitable. The earnings play on COST was a guess on which way the market would go after earnings, so I decided I would not keep trying that one because I don't think I should make a regular habit of guessing. Not bad, but I don't think I can make it an income trade.

    The RUT IC also worked out well. 32 days in the trade and closed for $1400 profit, which was 15% of capital and about 7% of margin. The trade would have been a fantastic trade, easily would have made my target of $2000 and I could have scaled out to make more, but I convinced myself that "I'll never go broke taking profits."

    I have not built another similar trade because I didn't really understand it. I just built that trade looking at the Greeks and coming up with something relatively delta neutral (it was positive 9 at open with protection to the upside and most of the profits zone underneath). It was a shot that was lucky, I cut out early convincing myself i was protecting profits, I made up the plan, so I decided I could change the plan because if I make the rules I should be able to adjust them and a profit is a profit! (In other words, I am an emotional trader and watch P&L way more than Greeks).

    I also didn't find a lot of material on trading ICs so I figured if no one is really using that as a primary income trade, there must be a reason why. I'm so new to the complex options strategies that I figured I should focus on the butterflies with hedges or BWB since that is the most common in the forums and the videos here (plus I read about people getting slaughtered with ICs in '08 and big moves down and I have been a perma-bear since 2010...).

    The hot sauce trade has been a steady trade for me. I am considering cutting it from a 2 lot SPX to a 5 lot SPY because this will not do well with a big move in either direction. I am trading it hands off with a resting order to take profit and alerts if BE@EXP is hit and then close or watch depending on where P&L is compared to my max loss. This trade has been great if it is kept on a short leash. Ideally I open on a Tuesday or Wednesday (Tuesday if VIX is up a couple points and I can sell for $29 or better) Wednesday if it's just drifting around and it usually sells for around $26). My goal has been to shut it down by Friday targeting 5% but taking anything over 2% so I don't have any weekend surprises or big moves on Monday. Mostly that's been unfounded, but with 20 trades, 17 winners and 1 open, I figure why start to get greedy. The 2 losers were because I increased my profit target from 5% to 9% and closed at max loss on each after holding through a weekend (closed on a Tuesday, trade would have profited by Wednesday, but plan said not to get past 10% loss on margin or down $1000).

    I found a trade that is similar but uses a balanced Butterfly with an ITM call hedge and an extra put and I may start testing that one out because it is supposed to be structured to protect on a vol spike crush. I'll post up something later in the forums because I don't really understand the rules of that one yet either.

    So, where does this leave me? I trade the hot sauce as I get to know it better and I trade a T3 (M3 type of clone?) on the RUT and I've been doing a BWB on the SPX. The only other trade I do I something like a momentum/bounce play. When the market drops by 15-20 points, I sell a put credit spread with puts around 55 DTE, 10 points wide, selling .10 Delta. 10-20 contracts, try to sell for more than $1.60 and buy back for $1.30 or better on any bounce back or drop in VIX.

    There is probably too much here to respond to any of it, but thoughts and opinions are welcome.
    Last edited by a moderator: Jun 1, 2017
  10. ACS

    ACS Well-Known Member

    Going from 2 SPX to 5 SPY will increase your commissions quite a bit. I suggest you look at ES options instead.
  11. LukeTheDuke

    LukeTheDuke Guest

    I'll check it out. I've seen a lot of talk about it, but haven't traded it. I could also just go down to 1 lot in the SPX. Trying not to make commissions my main driver, but I need to learn more about ES.

    Any comments on the other elements of my rambles? I am curious about pulling 3 butterflies off the RUT trade...
  12. Kevin CK

    Kevin CK Active Member

    Hey Luke!

    Kudos for sharing your trades with the community, and congratulations on closing some profitable trades. I have a similar story to you as well in terms of trading experience. You're doing great with your logging/journaling of trades and from the way you've structured your plan of action depending on how the underlying/volatility moves will help you achieve your goal of consistent profitability.

    I've attached a screenshot of the RUT M3 type trade you have on. I trade this on the SPX with my own adjustment parameters, but from the ONE graph it seems like taking 3 flys off is a good way to cut deltas and gamma. You still have 50 DTE so gamma won't really be an issue. RUT is lagging behind NDX and SPX so if the market continues to rally you may be forced to adjust on the upside. But as of right now, if I were in your situation looking to cut risk/take profits and flatten your position out some taking the 3 flies off seems like a good way to go. However you may have to react more quickly on a down move given your flatter delta.

    On a general note, you may want to focus your energy on fewer trades perhaps 1 or 2 when trading live early on. My experience is that when things go well, it's great. But when things are going against you quickly, which will happen if we get any reasonable pull back, it not only becomes mentally taxing as a result of watching paper gains evaporate or paper losses begin to accumulate, but it is also difficult to stay disciplined and make all your adjustments. It's very easy to fat finger an execution when the market moves against you and all your positions are down and the confidence hit can slow your progress.

    Just my two cents. Keep up the good work!

    Attached Files:

    LukeTheDuke likes this.
  13. LukeTheDuke

    LukeTheDuke Guest

    Thanks for the response and suggestions. Great input. Pulling the reins on myself is always a tough one. With as many high stress, critical situations I've been in from competitive sports, military, lifeguarding, and mountain climbing, I convince myself that I can handle everything life throws at me, much less the markets, but I do see that I trade emotionally and a good way to force discipline would be to control the environment with fewer positions.

    Thanks again.
  14. KS

    KS New Member


    Great job on the trade plan, and keeping up on the documentation - crucial imo!

    For me personally, the first maneuver I would model is exactly what you did and that is removal of 3, possibly 4 of the butterflies. Yes it comes at a cost of hurting your theta, but flattening out the T+0 is more important than maximizing theta imo. Besides, if the RUT keeps powering higher you are going to find that the unrealized profits you have currently will begin evaporating.
    It also looks like you have been in the trade since 5.17 correct? There is a huge emotional connection when that much time history has elapsed to feel "married" to the trade, and get overly committed to "making sure it doesn't lose at all costs". That has been my prior experience anyway. If you were 100% in cash today, would the trade in it's current format be something you would consider opening today as a brand new trade? I find that when I ask myself that question, odds are good I am getting too emotionally connected to a trade I've been in for weeks and weeks and weeks, and it's probably time to cut bait, keep profits and open something that looks more appealing.

    Have you watched the library recording of Paul Demers and his Jeep trade yet? That's a good complement to these butterfly type trades.
    LukeTheDuke likes this.
  15. LukeTheDuke

    LukeTheDuke Guest

    Thanks for the feedback. Yes, I've got to do a better job of keeping a plan and documenting. It helps keep the decisions more lucid and helps me be aware of decisions I'm making. So, hindsight is 20/20 and taking off 3 butterflies would have been a good move and helped protect me for the move up. I did open the trade 5/17 but I didn't consider that being in a trade for ~ 17 days would create an attachment. I guess I've seen the M3 type of trades go much longer than 2-3 weeks and assumed that I've got to have some patience to let them get up into the 10% profit zone... I guess that's why I like to cut out around 5% - it seems like I'm in and out faster and I don't have to be patient and risk getting attached on the trade. Thanks for your thoughts and feedback!

    I have not watched the Jeep Trade. I am trying to focus, but it's so easy to start chasing or implementing other strategies. I will take a look and I'm sure I can learn a lot from it, even if I don't start trading it.
  16. KS

    KS New Member

    Correction from my previous post, as I was thinking about a trade that I currently have on that opened on 4.17. haha. No, 17 days isn't really a big deal, but 47 days can be. I just always am trying to stay aware of the fact that the longer I am in trades, the more emotional they tend to to become. 20-30 DIT is about my own personal sweet spot.
  17. Kevin CK

    Kevin CK Active Member

    Great points KS. Recently I've had trades go from profits that were under my target to losses after the market started to break out of the range. I realized afterwards that sometimes taking a smaller profit in a trade I've been in for over 21 days makes sense than just waiting around to hit my target. Sometimes the 10-15% profit target can lull me into complacency and I forget that profitable trades can turn into losers very quickly. The market giveth and taketh away :O
    LukeTheDuke likes this.
  18. status1

    status1 Well-Known Member

    I am in the same situation
    The trade looks good up to a point than the market slowly grinds up so you think the market may pull back so you don't adjust right away thinking it may pull back in a few days or maybe you lower your profit target than you keep going like that as the market gets stretched and overbought and end up with a loss at the expiration or whenever the trade is closed or finally adjusted
    For me this market in this low vol environment grind up is the most difficult to learn what strategies to play and what adjustments to make at what point So I have to take profits sooner even though the trade still looks like it can make a lot more profit IF it stays in the area
    I guess the only strategy that still works is a BWB placed for a credit but that would need a lot more margin and you have to keep an eye out for sharp drops
    LukeTheDuke likes this.
  19. Luke

    Luke Well-Known Member

    Hot sauce trade from the June 16 cycle:
    6/13/17 — This turned into an interesting trade. Made a mistake and entered the “next week’s trade” but didn’t change the date, so ended up doubling my position in this trade. I had already violated the upper tent (by three points), but didn’t close because it was within my mental loss parameter of $1000, and touching the $750 identified. The trade was tough because I didn’t feel scared or too worried to hold it since it was just at the upper end of the tent and I was willing to lose $1000. The hard part was that max loss to the upside would have been around $3200, so maybe I was trying to force this to be a winner, but figured it only needed about a four point move down to make it profitable, so I kept a resting order in and waited it out.

    Meanwhile, I didn’t have internet for seven days, so no screenshots were posted from 6/1 - 6/7. (and this is late showing the sale on the 9th). Trading on the mobile platform isn’t the best because you’re not able to see risk graphs, but I was watching P&L and could see my delta go negative. I set the trade up as negative delta to begin with, expecting that it would be better to be safe to the downside. I’m thinking that setting these trades up slightly positive delta could be a better route since the increase in VIX could bring in profits with a move down.
    I’m going to keep working this trade as a weekly trade, but I’ve got to be on it and double check before I send orders that my dates are correct!
    Trade can get stressful if I worry too much about it, but the relatively high theta at the open and throughout the trade helped keep the drawdown from getting too bad. I’d prefer to get in and get out, but it can handle about a 50 point swing or ~ 25-30 either way. I may consider scaling out and letting the trades go a few more days, but in general, I’m going to keep the target at 5%. This one came in at 6.7%, but a big part of it was the second tranche sold, otherwise I would have closed for about 5% and it was picked up at the resting order of $30.

    New one scheduled to be opened tomorrow
  20. Luke

    Luke Well-Known Member
    Trade update here... not doing so hot!
    6/13/17 — Not a great trade to be in and I should have shut this down. Still have time to, but telling myself that it’s “only down $2k” and that if the market sees a big pull back, I’m ok and if it runs hard, I’ll be fine. Definitely should have pulled off the 3 butterflies earlier, rather than posting to the forum and hoping for some sort of confirmation or other strategy. I know what I saw and should have taken advantage of trading what I saw, not what I thought. Of course, this is also and example of taking 5% and calling it good. I should have taken it when it was 6.5% on margin, but here I am sticking around.
    I’m watching the RUT and thinking it could easily pull back 20 points, but I need a 30-40 point move down to get back to my tent area. Not a great place to be in and theta has turned negative and delta is positive at 7. Going to take a couple flys off each day with any profit and just try to minimize the loss. The only thing I can pretend this is is a hedge against a big downward move, but even that is a stretch. I need to learn this trade and watch a few videos and go over the set up and adjustments.
    I really don’t have an excuse, but not being able to model trades while internet was down certainly didn’t help, but not like I couldn’t have driven somewhere to model a few changes. Really learning some lessons here...

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