Sunday, December 21, 2014

2014: Top 10 Key Lessons I Learned this year trading

1. Limit losers- I have watched a product I trade go from trading a consistent way to having no predictable pattern and all ratios/correlations break this past year. I have learned that mean reversion only works until it doesn't, and when it doesn't work you need to get the heck out before it runs you over. When a trade doesn't make any sense anymore, you need to get out before it blows up.

2. Focus on what works- I have found the  bulk of my profits this year have come from trading only a few key time frames during the day and also changing my trading strategy based on the expiration cycle and the underlying volatility of  the products I trade.

3. Experiment wisely- I have learned to keep size small when experimenting on a new strategy. Sometimes the potential reward on a new strategy looks great after researching it, but then the worst case scenario happens to your trade and you realize the size you put on was way more than you should have done.

4. Diversify and expand strategies- Being limited to trading one product can turn into disaster when what use to work doesn't work any longer. Expanding the number of products I trade and having multiple strategies will be key for me going into 2015.

5. Automate more- In 2015 I will spend even more time backtesting.

6. Study more- Studying past market moves and creating backtests of setups has helped me a lot this last year and I will continue to study more in 2015. I will look to study more products and test more hypotheses.

7. React faster- There have been several news releases this year where I did great by reacting to news and in 2015 I will look to get better at this by automating news alerts.

8. Listen to others- Taking advice from others has helped this past year. I'm trading new products and evolving with what works.

9. Stay consistent- Pretty much the same as lesson #1. I noticed a pattern in my trading where I will incur a large loss once a month. I believe I can avoid this in 2015 because I have determined the causes. Focusing on my key time frames to trade and experimenting with small size will reduce large losses.

10. Don't panic- I've had my fair share of bad days where its hard to think about working the next day. Just remember, just because you had a bad loss doesn't mean you can't make it back. I know I'm a good trader because my trading history tell me so.

*I'm looking at my post Top 10 trading mistakes from 2007 and not surprisingly, its pretty much the same mistakes and lessons to be learned.

Sunday, November 23, 2014

Exchange Traded Note (ETN) list with Net Asset Value Premium & Discount

I was searching the internet for an ETN list in Excel format with the premium and discount percent and I couldn't find it, so I made one myself. This is not a complete list and I will not be updating it.The values are only current as of 11/21/14.

Here is a public link to it on Google Documents- ETN List 

Here is a partial list of the Top 10 ETN's trading at a Discount-

Symbol NAV Symbol Name Price NAV Price Premium/Discount % Avg Volume
TVIX  ^TVIX-IV Credit Suisse AG 2.42 7.273 -66.73 25590500
USLV  ^USLV-IV Credit Suisse AG 23.53 49.382 -52.35 296731
VIIX  ^VIIX-IV Credit Suisse AG 37.72 60.059 -37.20 63511
TVIZ  ^TVIZ-IV Credit Suisse AG 20.48 32.419 -36.83 5317
UGLD  ^UGLD-IV Credit Suisse AG 11.94 17.249 -30.78 180122
VIIZ  ^VIIZ-IV Credit Suisse AG 17.25 21.342 -19.17 1600
ROLA  ^ROLA-IV iPath Long Extend 148 177.451 -16.60 0
INR  ^INR-IV Market Vectors In 34.8301 37.387 -6.84 852
SZO  ^SZO-IV PowerShares DB Cr 43.8 45.84 -4.45 2325

Friday, October 10, 2014

Crude Oil Volatility Index Spike


Chart of the OVX; Crude Oil Volatility Index.
When Volatility is this high, selling strangles works best.

Monday, October 06, 2014

Implied Volatility and BioPharm failures; ADHD & SNSS

The two stocks with the highest option implied volatility trading this year released results today. The 2 Stocks were; ADHD and SNSS, two biopharma stocks that had implied volatility over 300% and in the days leading to the announcement of their phase III results implied vol spiked to over 500%.

Today the results came out and both companies disappointed. Both stocks gapped lower. ADHD is down aronud 54% at $6.42 currently and SNSS is down 76% at $1.60 currently. If you happened to listen to the conference call of ADHD this moring, Piper Jaffray was the first to ask questions and they first congratulated the company on the results and came out later saying that they reiterate a buy with a target of $42. This can be very confusing for investors to hear, but the price of the stock doesn't lie. Quote from Piper Jaffray from

The days leading up to the announcement ADHD stock was zig zagging up and down 15% a day. The stock was a big gamble, with around a 6 million share float, it was poised for a large move on the news release. I don't know who in the world would be buying or shorting shares ahead of the news release.

The real money to be made was in the options. The OTM $40 calls on ADHD were trading at over $1 the previous trading day and now they will expire worthless, The stock would have had to spike around 300% in order for you to take any heat on the trade. Meanwhile the $5 puts were trading over $0.50 the previous day and now are going for around $0.20. The ideal trade on this stock was selling the strangle ($5 puts and $40 calls).

Something to note leading up to the press release was the short sale ban imposed by some brokers (ie. Interactive Brokers) and the price drop leading up the final days before the news release. One can speculate that the only person that would short a stock with pending phase III  results was doing so with knowledge of what the outcome was. Here are some charts and numbers.

The option chain the day prior to the release of news for ADHD -

The option chain the day of the release of news for ADHD

If you thought you could sell the OTM calls at the open, you couldn't, the market makers aren't that dumb. The OTM calls all opened with 0 bid and 0.05 offer.

As the day progresses, the available short shares available at IB shrinks along with the stock price.

ADHD Borrow rates leading up to the news release.

Short Strangle ($5 puts and $40 calls) chart-

Monday, September 22, 2014

Triple & Quadruple witching and the next Monday Trading Statistics

I noticed a pattern on Monday's following Triple/Quad witching Fridays where ES drops. It turns out there is a statistical edge in going short on witching days and holding to Monday close. Here is a link to the study and chart from the study.

Sunday, September 07, 2014

China vs US stock market spread; FXI SPY spread

With the announcement of the Alibaba IPO as being the largest IPO ever coming in the next couple weeks, I thought it would be interesting to look at the spread between the Large Cap China ETF and S&P 500 index ETF. The sentiment in the US is very bullish, but in the last few months China has been outperforming, and if anyone remembers what Chinese stocks were like in 2007, this spread could really take off.

Dollar weighted FXI/SPY spread going back to 2006.

Thursday, August 28, 2014

St. Petersburg paradox

From Wikipedia
"A casino offers a game of chance for a single player in which a fair coin is tossed at each stage. The pot starts at 2 dollars and is doubled every time a head appears. The first time a tail appears, the game ends and the player wins whatever is in the pot. Thus the player wins 2 dollars if a tail appears on the first toss, 4 dollars if a head appears on the first toss and a tail on the second, 8 dollars if a head appears on the first two tosses and a tail on the third, 16 dollars if a head appears on the first three tosses and a tail on the fourth, and so on. In short, the player wins 2k dollars, where k equals number of tosses. What would be a fair price to pay the casino for entering the game?
To answer this, we need to consider what would be the average payout: with probability 1/2, the player wins 2 dollars; with probability 1/4 the player wins 4 dollars; with probability 1/8 the player wins 8 dollars, and so on. The expected value is thus
E= \frac{1}{2}\cdot 2+\frac{1}{4}\cdot 4 + \frac{1}{8}\cdot 8 + \frac{1}{16}\cdot 16 + \cdots
= 1 + 1 + 1 + 1 + \cdots
=\infty \,.
Assuming the game can continue as long as the coin toss results in heads and in particular that the casino has unlimited resources, this sum grows without bound and so the expected win for repeated play is an infinite amount of money. Considering nothing but the expected value of the net change in one's monetary wealth, one should therefore play the game at any price if offered the opportunity. Yet, in published descriptions of the game, many people expressed disbelief in the result. Martin quotes Ian Hacking as saying "few of us would pay even $25 to enter such a game" and says most commentators would agree.[2] The paradox is the discrepancy between what people seem willing to pay to enter the game and the infinite expected value."

Wednesday, May 07, 2014

Explaining Volatility and Levered Drag

Tastytrade had a great video explaining the difference between making bullish bets on  VIX, VXX, and UVXY when the VIX index is below 15. To summarize, the 2x leveraged ETF UVXY performed poorly for the long volatility strategy compared to the index and VXX and it was mainly due to volatility drag or more simply, negative compounding due to high volatility over a period of time.


Sunday, April 13, 2014

Think or Swim ThinkBack error for stock splits

While backtesting some option strategies in TOS I noticed a problem with the thinkback tool. When a stock price splits / reverse splits, the option prices don't reflect the stock price split. Instead the options are now priced to the new stock price without adjusting for the split. ThinkorSwim is working on resolving the bug.

Example- BIB had a 2:1 stock split 1/24/14.

 BIB 90 strike CALL 1/23/14 = 94.80.


 BIB 90 strike CALL 1/24/14 = 3.80


Sunday, March 23, 2014

Penny Stock Pump and Dumps

I'm sure many people have recently seen the movie "Wolf on Wall Street" and wondered how people could get peddled into buying such crappy companies back in the 1980's and 90's. Surely this wouldn't happen again in today's time with all of the information freely available by doing a quick search on Google. Well, these pump and dumps scams still continue to happen everyday, and I'm shocked at the most recent story concerning one of the biggest pump and dump promoters to date; John Babikian.
There are numerous articles (1 , 2, 3 ) telling the story of how he used his website to pump and dump penny stocks, and all the while make millions in the process. It just makes me sick to think that people still fall for this stuff everyday. There is a website detailing most of the penny stocks that the promoter pumped at awesomepennyscams. Please do your research before ever trading any of these stocks. I myself keep hearing about how people are becoming millionaires trading these penny stocks, but I guarantee you there are far more people losing than making money trading these OTC stocks. Trading is a very had business to be in and penny stocks are the riskiest of all the types of stocks you can trade. Do not believe the hype or believe that it's easy to become a millionaire trading these stocks.

Saturday, December 01, 2012

Free Resources to learning R and other coding languages

R projectR is a free software environment for statistical computing and graphics. It compiles and runs on a wide variety of UNIX platforms, Windows and MacOS.

R StudioRStudio IDE is a powerful and productive user interface for R. It’s free and open source, and works great on Windows, Mac, and Linux.

R Cookbook - Download link to an introductory book to learning R.

R Tutorial Blog - A blog with lots of R tutorials.

Coursera's R course - Recorded R lessons from Coursera on youtube.

R Intro Book - Another great introductory pdf book on R.

Codecademy - Codecademy is the easiest way to learn to code. It's interactive, fun, and you can do it with your friends. They have interactive tutorials on Javascript, HTML/CSS, Python, and Ruby.

Friday, November 30, 2012

Day Trader Evolution

Over the years many discretionary traders have moved on to other jobs. Today's traders have evolved into trading from a more quantitative/automated approach. Trading volume the last 3 years has been decreasing and the ability to scalp the emini's has been increasingly difficult for discretionary traders. I was checking out my old but popular Trading Blogs list and found that most of the blogs have vanished or the authors stopped posting around 2009. I would like to link some new interesting blogs and trading related websites that I checkout frequently.

ZeroHedge - The main author who calls himself by the popular fictitious movie character; "Tyler Durden", from the movie Fight Club, and various other authors report the news. They also have a separate live news reporting broadcast(Talking Forex). They report some good information, but take everything they write with a grain of salt and try not turning into a doom and gloom fan or gold bug.

Quantum Blog - A quiet matlab / algorithmic trading blog that discusses his backtesting results. He also authors the blog Trading with Python.

Milk Trader - Another aspiring automated trader that writes about his coding in "R" and shares backtest results from various strategies he's tested; the breakfast spread is my favorite.

Quantifiable Edges - A long standing blog that shares a plethora of backtest results from Gap trades to day of the week probabilities.

Systematic Investor - A systematic approach to trading focusing on long/short strategies, technical analysis and lots of code samples with backtest results.

Timely Portfolio - Another R blog with lots of backtests and strategy discussion.

Mebane Faber - A portfolio manager at Cambria Investment Management shares his model and discusses strategies and trends.

Quantitative Trading - Ernest Chan's blog on trading strategies.

Condor Options - Lots of good articles on options, spreads, and volatility.

I am futures Trader - Chris, an independent trader gives his take on the market and setups he's looking at.

Michael Covel - Lots of good interviews from professional traders and trend following strategy information.

Automated Trading System - Trend following systems and performance results as well as free code.

Automated Trader - A website with articles, news, videos and more on everything automated.

Learning Markets - Great articles on trading.

Scarr Visual Trading - Spread charts, some free, most for a subscription. The ability to compare up to 5 years at a time on a spread from one year vs another is nice. Now if only someone made a website with historical term structure charts going back 10 years.

Quantpedia - A new website made from the guys at FinFiz that provides proven trading strategies (mostly taken from white papers) and lets you decide which one to trade, with a subscription of course. Not that expensive if you consider the alternatives to spending hours scouring finance journals, algotradinggroup forum or SSRN.


Wednesday, November 14, 2012

Today's reads

Find your niche - great article on the common pitfalls in trading.

Five years ago today - Ben Stein in all his genius was wrong about the housing bubble.

My life in finance - Eugene F. Fama's (father of efficient market hypothesis) autobiography.

Thursday, July 19, 2012

Futures Trading Prices and Data Feed


When traders consider futures trading platforms they choose those platforms that have the technical specs, the visual appeal and the stability required in aggregating large files of data. However, traders should also consider two aspects when it comes to trading futures:

1)   Low latency delivery of trades. In the exchanges where institutions compare nano seconds, you should consider data feeds that would deliver your trade as fast as possible.  Keep in mind, in the exchange it’s first in and first out, so the idea of you being a head in your trading execution is important.
2)   Unfiltered data. You can only develop a good methodology if you have all facts so having an unfiltered data will give you a complete picture of what is happening in the market place. Many use aggregate data that simply can skew data that chart traders rely on.

One such data that feed you will find appealing is Rithmic
Rithmic advantages include:
  • Unfiltered data: During volatile periods you get an accurate picture of price activity, because Rithmic provides a very stable data feed. You will actually see true “tick-by-tick” data instead of “data blocks” like most other data providers. You get a clear and instantaneous picture of price activity.
  • Rithmic’s servers are co-located right on the major exchanges and provide high-end stable connectivity and smart order routing solution that can meet the demands of the most demanding retail traders. 
  • Stability:  Rithmic’s infrastructure sits atop the most sophisticated and highly reliable infrastructure and is monitored at all times by top quality programmers

Take a look at futures trading platforms that Rithmic could be applied to: This site belongs to a futures broker  Optimus Trading Group, a brokerage dedicated self directed futures traders.

Monday, May 23, 2011

Delta Divergence Short Setup on Crude Oil

I noticed this nice short setup on CL today. Cumulative Delta was lower while price was higher(also it was a morning High of Day).

Monday, May 09, 2011

Delta Footprint Charts

The key move occurred at 8:46am (11:46am EST).

Cumulative Delta goes negative @ 8:46, then price reverses and goes higher past negative Delta price level. MELT UP!

The Cum. Delta started dropping at 842.5 at a key reversal time period 11:45am (2:45pm EST)

Tuesday, December 07, 2010

Best futures Broker Based on Commissions, Data Feed, and Trading Platform

I've reviewed some of the most popular Futures Brokers available to retail traders and rated them based on Commission. Finding the best broker based on commission should be one of the top factors you have when selecting your broker, because you can save you thousands of dollars per year by choosing the right one. I've put together a table comparing each broker based on their "advertised" commissions. Some brokers are negotiable in their commission rates, so be sure to call the broker your interested in before making the final decision. Remember, Commissions alone should not be your sole determining factor in choosing your broker, you should also consider data feed speed and reliability as well as the trading platform offered in which you will be placing your trades on.

Thursday, October 21, 2010

Video on How to Read the Time and Sales

A live trade setup from the chat room today showing what the time and sales should look like on a breakout trade for the Dow emini futures (YM).

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