JW Trading Journal : 2007-03-31 : Further OEX Analysis

Unfortunately, further analysis from the past few days has came to some undesirable findings.Whereas the OEX gives me much more upside potential, it's a double edge sword. In order to protect the downside not to exceed the maximum drawdown that I can tolerate, I HAVE TO set stop loss points if I want to use OEX instead of SPY or DIA as the underlying instrument.

This, however, goes against the core idea of the model itself which is aiming at high accuracy of the "outcome" when closing the position. Higher number of positive outcome enables constant compounding. The swing of OEX would stop me out a lot more times than the number of incidents that a non-stop model would have a 100% loss.

Using DIA 121 CALL for example. Current ask is 3.50 and delta is 0.808, which I like. It will expire in 20 days. The trade from non-stop model would only have a POTENTIAL 100% loss when the Dow suddenly having a total of more than 430 point drop within "1 to 4" trading days AND if not able to recover in the coming 20 days before it expires. Between the day that it cut-through my threshold and day #20 (expiration), I still have the flexibility to close the position out at any recovery after the big drops.

From the cumulative $ return point of view, because the fact that I was stopped out so many times from the OEX model, it wasn't compounding enough times to have the same outcome as the non-stop-non-OEX model. If I tweak it to have a comparable cumulative $ return, then I'll be forced to accept the maximum draw-down of more than 70% of the total capital, which is probably unacceptable to anybody. Why so high of a max drawn down? It is because the total capital is now being divided into fewer trades in order to "make more money back from the bigger winner" when it is proved to be a good trade at the end. For lack of better expression, "you can't eat like a bird and shit like an elephant".

Anyway long story short, when considering my own personal risk-reward on the per trade and cumulative $ return basis, I probably will stick with DIA and SPY options for a while for the original model. But I do feel OEX have its advantages as I was modeling and testing it. It's just that it will need an entirely different game plan than what I have for now.

Overall I have learn a lot in the OEX modeling process. Besides, I did make that money with OEX Put. LOL! :)

JW Trading Journal : 2007-03-28 Result - Year To Date 15.71%

Closed OEYPI - OEX April 645 PUT @6.50, +71.05%

2007-03 month to date return : 11.23%
2007 year to date return : 15.71%
vs. 2007 year to date SPY (S&P500) return : 0.14%

Open position: 0

First PUT trade was a success. :)
The bid/ask spread for OEX options seemed kind of wide. And I placed a market order in at the close which was executed at a price better than bid. Maybe it's normal for OEX options... I'm not sure. Can't say I'm not happy with the execution though.

2007-03-26 JW Trading Activity : Testing the short side

Testing with PUT.

Initiated long position with OEYPI - OEX April 645 PUT @3.80.

Open position : 1

JW Trading Journal : 2007-03-22 Result - Year To Date 10.71%

Closed DAWDO - DIA April 119 Call @6.10, +32.60%

2007-03 month to date return : 6.39%
2007 year to date return : 10.71%
vs. 2007 year to date SPY (S&P500) return : 1.10%

Open position: 0

Losses from DAWCU call expiration has shown up in the log due to March expiration. However I booked it as February's monthly % return. Which is why March is still positive. It doesn't impact year to date return, though.

2007-03-19 JW Trading Activity :

Initiated long position with DAWDO - DIA April 119 call @4.60.

Open position : 1

JW Trading Journal : 2007-03-16 Result - Year To Date 8.02%

As the DIA March 125 call (DAWCU) became expired, it concluded the first half of the monthly result. Yesterday the indicator changed at the last minute which resulted the long of DAWDO got filled at $4.20. The position was closed first thing this morning at market open ($4.00). I was debating for a little while if I should take the trade off the table because I know that I would be losing money to sell at the opening due to the spread. However it is more important to be discipline and stick to the rule. Making money for the wrong reason is as bad as trading blindly. Besides, it did close down further (final bid 3.70).

DIA MAR 125 Call expired, - 100%

2007-03 month to date return : 3.78%
2007 year to date return : 8.02%
vs. 2007 year to date SPY (S&P500) return : -2.25%

Open position: 0

JW Trading Journal : 2007-03-9 Result - A week of recovery

The model forecasted the correct outcome of higher DIA(+0.19) than SPY(+0.04), but unfortunately the move was not big enough for the options to move to the upside and obviously time decay got its fair share of the coming weekend. Still, it's been a good week in terms of the recovery.

Closed DIA MAR 120 Call @3.10, - 3.1%

2007-03 month to date return 4.46%
2007 year to date return 9.20%
vs. 2007 year to date SPY (S&P500) return -0.59%

Open position: 1

JW Trading Journal : 2007-03-8 Result

Closed SPY MAR 135 Call @5.90, + 59.5%
Closed SPY MAR 137 Call @4.00, + 11.1%

2007-03 month to date return 4.89%
2007 year to date return 9.65%
vs. 2007 year to date SPY (S&P500) return -0.62%

Initiate Long position with DIA Mar 120 Call @3.20
Open position: 2

2007-03-06 Trading Activity : Hold and Accumulate

Initiated long position with SPY March 137 call @3.60.

Open position : 3

2007-03-05 Trading Follow Up :

Futures looks good before I go to bed. Tomorrow (3/6/07) should be a good opening... Hopefully it will hold until the model has the sell signal.

2007-03-05 Trading Activity :

Initiated long position with SPY March 135 call @3.70.

Open position : 2

JW Trading Journal : 2007-03-1 Result

Closed DIA March 120 Call @3.20, -11%

2007-02 month return -3.36%
2007 year to date return 4.10%
vs. 2007 year to date SPY (S&P500) return -0.49%
Open position: 1