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Saturday, April 22, 2017

Weekly Trade Summary: Apr 16 - Apr 22

Last week I expired one core trade and one deep out of the money hedge, and opened two new butterflies (June 23 and June 30 expirations).  The new trades are shown below:

(click to enlarge)

The entries and adjustments for the trades that expired last week are listed below

Trade Entry: Jan 3 - deep out of the money (DOTM) BWB on the Apr 21 exp (post)
Adjustment: Feb 13 - moved 4 of the 10 2180 puts to the 2170 strike for a $0.80 credit (post)
Expired: Apr 22 - small loss

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(click to enlarge)

Trade Entry: Feb 8 - BWB on the Apr 21 exp (post)
Expired: Apr 22 - small loss

(click to enlarge)

I currently have 6 open trades, with expirations in May (2), June (3), and July (1):

(click to enlarge

Total defined risk for these trades is currently at 36.8% of the account net liquidation value. This risk is broken down into the following groups:
  • 7.8% of net liq - DOTM BWB - hedges
  • 29% of net liq - core BWB
20 trades have been closed this year...12 wins and 8 losses. Return on the account for the year is at 2.84%.  Total win rate is at 60%.  The win rate on the core trades is at 67% and again down at the low end of the expected range. Of the 6 open trades, 4 are core and 3 of the core are currently up money.

I have run 10, 10 year backtests on my deep out of the money broken wing butterfly hedges.  While they can work as a decent hedge if timed properly, over time they appear to lose money using my trading approach.  I will phase out this style of hedge in the next few weeks.


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7 comments:

steveal said...

I'm not sure if I'm understanding your site too well.
You are producing superb backtests of ICs with win rates of 90%+.
You are actually trading BWBs with win rates of 60%.
Why?

Dave R. said...

I traded variations of hedged IC's extensively in the past, but did generate the results I wanted based on the max risk in these trades. This experience led me to test generic ICs and publish those results on this blog.

This most recent IC series analyzing ~600K SPX IC trades was to help me identify an IC variation to trade in my IRA accounts (where I cannot use portfolio margin).

In my PM accounts I was trading undefined risk trades through early 2016. Due to extensive travel for work, and a high workload, I did not feel comfortable with these undefined risk trades...I was not able to access my trading platform multiple days per week (during market hours), which limited my ability to adjust...so I chose to stop trading undefined risk trades.

After these IC backtests began, I started trading BWB due to the low risk, and lack of urgency in the adjustments / exits.

I have started testing BWB, and may publish some results in the future.

To your point about win rate, win rates is only one metric to consider. Normalized P&L per day, and normalized largest loss are also important.

One point regarding win rate...win rates are not constant...you can have strings of losses during a period of time that result in a 60% win rate, but by the end of the year the win rate may be 80%...don't confuse a win rate at a point in time with the historical win rate...the win rate needs to be considered from the perspective of it's expected range.

Another point regarding the 60% win rate for my account...that win rate is based on the combined success of three different trades...one being a hedge that has an expected win rate of 8%.

Thanks,
Dave

Dave R. said...

BTW, are you from Northern Scotland?

steveal said...

Dave,

Thanks for the explanation, and good luck with the BWBs. I'm really looking forward to your summation of the IC backtests.

I'm not from northern Scotland, but I am from northern England.
Is there a clue in my question?

Dave R. said...

I just noticed that your blog mentioned Northern Scotland, and was curious. I have a great grandmother from North of Inverness.

Was hoping to have the summary article out next week, but looking unlikely. Will probably take one more week to put that article together.

Thanks,
Dave

steveal said...

Dave,

The blog is one I followed - not mine.
He rode his bicycle from Lands End to John o' Groats and lives near Aberdeen.

Dave R. said...

Oh...thanks for the clarification.

Thanks,
Dave

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