Back to work here…

Hello friend!

I’m back to working on this blog starting this month.

This is what I’ve been up to

The months of February and March were crazy with the coronavirus and its impact on the market. I was busy most of the time in these months trading, documenting, programming, and continuing the improve and refine my trading processes.

2018 (with emphasis on the last three months of the year) was extremely rough for me. I fought the Fed multiple times on trades and I lost. I was actually looking for jobs in January and February because I wasn’t sure I’d be able to continue trading.

That changed, fast

Volatility in the market took off. I held short positions that profited insanely. Negative gamma had proven to be my ally. Convexity won out.

This extended my runway another 4-6 months at a minimum. It’s been a scary ride but I’m loving every minute of it.

What’s to come

Anything that I’m interested in. I’m currently interested in the following things, in no particular order.

Understanding gamma exposure deeper
Other options greeks and their effects on markets
Higher order options greeks (vanna and volma)
Game theory
Kelly criterion and position sizing
The rise of the carry trade
Federal Reserve operations
The current state of the economy
The current state of politics in the world
Python programming
Calculating gamma exposure from easy to obtain information
Building trading dashboards

That’s just a few I can think of off the top of my head.

Follow this blog to stay updated.

Why you should ask more questions

Asking questions is important.

Why is asking questions important?

Questions force you to think about a topic in terms of what you don’t know. Rather than reading a text or a highlighted passage, and thinking “I got this”, questions force you to search deeper for something else: the unknown.

Why do questions force you to think about what you don’t know?

We are curious people. We like to know the answer to questions. When we ask questions, there’s a natural desire to find and answer to those questions.

When you write questions down about a topic you are learning, you are forcing yourself to read and interpret information from the perspective of finding out what you don’t know.

How can you ask more questions?

Just write down more questions every day. Write down your to do list in the form of questions. Ask yourself, what am I going to get done today? What needs to be worked on first? What are those most important items on my to do list?

Write down questions about a topic you want to learn. Start by writing questions that you want to know the answer to. When you have answers that you are seeking, learning becomes easier.

Writing questions gives your mind something to search for. If you go into a topic with a bunch of questions, personalized to you, you will learn a subject much faster.

I guarantee it.

You are your own worst enemy

It’s easy to blame others.

It’s hard to blame yourself.

It’s easy to blame things out of your control.

It’s hard to blame those things that are within your control.

Rules can help you make better decisions. Your goal should be to follow your rules. Not making money. Making money should be a product of following your rules.

Don’t think of yourself as a gamblin’ man. Think of yourself as a risk manager.

Make smarter bets through time. Don’t trade too big in any one position or in any one day. When you place your bets is just as important as where you place your bets.

Did the Federal Reserve Kill the Volatility Trade?

On October 11, 2019, the Federal Reserve announced they would begin buying Treasury Bills in an effort to ensure there are “ample reserves” in the banking system through the end of the year.

fed treasury oct 11

On October 11, 2019, the Volatility Index (VIX) sat at 17.4. Today on November 26, 2019 the VIX has recently closed at 11.5. As you can see from below, it appears as though this not-QE program that is “organically” growing the Federal Reserve’s balance sheet has effectively killed the long VIX trade.

fed vix chart

The case made that supports this idea is that investors are engaging in more risk on behavior, because they are basing their decisions based on the Federal Reserve’s prior balance sheet expansion programs (QE 1-3).

Because the Fed is purchasing T-bills, they have eased some of the money market pressures. Liquidity in the market has proven to be a positive catalyst to the market.

Why do I believe this?

It can’t be the trade deal.

That’s the only other source that has been moving the markets higher according to many daily stock market new reporters. And I don’t believe these markets are pushing higher on hopes of a trade deal.

I think the Fed’s easy money policies have once again eased tensions. For now.

A lesson to me

This whole scenario has taught me a valuable lesson about position sizing. I’ve learned to not be so overconfident in my predictions.

Every trade made is a small bet. Each bet will abide by the Kelly criterion.

Never go all in.

Grow your money slowly and strategically.

Live to trade another day.

Read

Barton_options on Twitter has been a great resource for me to learn more about the Federal Reserve operations and how it relates to the Treasury and the overall economy.

He recently wrote about this in a newsletter you can read here.

I’m always learning

I like the put predictions out there for the purpose of learning.

I don’t want to be seen as some prophet, because I’m not. I’m wrong a lot of the time.

My goal is to put predictions out there so that I’m accountable for them. One effective way to find out your biases is by putting things out there to be scrutinized.

Your scrutiny, insights, or questions are encouraged because I know they will help me (and probably you as well).

Cheers,

Court