Results: predicting the reversal
Portfolio was up 4.6% for the week, back to >150% overall
Quick summary:
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Great directional prediction of a reversal in markets, again with stellar precision
Portfolio was up 4.6% for the week, 155% overall
Long positions and condor premiums delivered the bulk of the return
Another earnings-packed week ahead!
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Last week’s performance and portfolio update
Last week was much less volatile than the one before, but it still carried a few surprises. Notice how on three days last week (Tue, Wed, Thu) S&P opened (or started) high, only to almost immediately reverse and finish lower for the day. Friday started the same, high on the open, a quick reversal (again), but then it bounced back to finish the day - and the week - on a high.
However, the intraday volatility on Tuesday was enough to exit our call positions. First, as the markets rallied, we raised our stop-losses for the calls (as announced on Thursday’s blog). This looked like a good decision on the day as the calls were taken out on a very small loss. It could also be treated like a poor decision given Friday’s bounce-back, however, Thursday’s volatility would have taken the entire position out at an even larger loss (the 50% mark) had we allowed it to run.
It’s difficult to get the stop-losses always right. We are currently backtesting whether we would do better without any stop-losses at all, or alternating stop-losses like we did quite a few times (70% on Thu, up to 50% on Fri). The jury is still out on that one.
How did it affect our portfolio? The condors delivered (almost a full premium) and offset the small losses in the call positions. Also, the BASON longs on SPY, DIA and the short in UVXY delivered handsomely, as did the call hedges for the macro play. The call hedges were again sold on Friday to capture the gains. New ones were bought again yesterday, just like last week (at $1000 for each), after we recalibrated the portfolio.
The weekly return was 4.7%, bringing us back to over $50,000 overall (and +155%).
In terms of pure direction and precision, the performance was excellent!
Precision for S&P and the VIX within a single point margin of error, and DJI and AAPL within 2% errors. And what’s particularly good was a correct prediction of a trend reversal in the markets. Markets have been finishing lower for 5 weeks in a row (each of these correctly predicted by BASON). It’s a testament to BASON when it’s able to catch these reversals of trends.
So what enabled the Friday bounce-back? Options expiry surely, but also a WSJ article half an hour before open that suggested the Fed will raise another 75bps in November and then discuss a lowering of hikes in the subsequent meetings. Enough for the markets to start pricing in a “Fed pivot” (although we’re far away from that imo), which pulled markets up initially, and continued later as the options expiry forced quite a few shorts to be closed, which kept fueling the rally.
Interestingly, not even TSLA’s revenue miss and 6% plunge was enough to push the markets down by Friday. Nor did the significant increase in the 10-year yield, another missed directional prediction for us.
Options: all positions stopped out
As mentioned last week, we opened the following options positions:
we're trading 362/363 to 378/379 iron condors for $1,080 premium (25 contracts). The stop loss, i.e. the buy-back is at $1600 (max loss is $520).
We are buying a call position, 2 SPY 363 calls 21/10 at $7.6 for which the stop limit is at $3.5.
NOTE: when the market jumps, please make sure to lock in some profits by raising the stop limit. After today’s price action, we have raised the stop-limit to $6 (and will keep raising it before tomorrow’s open). Same for DIA calls.
For DIA we are trading 299/300 to 310/311 iron condors for $1,050 premium (25 contracts). The stop loss, i.e. the buy-back is at $1,600 (max loss is $550).
We are also buying 2 DIA 21/10 300 calls for $6.15. Stop limit is at $3. (also raised to $5 after today’s price action, and will continue to raise it before tomorrow’s open)
As stated above, we made almost the full premium on the condors, closing them an hour before the market close on Friday. The calls reached their revised stop-loss by mid-day Thursday.
NOTE: Given that we are now presenting portfolio performance overall, it makes little sense to continue presenting options results separately - particularly since the numbers are different. The portfolio overall is now $50,000, whereas the options were being built on an initial $10,000 out of which only $2000 were used for the strategies each week. So we’ll retire the options graph for now, but will present the portfolio tracking graph by the end of each month (and present weekly results in the table above).
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