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Tales of a Technician: The January that was

February 1, 2017

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Tales of a Technician: The January that Was

To extract every last ounce of goodness from market movements this year, I’m launching a new feature here at Tales of a Technician. It will be a retrospective where I look back on the previous month to highlight what I did right, what I did wrong and key trades that defined my bottom line.

By systematically documenting my analysis no lesson will go unlearned, no mistake uncorrected. You’ve heard us teach the importance of journaling and reviewing your trading systems. This exercise will allow you to see me practicing what I preach.

A Premium Seller’s Perfect Storm

The market gods finally heard the cries of Condor sellers begging for some sideways action. And boy did they deliver. The Russell 2000 Index (RUT) traveled a circuitous route to nowhere. With yesterday’s pop into month end, the RUT was able to eke out a minuscule 0.003% gain for January. Profits reigned not just for Condor caretakers, but premium sellers of all stripes.

And it wasn’t just the markets mindless meandering that had theta raiders hootin’ and hollerin’. It was the utter lack of realized volatility. Want to know how much actual movement we saw in the S&P 500? Look no further than the historical volatility indicator. A 20-day reading for this “actual movement measurement” closed out the month at 6%. In case you didn’t know, that means the stock market exhibited the pulse of a corpse. We’re talking deader than dead. And here’s the thing. The CBOE Volatility Index spent most of the month at a 12%.

Selling 12% volatility in a 6% volatility world is the bee’s knees.

What I Did Right (aka why my mommy should be proud)

For starters, I efficiently used my capital by deploying the bulk of my portfolio in well-thought out trading systems. In favorable environments the more trades I have going, the more coin I bank. This principle was on full display this month. Admittedly, this works against me in hostile environments but let’s cross that bridge when the time comes.

Win #1: Took Risk, Got Paid

For my next back-pat let’s talk about my process. Traders should be process oriented, not results oriented. If the process is sound, the profits will come. Rather than obsessing over my P/L column each day, I did a decent job on simply focusing on executing my plan.

Win #2: My Process Reigned

What I Did Wrong (aka the last vestiges of stupidity)

My principle mistake this month was the mismanagement of a few hedges. Given my good fortune over the first few weeks of the year, I was looking to reduce exposure at the first sign of market weakness (my portfolio was leaning bullish). So, when the RUT slid below minor support at $1,354 on Jan 12th, I promptly sold a Feb 1410/1420 bear call for $1.60. Fast forward a week (to Jan 23), sprinkle in some time decay and choppy-chop price action for good measure and voila! The position was thriving. The call spread had fallen in value to 60 cents netting a $1.00 gain per spread. Rather than exit, I let it ride. At that point, I should have placed a stop to bail of the market ripped returning me to break-even on the hedge. Instead, I gave it too loose of a leash and ended up taking an unnecessarily large loss on Jan 25th. I had equally horrible management on bear calls in IWM and SPY.

Loss #1:  Manage your hedges better, ya dummy!

Trade of the Month

SLV was the largest contributor to my bottom line this month. My experience reinforced the necessity of process. I got hit on my SLV naked puts in December and stuck to my plan of allowing assignment and then selling January covered calls. This tactic allowed me to extend the duration of my position in hopes that silver would finally straighten up and fly right.

I netted the max gain for the covered call in January and then reverted to selling puts for February (which I just exited today at my target). A double dose of wins for SLV made it the big winner of the month.


Check out the entire 2017 retrospective series:


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13 Replies to “Tales of a Technician: The January that was”

  1. Avatar ERICSIMMS says:

    Wonderful analysis of your trading, we should all do this at the end of every month so that we are mindful of our processes. Thanks, Tyler.

  2. Nicholas Kingsbury Nicholas Kingsbury says:

    Not sure what else to say besides I love your work Tyler. Food for thought, maybe one week a month we talk about futures trading strategies. I understand that a lot of tackle trading members are just getting started, but lets not forget about the members that have been with Tackle since near conception. Tackle Trading has been essential to my profitability the past couple years, and I am looking to be educated on how the professionals use futures besides hedging delta. ( Thank you Noah). For the folks getting started, listen to what the coaches have to say, trust the process, be dedicated and persevere. Your financial freedom will follow.

    Take pride in what you do Coaches,

    Nick

  3. Avatar DAVIDJAMES says:

    As a new trader TT has been invaluable.

    I especially enjoy Tyler’s columns. Thanks for the insight and direction!

  4. ScottMills ScottMills says:

    Great article. Thanks for sharing Tyler.

  5. Avatar AdiPuplampu says:

    Love this! The strange thing about being process-oriented, rather than results-oriented is that it is rational and I have used it in prepping for marathons and triathlons. Recently my swim coached mentioned trying to be consistent with say trying to swim a 50 yd under 1:00min, rather than to be huffing and puffing anyhow to be faster. I see the same parallels in trading systems. Thanks for highlighting this!

  6. Avatar Sundar says:

    Thanks for sharing, Tyler. Invaluable insight on how things can go wrong and why it is important to exit positions in a timely manner.

  7. KEITHGIUNTA KEITHGIUNTA says:

    Look forward to these Tales..Thanks Tyler

  8. Avatar CYNTHIABLACKWELL says:

    Many thanks, Tyler. It helps to see how things really go for an experienced trader.

  9. Avatar CHRISTYHARTMANN says:

    This is a great idea for a regular column, Tyler. For new folks like me, it’s great to see that as you mature as a trader you continue to learn and readjust.

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