Investors are notorious for chasing performance. If a mutual fund or advisor or trading strategy has done well recently, chances are much greater that traders will commit money to that strategy or product, often independently of the long term performance, general suitability, or distinguishing features of the strategy or product. I’ve seen the same behavior among the audience for our paid newsletters: after a winning month, new subscribers are more likely to rush in, and if we have a flat…
The unrelenting August rally put some pressure on the call side of our iron condor positions. However, we were able to close out the month with flat-to-positive performance for the newsletter trades due in part to our ability to stagger trade entries based on volatility and delta exposure and to size positions on a risk-adjusted basis – both techniques that we teach on the members area of the site. We are nearing the end of the September expiration cycle and…
In the August cycle we again disproved two misconceptions: 1) that a market-neutral approach can’t perform well in a trending market, and 2) that a positive-vega strategy won’t profit in an uptrend.
By combining position-level adjustments with portfolio-level risk-management, we outperformed the market in terms of our average return per trade, and booked a model-portfolio return (which is based on a cash allocation sufficient for three trades, including adjustments) that would earn most fund managers their…
We began putting more emphasis on a portfolio-level view of risk-management in the July cycle, entering multiple trades on a single underlying and looking at the overall position, as well as each individual trade, in deciding when and how to make adjustments. Our return for the month wasn’t stellar, but considering the fact that the market traced out an 8% correction before recovering abruptly in expiration week, we think our 3% average return per trade showed that the…
Describing a strategy as “market neutral” isn’t saying much: consider two portfolios, one comprised of carefully proportioned long and short equity positions, the other comprised of short out of the money option gamma. Both can be described as market neutral in the sense that neither portfolio expects or wants to profit from overall market direction. Similarities end about there. I raise this point because one of the orientations that many traders think of when they hear “market neutral” is the…
Wednesday, October 7, 2009
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