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BookingAlpha Option Trading Advisory

Wednesday, October 11, 2017

Some House Cleaning

When I started to track the results of Option trades on this site, I did so by reflecting each position according to their Expiration cycle, not based on when the position was closed.

For example, the results for a November Iron Condor would end up reflected in the November expiration cycle, even if the position was closed earlier, say, during the month of October.

Then in early 2015 we experimented with longer term positions (3 to 4 months out in time). Some of these positions would end up getting closed more than 2 months before expiration and it suddenly made sense to reflect their results on the actual month where they were getting closed, rather than having to wait for so many more weeks to see their result reflected on a cycle that was so far in the future.

For some good reasons I went back to trading positions 6 - 8 weeks to expiration, but never returned to the old way of reflecting their results according to their expiration month. Instead I kept reflecting the results, to this day, in the month where they were closed.

Looking at the track record page, I just realized it's all a whole mess, borderline nightmarish.

Partial closes are the main culprit. As it is right now, if the Call side of an Iron Condor is closed early and I keep holding the Put side, the position needs to be split in two pieces in the track record. In many cases one of the sides ends up in a different month. With Elephants it is even more complex as there are more moving parts.

For the new reader, or even for the hardcore ones able to digest whatever you throw at them, looking at the track record must be uncomfortable as hell. For those unaware that clicking on the "Open Date" column takes you to the page where the original position was initiated, it would seem as if I'm entering pieces of trades at random. Or that some months I make 5 trades where other times I make only two, leading to confusion and lack of clarity. One of the goals of this site is to promote a disciplined and pretty methodical approach to the business of trading. No hunches. No improvisations. The current mess in the track record does not clearly reflect that objective.

I'm going back to reflecting the results of each position in their expiration month going forward.
This means, that a November Iron Condor that is closed during the month of October, will see its results reflected in the November expiration cycle. The Track record will become much clearer as a result. Each month will only reflect two trades: an Iron Condor and an Elephant (although sometimes a Credit Put spread). This will reflect the true intention of each trade and the role that each position plays in a cycle. Also, no more splitting of partial closes spread across different months.

As an indirect added benefit, there will be no more temptation to close a trade too early just to make current month's results look better, in detriment of the long term and the big picture. For instance, at times, I have been near flat for the month or even slightly negative. It is the last week of the month or so and in order to keep seeing an up-trending equity curve in the track record, I may be tempted to close an existing position that belongs to the next expiration cycle a bit too early just to lock in a gain and make the present month look a little better. This goes against the whole purpose of trading, which to me is not to "look" good, but to actually "do" good and obtain the greater amount of dollars that your risk taking allows you to responsibly achieve.

Rest assured, in no way will the track record be tricked or anything like that. All the gains and losses will be reflected, as always, to the last penny.

So, there you go!
Back to clarity.

Thanks for the feedback to those of you who have approached me about this.

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