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Saturday, July 14, 2018

#SP500 Statistical Mechanics of #Daytrading : Part I

      “Number rules the universe.” 


SP500 market is characterized by both deep liquidity and high daily volumes. The popular instruments for trading SP500 index are SPY, SPX and Emini (/ES) futures.   At current prices of SP500 a daily move in Emini futures can easily exceed $1000 while, for example, ThinkOrSwim trading platform requires only ~ $6000 as the initial margin. Consequently, a SP500 daytrader is attracted by the idea to get rich fast like a moth to a flame; more than 90% of retail traders end up losing money. It is reasonable to ask thenWhy do people trade at all?- and is it possible to make money by daytrading SP500. The answer to the first question is not an easy one as it involves many facets of our life. I believe that to a large degree it is related to being in a poor financial situation.

To answer the second question I will use the statistics of one regular trading session of SP500. The probability distribution of daily return of SP500 was presented in the first part of this publication. It was shown that daytrading of SP500 is similar to a coin toss with even payout and with a small favor for betting from the long side. In the second part, a generic algorithm for a retail daytrading of SP500 will be derived based on the calculated statistics. 

PART I : Introduction

Price Patterns and/or Technical Indicators (TA) are usually proposed as a way to describe SP500 or any other market for that matter.  TA is an attractive framework because a human been is naturally a pattern recognition system. Many retail traders look for the Holy Grail in the realm of TA with a great persistence but nearly always end up with a mediocre result at best. No wonder that FOMO-FUD dichotomy is a typical state of TA traders. These emotions - Fear of Missing Out (FOMO), Fear of Uncertainty and Doubt (FUD) can be avoided altogether when outcome expectations are expressed in numbers.

Probability Distribution of SP500's daily return.

Friday, July 13, 2018

#SP500 #daytrading #algotrading : 6 points after fees

In the past week, Medved's day trading algorithm generated 5 trades. The results ( in emini futures points) are as follows:

7/9/2018 8
7/10/2018 -5.25
7/11/2018 -7.5
7/12/2018 8.25
7/13/2018 3.25
Total: 6.75

The previous period was posted here.

There are rumors that Trump's administration manipulates commodity prices

Financial Times - "US cuts forecast for soybean exports to China". The forecast is that when tariff war would force to negotiate a compromise  “ ... you’re going to see a spike in soybean prices, not just a rise”. There are tin foil hat rumors that tariff wars are used by Trump's administration to manipulate commodity prices in favor of people running ICE exchange.

#soybean : trade update

 /ZSU8 soybean futures came close to the protective put @800.  Rolling into /ZSX8 gives some positive theta and keeps the trade alive; the rolling loss is 65 points per contract. As it was explained in the "Soybean Crash" post, the recovery of soybean price is a reasonable assumption here.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type
7/13/2018 11:34 SINGLE SELL -1 TO OPEN /ZSX8 1/50 NOV 18 /OZSX8 900 CALL 19.25 19.25 LMT
7/13/2018 11:34 FUTURE BUY 2 TO OPEN /ZSX8 18-Nov FUTURE 835.5 835.5 LMT
7/13/2018 11:33 SINGLE SELL -1 TO OPEN /ZSX8 1/50 NOV 18 /OZSX8 900 CALL 19.25 19.25 LMT
7/13/2018 11:20 SINGLE SELL -2 TO CLOSE /ZSU8 1/50 SEP 18 /OZSU8 800 PUT 14.375 14.375 LMT
7/13/2018 11:20 FUTURE SELL -1 TO OPEN /ZSU8 18-Sep FUTURE 826 826 LMT
7/13/2018 11:20 FUTURE SELL -1 TO OPEN /ZSU8 18-Sep FUTURE 826 826 LMT

Thursday, July 12, 2018

#WTI #RBOB pair #trade : rolled and sold puts

Oil gasoline pair trade remains a problem child. I have rolled Simple Crack Spread from Q8 to U8 cycle.  Also, I have sold puts according to the plan outlined in the "When a pair trade goes wrong " post. As a reminder, the rolling P/L is at about -$6000; the realized profit from the closed hedges against this position is about $5300.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
7/12/2018 11:42 FUT CALENDAR SELL -1 TO CLOSE /RBQ8 18-Aug FUTURE 2.0575 0.0255 MKT 16.685
BUY 1 TO OPEN /RBU8 18-Sep FUTURE 2.032 CREDIT 16.674
7/12/2018 11:42 FUT CALENDAR BUY 1 TO CLOSE /CLQ8 18-Aug FUTURE 69.73 1.06 MKT
SELL -1 TO OPEN /CLU8 18-Sep FUTURE 68.67 DEBIT
7/12/2018 11:40 SINGLE SELL -2 TO OPEN /CLU8 1/1000 SEP 18 /LOU8 65.5 PUT 1.02 1.02 LMT
The previous trades were posted live in this thread.

Tuesday, July 10, 2018

+$650 #WTI : bought back puts

For more than two years in a row selling  /CL puts was a 100% winning strategy.  I think that at some point rising rates will kill this bull market in oil. It is time to switch to a delta-neutral strategy like Iron Condor.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type
7/10/2018 9:41
SINGLE BUY 1 TO CLOSE /CLZ8 1/1000 DEC 18 /LOZ8 50 PUT 0.16 0.16 LMT
7/10/2018 9:36 SINGLE BUY 1 TO CLOSE /CLQ8 1/1000 AUG 18 /LOQ8 70 PUT 0.09 0.07 LMT
7/10/2018 9:36 SINGLE BUY 1 TO CLOSE /CLQ8 1/1000 AUG 18 /LOQ8 70 PUT 0.09 0.07 LMT


   The trade entries were posted live here and here

Monday, July 9, 2018

#silver $SLV : long-term income #trade

I continue selling calls against SLV which makes the trade work like a rental income.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type
7/9/2018 11:23 SINGLE BUY 6 TO OPEN SLV 17-Jan-20 9 PUT 0.01 0.01 LMT
7/9/2018 11:13 SINGLE SELL -6 TO OPEN SLV 17-Jan-20 17 CALL 1.09 1.09 LMT
7/9/2018 11:11 STOCK BUY 600 TO OPEN SLV ETF 15.1746 15.1746 LMT

+$800 #WTI #RBOB pair #trade : scaled out @15.58

I keep scalping  Simple Crack Spread - gasoline oil pair trade - using /CLQ8 and /RBQ8 futuresThe previous entries are here.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
15.581
7/9/2018 9:26 FUTURE BUY 1 TO CLOSE /CLQ8 18-Aug FUTURE 73.9 73.9 MKT
7/9/2018 9:26 FUTURE SELL -1 TO CLOSE /RBQ8 18-Aug FUTURE 2.1305 2.1305 MKT

Friday, July 6, 2018

+$500 : #SP500 #daytrading #algotrading

Since  June 21st, medved's day trading algorithm generated 5 trades. The results ( in emini futures points) are as follows:

6/25/2018 2.75
6/27/2018 -15
6/28/2018 18
6/29/2018 -11.75
7/2/2018 16.5
Total: 10.5


The previous period was posted here.

Q8 #WTI #RBOB pair #trade : scaled in @14.77

The rollercoaster in Q8 Simple Crack Spread continues. The first hurricane is approaching.  The gasoline oil futures spread may spike anytime now.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
14.7712
7/6/2018 14:32 FUTURE SELL -1 TO OPEN /CLQ8 18-Aug FUTURE 73.79 73.79 MKT
7/6/2018 14:32 FUTURE BUY 1 TO OPEN /RBQ8 18-Aug FUTURE 2.1086 2.1086 LMT

Wednesday, July 4, 2018

#WTI #RBOB pair #trade : sold puts again

When a pair trade goes wrong one can try to sell theta.


Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type
7/4/2018 9:27 SINGLE SELL -1 TO OPEN /CLQ8 1/1000 AUG 18 /LOQ8 70 PUT 0.3 0.3 LMT
7/4/2018 9:27 SINGLE SELL -1 TO OPEN /CLQ8 1/1000 AUG 18 /LOQ8 70 PUT 0.3 0.3 LMT

Tuesday, July 3, 2018

+$400 #WTI #RBOB pair #trade : scaled out @14.98

Gasoline Oil spread remains very volatile. I use this volatility to improve the basis while waiting for another summer spike in the price of gasoline.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
14.9868
7/3/2018 11:49 FUTURE BUY 1 TO CLOSE /CLQ8 18-Aug FUTURE 73.44 73.44 MKT
7/3/2018 11:49 FUTURE SELL -1 TO CLOSE /RBQ8 18-Aug FUTURE 2.1054 2.1054 LMT


#silver $SLV : Income #Trade

Let us gobble more silver.  Recently they sell it cheap.  Selling calls against the SLV shares makes the trade to work similar to rental income.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type
7/3/2018 11:22 SINGLE BUY 9 TO OPEN SLV 28-Jun-19 10 PUT 0.01 0.01 LMT
7/3/2018 11:15 STOCK BUY 900 TO OPEN SLV ETF 15.0646 15.0646 LMT
7/3/2018 11:12 SINGLE SELL -9 TO OPEN SLV 28-Jun-19 16.5 CALL 0.76 0.76 LMT

Monday, July 2, 2018

#WTI #RBOB pair #trade : scaled in @14.58

 How to calculate and trade Simple Crack Spread using gasoline (RBOB) and Texas Oil (WTI) Futures.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
14.5802
7/2/2018 12:21 FUTURE SELL -1 TO OPEN /CLQ8 18-Aug FUTURE 73.96 73.96 MKT
7/2/2018 12:21 FUTURE BUY 1 TO OPEN /RBQ8 18-Aug FUTURE 2.1081 2.1081 LMT

Sunday, July 1, 2018

Saturday, June 30, 2018

#Soybean Crash


The USA soybean futures are down about -15% off their recent highs. I have sold 2 /ZSU8 910 Puts for about $4 and as of Friday close, the price was $868.5.  This big loss doesn't scare me.   
Main factors causing the crash are weather outlook and demand from China. At the same time, the Brazilian soybeans for loading in September are at a premium of about $2 per bushel to futures traded on the Chicago Board of Trade. So far this is the result of trade wars ignited by the president Trump. However, soybean watchers believe that if China implements tariffs, the European Union will import more beans from the USA than from Brazil.  The common wisdom is that the discounted price in the U.S. will cause that to happen. As for the weather impact, one can say that probably the best weather scenario for soybean farms is already priced in.  

For the above explained reasons I have neutral to long bias and will keep 2 /ZS futures contracts in the portfolio while selling Calls.

Friday, June 29, 2018

+ $420, #WTI #RBOB pair #trade : scaled out again @16.36.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
16.3558
6/29/2018 12:13 FUTURE BUY 1 TO CLOSE /CLQ8 18-Aug FUTURE 73.94 73.94 MKT
6/29/2018 12:13 FUTURE SELL -1 TO CLOSE /RBQ8 18-Aug FUTURE 2.1499 2.1499 MKT


I have 2 pairs left @19.80.

#WTI #RBOB pair #trade : scaled out @15.46; $700 profit

 Scalped $700 .    This trade is short WTI oil futures against RBOB gasoline futures also known as Simple Crack Spread. By this trade, the position was reduced back to 3 pairs @18.5.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
15.4668
6/29/2018 9:54 FUTURE BUY 1 TO CLOSE /CLQ8 18-Aug FUTURE 74.22 74.22 MKT
6/29/2018 9:54 FUTURE SELL -1 TO CLOSE /RBQ8 18-Aug FUTURE 2.1354 2.1354 MKT

Thursday, June 28, 2018

#WTI #RBOB pair #trade : scaled in @14.75

This is becoming an All In trade now.

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
14.7522
6/28/2018 13:03 FUTURE SELL -1 TO OPEN /CLQ8 18-Aug FUTURE 73.62 73.62 MKT
6/28/2018 13:03 FUTURE BUY 1 TO OPEN /RBQ8 18-Aug FUTURE 2.1041 2.1041 MKT


Wednesday, June 27, 2018

#WTI #RBOB pair #trade : bailed out /CLQ8 puts; profit $1050

The powerful after OPEC rally has sent /RBQ8 -/CLQ8 simple crack spread back to 16 ( How to calculate and trade Simple Crack Spread using RBOB and WTI Futures). The position is now 3 pairs @18.5.  Thus so far the running loss is -$7,500. On the other side, the defense by /CL puts worked out well and these puts were bailed out today - plus one thousand fifty federal reserve dollars.


Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type
6/27/2018 11:31 SINGLE BUY 1 TO CLOSE /CLQ8 1/1000 AUG 18 /LOQ8 67 PUT 0.19 0.19 LMT
6/27/2018 11:30 SINGLE BUY 2 TO CLOSE /CLQ8 1/1000 AUG 18 /LOQ8 65 PUT 0.08 0.08 LMT

Tuesday, June 26, 2018

#WTI #RBOB pair #trade : scaled in @15.91

 Q8 Oil - gasoline pair trade keeps swinging in a very violent fashion. In the morning I scaled out @18.11 and now I am back @15.91. Please remember that $1 of Crack Spread costs $1000 ( How to calculate and trade Simple Crack Spread using RBOB and WTI Futures. ).


Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
6/26/2018 14:38 SINGLE SELL -1 TO OPEN /CLQ8 1/1000 AUG 18 /LOQ8 67 PUT 0.48 0.48 LMT
15.912
6/26/2018 14:28 FUTURE SELL -1 TO OPEN /CLQ8 18-Aug FUTURE 70.44 70.44 MKT
6/26/2018 14:28 FUTURE BUY 1 TO OPEN /RBQ8 18-Aug FUTURE 2.056 2.056 MKT

#silver income #trade : take $100 profit and roll

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type
6/26/2018 13:49 SINGLE BUY 7 TO OPEN SLV 17-Jan-20 10 PUT 0.03 0.03 LMT
6/26/2018 13:45 SINGLE SELL -7 TO OPEN SLV 17-Jan-20 16 PUT 1.51 1.51 LMT
6/26/2018 13:43 SINGLE BUY 7 TO CLOSE SLV 28-Sep-18 16 PUT 0.91 0.91 LMT

#WTI #RBOB pair #trade : scaled out again, profit +$700

Exec Time Spread Side Qty Pos Effect Symbol Exp Strike Type Price Net Price Order Type Crack
6/26/2018 8:18 SINGLE BUY 1 TO CLOSE /CLQ8 1/1000 AUG 18 /LOQ8 65 PUT 0.43 0.43 LMT
18.1102
6/26/2018 7:50 FUTURE BUY 1 TO CLOSE /CLQ8 18-Aug FUTURE 68.33 68.33 MKT
6/26/2018 7:50 FUTURE SELL -1 TO CLOSE /RBQ8 18-Aug FUTURE 2.0581 2.0581 MKT