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YTD P&L: -0.8%
MTD P&L: -0.8%
WTD P&L: -1.72%

Below are the key takeaways of my trading portfolio from last week

  • Disappointed that my P&L is negative on the year with January almost finished
  • Pleased to see how little of a loss I have taken so far given the monstrous price movements in the market
  • Knowing my account has unnecessary risk due to low account capital
  • The market’s are grinding up within a very large bearish pattern, so what does that mean for next week?

To get started I want to talk about my overall P&L. I am generally disappointing that I am negative on the year (who wouldn’t be?). The more important question is, what could I have done differently to start the year, that would have possibly increased my P&L. Looking back, and I have mentioned this in previous posts, but I poorly initiated and managed some short premium trades mid-December. Those are trades that I have carried into the new year and have continued to cause problems. Mid-December I had way to many positive delta’s. I also was over-leveraged in both my buy-and-holds as well as my short QQQ and short XLE positions. I have vowed to let these positions naturally correct themselves as I roll them off, which is the plan I have continued to stick to. I imagine these will all be resolved by next month.

The next thing to note is how well my account has weathered this epic rise in the NASDAQ. This recent rally is now the fastest 50% retracement of a bear market in history. This came on the heels of the worst December in history. That means my portfolio is getting a very early trial-by-fire by having to face some pretty extreme movements, right out of the gate. The crash that occurred in December caused a 10% draw down in my account. The subsequent rally has put my down less then 1% year to date. How well my account has fared on the rally back is likely due to some risk reduction measures I took in early January.

My account also has a good amount of hedge built into it now with my delta’s sitting at -92, I estimate that it would take a drop of over 20% within a 1 to 2 week period for my account to take a material loss. My upside is more risky right now, but a continued rise in the markets would trigger an automatic defensive roll which would subsequently cut my upside risk by about 1/2.

The next thing to note is that I am forced to have a more risky account due to lack of capital. This is because part of my strategy’s risk reduction comes through diversification and I simply do not have enough capital to properly diversify. For example, a single short strangle in QQQ represents $16,500 of underlying. That 1 position alone puts my account at almost 1X leverage. There is only 1 solution to this problem which is adding more capital. I guesstimate a minimum of $50,000 in capital to be able to diversify properly. My goal is to at least have that much in my trading account by the end of February.

The final thing to look at is where the markets stand technically right now. The price action that occurred in Q4 of 2018 I believe caused some technical damage. While the past 3 weeks make it all seem like a distance memory, I don’t believe it will be resolved that easily. My expectations is for volatility to re-enter with a vengeance and for the markets to be trapped in the 2400-2800 range for a while. I have been tracking a rising wedge, which is generally a bearish pattern. The market’s have attempted to break out to the upside a number of times only to be pulled back in. If we see price break and hold below this rising wedge, there could be a swift selloff. While I don’t believe we will see lower lows, I think we could certainly see a 50% retracement of this up-move. We shall all find out soon enough!