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New RUT trade vs Bearish Butterfly Comparision

10 replies, 4 voices Last updated by Andrew Stanton 2 years, 7 months ago
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    • #13842

      Andrew Stanton
      Participant
      @astanton@optonline.net
      Points: 1 012
      APM2The Trading Triangle Maui 2016
      Rank: Sophomore

      Portfolio Margin is like collecting Theta in a super high negative Gamma position. It works like a miracle… until it doesn’t.

    • #13739

      Rahim Khataw
      Participant
      @crxboyz@hotmail.com
      Points: 122
      Rank: Newbie

      Comparing the 5 year results for the this new trade to the posted bearish butterfly numbers:

      2013 was 0.9%, 2014 was 146.2%, 2015 was 107.6%, 2016 was -46.2% and 2017 was 143.8%.

      5 year average is 70.46% and accounting for the overlapping trades, divide by 1.5 to get 46.97%.

      Bearish butterfly 46.97% and due to drawdowns perhaps you would allocate 50% of your capital to this trade you would get 23.49% as the average per year.

      The new trade 27.75% and due to drawdowns you can allocate up to 60% of your capital to get 16.7% and 50% would be 13.9%.

      That is with a regular margin account. Those lucky people who have portfolio margin and are smart enough to use the right amount of capital would have a lot higher returns with this new trade. And that’s why all the Rising Stars on Tastytrade all mention that they have portfolio margin at some point in the interview.

      Without portfolio margin, it looks like the bearish butterfly would be a better bet for now and then perhaps The Rock trade later on which has very impressive results over the last several years!

      Thanks, RK

      • #13752

        John Locke
        Keymaster
        @john-locke
        Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

        Simple is good. Can you send send an email with a picture of the position on an analyze graph?

    • #13738

      Rahim Khataw
      Participant
      @crxboyz@hotmail.com
      Points: 122
      Rank: Newbie

      Here are the 5 year results:

      2013 was 27.64% , 2014 was 35.99%, 2015 was 68.34%, 2016 was minus 23.89%, and 2017 was 30.69%. 5 Year average was 27.75% assuming you are using 100% of your capital on this trade.

      72 trades from 2013 to 2017 (Actual calendar years Jan 1 to Dec 31 of each year), 60 wins, 83% win rate, DIT was 22.43 days, average buying power was $14,959.77 per 1 contract.  Worst drawdown was $5943 from Jun 27, 2016 to Nov 25, 2016, so the most you could put into this trade would be 60% of your capital. There was only one occurrence of back to back losers for a measly $30 followed by a loss of $95 in Nov and Dec 2014. Worst loss was $5,010 on Nov 25/16.

      This is one of the easiest trades out there. Put it on, set your GTC profit order, then leave it alone, and halfway through the cycle take of the trade if it’s the profit order hasn’t been filled by then.

      In terms of long term results, Tastytrade has the following, Jan 2005 to March 2016. You allocate 25% of your portfolio to this strategy and you beat SPY buy and hold with dividends by 100%. If you allocate 16% of your portfolio to this strategy, you match SPY buy and hold with dividends.

      • #13809

        Bas Snelders
        Participant
        @basn@levix.nl
        Points: 341
        Rank: Freshman

        Hi Rahim,

        The new RUT trade you were talking about, is that some sort of a bull trade variant?

         

      • #13810

        Rahim Khataw
        Participant
        @crxboyz@hotmail.com
        Points: 122
        Rank: Newbie

        Hello Bas,

        The trade i was looking into was mechanically doing strangles in RUT using Tastytrade method (However I was not using Implied Volatility Rank (IVR) as a criteria which is what they preach) – Sell 16 delta strangle in monthly expiry, manage winner and manage early, rinse and repeat, etc….

        You have to stay small with this trade.

        Thanks, RK

    • #13722

      Rahim Khataw
      Participant
      @crxboyz@hotmail.com
      Points: 122
      Rank: Newbie

      Hello John,

      I agree that having enough money for 2 fully sized trades for over lapping trades is not necessary so perhaps dividing the results by 1.5 would be more practical:

      2017 – 95.9%

      2016 – minus 30.8%

      2015 – 71.7%

      3 year average would be 45.6%

      After that I would need to account for drawdown’s and figure out how much of my capital i can actually allocate to this trading system. Assuming 50% capital allocation to account for losses/drawdowns, it would be roughly 23% average for the last 3 years. Since it’s a defined risk trade, i don’t think porfolio margin would play a role in the numbers but i could be wrong.

      The new trade i’m looking into has a 3 year average of 25% using a regular margin account with 100% capital allocation. I’ve been speaking with Tom Sosnoff about the huge advantage America’s get with Portfolio Margin and how it’s hard to generate a similar level of returns when you don’t have portfolio margin. Using the portfolio margin numbers i seen on their website, this 3 years average would be about 4.5 times higher so well into the 100%+ (SPX trade in normal account $33000 buying power, in portfolio margin a mere $7200…so 4.5 times less capital required). And then if you are using around 25% capital for this type of trade which they somewhat recommend, then both trades are somewhat equal on a return basis for the past 3 years.

      I’ll be backtesting the rest of the years and looking at drawdowns, win rates, etc… to get a better comparison between the different trades. 2018 should definitely be interesting for both trades 🙂

      Thanks, RK

      • #13731

        John Locke
        Keymaster
        @john-locke
        Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

        Rahim,

        Glad you’re excited about the strategy you’re trying. Keep us up to date.

         

        Regarding the statement “the huge advantage America’s get with Portfolio Margin and how it’s hard to generate a similar level of returns when you don’t have portfolio margin”, I disagree. I believe PM is a disadvantage. Determining returns off portfolio margin is deceptive “fuzzy math”. It promotes trading oversized and creates situations where the trader is much more likely to blow up. If a trader wants to utilize PM that’s fine, but trading with more money than is appropriate (Which is not smart), while pretending he’s not at risk for the full amount, or pretending he’s making a higher yield (which is an illusion) just because a broker says it’s OK is going to be problematic when reality sets in.

    • #13720

      John Locke
      Keymaster
      @john-locke
      Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

      If you’re asking how the BB trade percentages on the website were determined, they are the “trade for trade” results. So if you were to consider trade overlap and wanted to keep enough capital for 2 fully sized trades, (which isn’t necessary) then you could cut the web results in 1/2

      2017 – 143.8%                  71.9

      2016 – Minus 46.20%       -23.1

      2015 – 107.6%                  53.8

      That said, we cannot “compare trades” solely by percentages like that, nor can you evaluate an individual trade solely in that manner. There are so many problems and poor decisions that result from this line of thought I can’t even begin to address them here.

      As a side note, I don’t know the extent of the testing but 3 years is not sufficient time to evaluate a strategy.  Realistically, the testing should run back as far as there is data, so about 15 years.

       

      • #13740

        Rahim Khataw
        Participant
        @crxboyz@hotmail.com
        Points: 122
        Rank: Newbie

        Hello John,

        I agree that portfolio margin is dangerous if not used properly. However, those people who use it properly and stay real small, man oh man, they have it easy and can generate a high level or return. I just recently found this out, same trades as them and my results weren’t even close to their returns. People outside of USA, have it much harder when it comes to trading. So now i’m on the search to find a better trade with defined risk so i can reach my own trading goals.

        Thank you, RK

    • #13714

      Rahim Khataw
      Participant
      @crxboyz@hotmail.com
      Points: 122
      Rank: Newbie

      Hello All,

      I’m looking into a new RUT trade:

      2017 – 31% return

      2016 – Minus 24% return

      2015 – 68% return

       

      Average for 3 years is 25%.

      That’s using 100% of the capital and it’s an easy trade. The worst drawdown was from Jun 27/16 to Nov 25/16 where it lost $6000. Buying power average was $15,805.02 for a regular margin account so you could put about 60% of your capital into this trade at the most. 46 Trades with 40 winners so 87% win rate. DIT is 20.4 days. During that time period, it did not experience consecutive loses.

       

      I was comparing those returns with whats listed for bearish butterfly:</div>

      https://www.<wbr />lockeinyoursuccess.com/weekly-<wbr />market-and-position-update/</div>

      2017 – 143.8%

      2016 – Minus 46.20%

      2015 – 107.6%

      Average 3 years is 68.4%

      Not to familiar with how those numbers are calculated but my thoughts are:

      They are based on 100% capital allocation, sometimes there is some overlap between the monthly trades, you need to take into account the drawdown and multiple monthly losses.

       

      How can you reasonable compare these two trades based on the data provided?

       

      Thanks, Rahim K

       

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