I decided to start the monthly report again as a part of the “Can you make a living with a 50K trading account?” challenge.
The idea is to see if it is possible to earn enough income by trading options with a 50K account.
There will be withdrawals from the account every month to supplement living expenses and the idea is to simulate this as close as possible to a real-life situation so we can see how stressful (or not stressful) being a full-time trader could be.
To set the stage for this and upcoming monthly reports, let me explain where I stand now.
Am I still trading the Wheel Strategy?
As some of you might have noticed, I started talking about Technical Analysis (TA) more heavily in recent months. The shift in trading style from a simple mathematical approach (just keep selling options with X delta value and Y days to expiration disregarding the market condition) to heavily focusing on TA primarily came from my realization that trading options is just like trading stocks. The reason that Wheel Strategy was working so well last year was simply it was upmarket, and not because the Wheel Strategy was such a special options trading strategy that it made money.
Currently, the market condition is overall bearish so it is not ideal to buy stocks. The Wheel Strategy is essentially the same as buying stocks (unless you choose to Wheel underlying with negative Beta value such as inverted ETF) so continuing to trade with just the Wheel Strategy is like trying to hit nails with a screwdriver rather than a hummer.
My approach to the Wheel Strategy remains to find stocks with high IV. Maybe a better term to describe the kind of trades that I do is “Selling Naked Puts” since I do not plan to hold the stock long term even if I get assigned.
Also, depending on the circumstance, I might open a Credit Put Spread to conserve margin and add downside protection.
Am I still trading VIX-related products such as VXX and UVXY?
I have started looking into trading VIX options rather than VXX, UVXY, or other VIX-related ETPs.
One of the reasons was Barclays suspended the issuance of VXX in early 2022 and as a result, its price stopped reflecting the VIX spot price. Even though shorting VIX-related ETPs could be very profitable, managing the positions when VIX spikes are very stressful.
Whereas VIX options are based on VIX futures so the spike is not as large and thus there is more time to react and adjust positions when VIX spikes. It still benefits from contango and time decay so the profit might not be as big as trading VIX-related ETPs, I found this more in tune with my trading style.
What else am I trading?
In addition to the two strategies above, I also trade options of single stocks and S&P 500 indices (SPY, SPX) from time to time.
I must say it has been mixed results because a lot of times these are directional trades and the market does what it does no matter how well you read the market with Technical Analysis.
August 2022 PNL
To simplify the reporting, this section will be subdivided into two sections by grouping trades that were related to the VIX options and not related to VIX options.
Non-VIX Options trades
PNL for August was negative overall. To be fair, there were some open positions from July 2020 and prior that were accounted for in this calculation. So good or bad, what we see here is not 100% from activities that occurred in August 2020.
|August||$ (1,356)||$ 5,501||$ (6,856.96)|
VIX Options trades
Unlike the Non-VIX options trades, all the VIX options trades were initiated in August. The negative PNL trades were opened as a part of hedging for the entire account. These positions started to lose money as the market started to climb in mid-August (SPX chart below) and were closed prior to the expiration.
|August||$ (4.00)||$ 567.00||$ (571.00)|
Trading Account Graph
This graph shows how the trading account fluctuates during the month.
Please note funds were withdrawn weekly ($500 or $1,500 bi-weekly = $4,000 monthly) to cover living expenses. My personal “success” metric at this point would be to maintain the 50K level.
This chart provides more context as to what happened in the market for the month and makes it easier to see and compare how that is reflected in the trading account graph.
For example, SPX had a large decline in late August and I had a short SPY position. This is why there is a large spike from 47.5K to 52.5K in the trading account towards the end of August.
Thoughts for August 2022
Ever since I started trading, I found that one of the hardest things to do is self-control.
I have traded market indices options many times before and never really managed to be consistently profitable from those trades, yet, I keep going back to trade them.
This was no exception in August and while I did make a small profit from these trades (the table below), it was not really worth the stress and time. The main reason that I keep trading them is because of FOMO (Fear Of Mission Out). I feel like I can read and feel the market. It’s just such a waste not participating when the market is giving opportunities every day to make money. Also, I feel like I am not a real trader if I don’t trade them.
As I am writing this in mid-September, to give you a sneak preview, I would actually keep trading market indices in September as well for one reason or the other.
However, something would make me change that. I will share more details in the September report post.