Tuesday, December 19, 2017

2017 Recap

With 2017 winding down and my short VIX allocation dropping precipitously due to spot vix, /vx, and the looming shadow of the uvxy reverse split , I guess its a week or so early but good enough time to recap.
 So for big bulletpoints its looking like:
~22% YTD (including cash, hedge positions; short vix component is ~100% ROIC as with most short VIX strats)  This is a rough number based on net liq after fees, with some open positions having a wide spread deep in or out of the money.
Portfolio allocations, mentioned from previous articles:
~20-40% hedge position in TLT options/metals options, this was a large % of the portfolio and a small net winner overall, so this year it was better than just cash.
~30-50% cash for the whole year, basically more ready for a vol spike than other strategies, and only really saw one in August.  This was a conservative short vol strategy.

Overall it doesn't look insane given SPY action for the year, but I am very happy with the flexibility and cash reserves given the potential for a correction.  Again this is a hybrid of the Boglehead total market buy and hold, with the Tastytrade option/theta approach, giving a similar exposure to long SPY with only a fraction of the portfolio (~15-20%) getting the downside velocity risk.  I know there are short VIX traders posting 200-300% ROI/ ROIC on portfolio margin using all buying power all the time at this VIX range, but I'm still on the "conservative" short VIX side.
When you are picking your option deltas, % in or out of the money, you kind of have to model in advance.  In the first few months of the year I was hoping to get 10-15% in a flat market, and then pounce if we got a big VIX spike.  With VIX crushes coming so frequently, I was able to roll and compound quicker, but obviously you can't plan for a market year like this so it looks lackluster, whereas if S&Ps were only up 10%, I'd look like a genius.
Overall I equate the whole portfolio to the at-the-money covered call poker example, where if we are making way above market average with a large cash/ bond position, then that is the situation you want anyway, and looking forward I'd rather have 15% risk on going into some crazy overnight crash than 100% in S&Ps.

Thoughts for next year, Macro thoughts for the future-

Portfolio allocation:
Regrets? Obviously in hindsight I should have loaded up more in the August dips, but for that matter I should have just been long UVXY puts no spread all year, of course that's not how you should think of risk going forward.  As I said a few times in articles- I'm almost glad when there are the slightest pangs of regret "I could have gone bigger," because that means the nebulous greed is out there and it didn't grab me yet.  Having cash left is like the old saying about rather having a gun and not needing it than needing it and not having it.  (Investing and poker are ripe with "firing your bullets, load up, empty the clip" metaphors) 
In terms of actual changes I think I might drop the metals component altogether and keep it closer to just short VIX/ bond options, and experiment with other small positions going forward.  I have a further note on crypto in a bit but it is possible in the short term that crypto might take some of the place of metals as a hedge and I don't want my 'hedge' position to be losing any liquidity/ premium.  Past that I'm just always looking to simplify. 

Risk/ROI thoughts:
Again, I'll get to crypto in a second but this ties in with risk, ROI, and just seeing flat numbers.  If I say I made 20% and an all-in short VIX trader made 100%+, then I'm the idiot. If he posts his YTD, then a 'crypto trader' is up 1000%, then the 2nd VIX trader is the idiot.  No one cares about risk management when they see the number at the end of the year (if it worked), they don't care about your cash %, hedge% and mechanics.  As a trader/investor only you can look out for that and you have to be the main person that truly cares about Sharpe and tail risk.  For that reason you should really ignore this whole blogpost or any twitter post on YTD but the one of you that made it this far is already this deep into the rambling.

Crypto thoughts-
I was going off in a previous article on the mechanics of BTC to USD on/off ramps and hardware/logistical issues.  Fortunately since then, the BTC transaction fees and pending transactions have gone through the roof, new market manipulation mechanics have surged,  and the spot price has naturally decoupled from any possible fear.  (I specifically wanted to discuss the logistical issues and not just the "mania" of the spot quote, so in that sense everything is going according to plan).
But Robert, when will you admit defeat and change your mind?
Very simple, when any pro blockchain person can actually articulate the efficiency without somehow doubling back and turning the whole thing back into a centralized structure. (hint: a truly decentralized blockchain is by design a less efficient database, so I'll be waiting a long time.) The real "correct" answer is regulatory arb where you can't use USD for a transaction and will pay the inefficiency in using crypto because it's your only option. Lightning network, centralized altcoins, Bcash under Roger Ver, straight up centralized databases that companies are calling "blockchain" for marketing value- I'm looking at you Microsoft- are the "answers" which all fall insanely short. While I'm at it asking the genie for more wishes, bring me a shark that outruns a cheetah, really hot air conditioning,  or pick your own better metaphor.
Again this is no price commentary because it will keep going up until it explodes, assuming at some point people will resume being rational actors in a game theory sense and won't want to 2- 10x their transaction times and fees for services.  I was recently mentioning BTC spot as a derivative on stupidity which you could get long on, which now given "institutional" interest I'm coming to the generalized case that it's a pure Keynesian beauty contest.

Well, there you have it, a year of trials and tribulations and petty bickering on twitter and in hindsight even I will only remember it as a number, if at all.  Perhaps next year will be even more fleeting.
As an aside, thank you to the 1-5 readers that actually see this, I was surprised to get to over 400 followers on twitter since the beginning of the voyage this year, most of that I'm assuming were misclicks.  This rambling is all I've got in my life right now, besides waking up to see some angry red numbers on the trading platform.  

So thank you all, and to all a good night!


  1. Very interesting info. Thank you for writing this...

  2. I'm probably going to stop hedging with TLT covered calls as to me it isn't worthwhile from a return / stress perspective. Would rather just hold cash and do my short volatility thing so I only have one asset class to worry about.

    I'm very much in agreement with being a 'conservative' short VIX trader; personal preference is for nice returns without substantial drawdown risk and then be mentally prepared to go in hard for 'super profits' when the bigger volatility spikes occur.

    And regards crypto....I don't understand what is going on, so will stay well away. Am very happy to have found my profitable little niche in VIXworld and see no need to wander elsewhere

  3. Fuck the all in short VIX traders, they wont be around in 5 years, maybe not even next year.