2013 Year in Review

The Good-

I had my best year trading from an absolute profit standpoint.

I had my capital allocation bumped 3x this year. I just found out last week on #3.

Trading volatility, especially in the last quarter of the year, was excellent.

The Bad-

Although I had some great stock and risk arb deals (Rue21, ChipMos, Digital Generation, Focus Media) I had some equally phenomenally bad calls (NamTai, Brookfield Property Partners) When looking at the stock picks, the ultimate issue was position sizing. Losses were sized much larger than winners, the curse of averaging down and selling winners too early. Most of my large losses were in common stock and half way through the year, I changed my strategy to play fundamental ideas thru options (with the exception of risk arb of course) 

The Ugly-

There were numerous opportunities over the summer to maximize gains even further. Due to a lack of clarity or perhaps just good old fashion poor trading instead of making incremental gains I spent much of the summer running in place.

These gains are great but it was also produced in a year with the overall market up almost 30%.

In keeping up with tradition I am including a P&L chart of volatility trading. The chart is absolute P&L and the magnitudes differ based on capital which have changed over the course of the year, so day to day is not be apples to apples.

VolTrading 122813

I began trading far more of the ETF SVXY and it’s associated options this year. My core position became a long common and overwrite an OTM call position. This requires a better ability to “time” volatility and have utilized some simple trend following techniques to help. With a larger capital base I have the ability to maintain larger positions amid draw down for the subsequent recovery and have taken full advantage of that. Additionally, my market breadth model stayed bullish almost the entire year which has positioned me to sell all blips in volatility this year. The summer performance is still perplexing, I wasn’t able to really break out of that rut till Sept-Oct time period. In any case, I found the 1×2 position comfortable to manage and easy enough to adjust. I am contemplating buying ZIV ETF (mid term volatility) instead of SVXY however since no options currently trade on ZIV I would have to calculate a hedge ratio between ZIV and VXX/SVXY call options. Not an easy task. The midterm vol is simply a tamer beast and not subject to the massive swings the front end of the vol structure occasionally experiences.


Considering how well the overall market did, and the relative calmness of the volatility market I am a bit disappointed in the end performance. Not due to losses, though that obviously needs to be looked at, but not making enough when the time was right. The summer actually offered fantastic opportunities in the vol space, with the taper tantrum and Syria resulting in short lived vol blips. I still have a tendency to try to pick tops in vol and have built indicators to attempt it, but ideally I’ll wait for vol to break before initiating large positions. I say ideally because that is far harder to do then say.

In any event, happy & prosperous 2014 and thanks for reading!

~ by largecaptrader on January 6, 2014.

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