60% Return, Dinged Sharpe Ratio in the Process

Since Inception - 60% Mile Stone

I have slighted away from my initial concept to have around 5 open positions and trade around them, but I think I am going to make an effort to return to that. In the past few weeks I have experienced significant volatility in overall P&L but, despite it working out quite well for me and reaching a new high of 60% return since inception, my Sharpe ratio has taken a significant hit–and this isn’t a healthy direction to go. So I will try to focus on spreading out positions once again, and reducing size.

I will be spending some time on SeasonAlgo this week and looking for a few ways to spread things out in these interesting times.


CL Crude Oil Inventories rose significantly after being reported on this week; this drove the differential of my -Jun/+Dec CL Crude Oil calendar in a favourable direction. This was pleasant news because, up until I closed it at $5.05, it was by far my largest position. In a way I am glad it is closed now so I am not waking up in the middle of the night catching myself thinking about it. If I decide to get back into this trade, I likely will take a more modest position size and it probably won’t be contributing to huge swings in P&L. Total profit per contract this time around was $0.95.

Jan. 25, 2015 - CL Crude Oil Calendar, -Jun/+Dec Exit @ 5.05

Jan. 25, 2015 – CL Crude Oil Calendar, -Jun/+Dec Exit @ 5.05

The GF Feeder Cattle reverse calendar for +Mar/-Apr is my current largest position now and only remaining seasonal trade (ZC Corn was closed for a small loss). As mentioned in the previous post, this position contributed to a large swing in P&L when it unexpectedly moved against me fairly aggressively. My decision to stick it out and play the probability as opposed to the P&L was rewarded: the spread started to collapse and eventually broke into positive territory. I did not take any off the table or add any, and it reverted back to my entry level. We will see how this plays out in the next few weeks, as I will be due to close it at some point.

Jan. 25, 2014 - GF Feeder Cattle Rev. Calendar, +Mar/-Apr short @ -0.60

Jan. 25, 2014 – GF Feeder Cattle Rev. Calendar, +Mar/-Apr short @ -0.60

This isn’t a position I have open, but I just thought it was a little humorous. Not too long ago I had closed a position in BBRY Blackberry which I closed due to a bad feeling I had in equities (just some weird behavior). A few days after I had closed that position, there was a rumor which hit the news saying Samsung was looking into a takeover of Blackberry send it up about 30% in the afternoon session. As it was happening, I certainly felt like I missed out by just a hair. After the news hit that Samsung didn’t really have any intention of buying BBRY, it sank back down just as quickly. I have mixed feelings about the episode, but I thought it was a pretty interesting reminder of how quickly information moves markets.

Jan 25, 2014. BBRY Blackberry and Samsung Rumor

Jan 25, 2014. BBRY Blackberry and Samsung Rumor

I am still holding my ES S&P 500 1810/1800 Bear Put Spread for March expiration. This trade hasn’t done much other than bounce around, it catches value on large down days and gives them back on up days. Because this is a very low risk low probability position I am not too worried about it. I might close this out just to clean up the portfolio a bit, also because my guess that equities might take a severe beating hasn’t really panned out yet. Since this is a time sensitive trade it may be a better decision to take it off the table.

Jan. 25, 2014 - ES S&P 500 1810/1800 Bear Put Spread for March expiration; Long @ 1.10

Jan. 25, 2014 – ES S&P 500 1810/1800 Bear Put Spread for March expiration; Long @ 1.10



Wild Week, Still Standing

Lots happened last week and this week, including a significant drawdown which was recovered by Friday. I made a deposit recently so that will skew how the returns graph looks, but that is neither here nor there. The drawdown was due to an overestimation and underestimation of the volatility in combination with the leverage of a few positions (GF Feeder Cattle and ZC Corn) which I will go into detail later in this post. Despite all the carnage in the energy sector, and the indecisive volatility of the equity indexes, I am fairly happy to be sitting at this level without being totally crushed.

Jan 12 Account Summary

Jan 12 Account Summary



A few of my decisions this past week were based off the irregular behaviour in the S&P 500 in combination with the continued decline in oil prices. My idea is that, despite the recent win percentage of the index over the past few years, the constant melt-up behaviour becomes less and less likely to continue (and also, the 2008/2009 recession was pre-cursored by a significant sell-off in the energy sector). So, my approach is to take quick stabs at the short side with a low amount of risk and low probability of success. On the same token, it makes me believe I shouldn’t be holding other equities to the long side despite how much I might favor them in a particular trade; a part of me still believes mass selling, if it catches enough momentum, can over power any bullish sentiment on any stock. In short (no pun intended), I am still going to keep my ES S&P 500 1810/1800 bear put spread for March; bought at $1.10, currently $0.90.

Jan13 ES S&P500 March BearPut -1800+1810 @ 1.10

Jan13 ES S&P500 March BearPut -1800+1810 @ 1.10


I like BBRY Blackberry still as a long, but I can’t trust it enough to stay strong because, as a major tech stock, it is going to remain cyclical. So, at the end of the day I made a small profit on it; average entry was $10.15, closed it out at $10.60 after it hovered around the $11.00 mark for a while and fell back down to below my average. If it can reach my buy territory again (anywhere in the 8’s and 9’s), and I’m not bearish on the major equity indexes, then I will reconsider entering again.

Jan 13 BBRY Blackberry, No Open Position

Jan 13 BBRY Blackberry, No Open Position


My GF Feeder Cattle (Short the reverse calendar +Mar/-Apr) and ZC Corn (Long the reverse caledar +Sep/-Dec) positions have somewhat frustrated me. My cattle position, only a day or so after entering, exploded to the upside after being relatively quiet for the past while; due to my universal plan of no hard stops, it had pushed me offside far enough to consider whether I should cut my losses and look on to the next trade, or wait. The original reason I entered the trade was for a seasonal play, several weeks long unless I reached significant profit before then. I decided to go with my gut on this one and wait it out, essentially going off the probability and not the PnL. By today’s session it had relaxed quite a bit and I am back to flat, but I will still be monitoring it carefully. It is this position which is largely responsible for my significant drawdown.

Jan 13 GF Feeder Cattle, Reverse Calendar +Mar-Apr Short @ -0.60

Jan 13 GF Feeder Cattle, Reverse Calendar +Mar-Apr Short @ -0.60


So, that leaves ZC Corn as my position that pretty much went nowhere and I also have about half the size on it as my Cattle position. This was problematic in the sense that it I had under-allocated capital to this trade (or over-allocated, depending on whether I should have taken it at all), which doesn’t help my objective of capital efficiency. I can be satisfied that the position didn’t add any negative return, but at the same time it is a kin to Misty’s Magikarp in the Pokemon television series. In any case, I will be searching for a seasonal trade to replace this one. If I can not find one, I will likely close this position for next to break even and put it towards BBRY Blackberry.

Jan12 ZC Reverse Calendar, +Sep-Dec Entry @ -5.50

Jan12 ZC Reverse Calendar, +Sep-Dec Entry @ -5.50


Last, but certainly not least, had a lot of action in the CL Crude Oil Calendar Spread -Jun/+Dec playing the widening contango. I’ve been in and out of this more times than I specify on the attached chart, but these are the major developments. The spread began to converge towards backwardation aggressively during one trading session last week, this is the day I decided to close out the entire thing @ 4.11. After watching it for a while (not fully believing the widening is totally over), I re-opened the position at various price levels; I improved my average price for matching my initial position size, but ended up buying even more as it trickled upwards. In summary: New average @ 4.13 for double the size from a full close @ 4.11. I am trying to not get too greedy with this position as it has treated me very well over the past while, but make hay while the sun shines, as they say.

Jan 13 CL Crude Oil Calendar, -Jun+Dec, Average @ 4.13

Jan 13 CL Crude Oil Calendar, -Jun+Dec, Average @ 4.13


Oil Breaks Into $48 Range

It looks like the markets decided to kick off 2015 by continuing the sell-off of Oil, forcing it to break into sub $50 trading levels (as I write this, February oil is $49.22).

It appears I was a little premature on closing my short on CL Crude Oil via bear put spread 51/50, but I’m not a big fan of ‘shoulda, woulda, coulda.’ After going back and re-considering how I managed that trade, I still came to the same conclusion that I made the right decision. I am aggressively trying to keep (what I perceive to be) dead trades out of the portfolio, and the CL short fit that criteria at the time.

A general overview of what has been happening for my positions has been a flatline of PnL for the last several weeks. The CL Crude Oil calendar -Jun/+Dec has been the main driver for my upside along with BBRY Blackberry a little bit, while all other positions have kind of been bogging down the book. Need some volatility pretty soon!!! In the right direction, of course.

Just going to make a quick post updating a couple position changes.

Posted a loss on ES S&P 500 long via 2200/2210 bull call spread at -$0.60 per contract, about 5% of book. I closed this trade because the typical thing for the S&P to do following a significant dip has been to continue it’s melt-up. It didn’t happen this time, so I figured the drop in oil is starting to catch up with it.

Instead, I reversed the trade. I opened an ES S&P 500 short via 1810/1800 March bear put spread for a slightly smaller position size. My thought process behind this is simply just trying to catch big moves using low capital requirement positions–I could be more realistic with myself and call it a part of my DNA from dealing with options for so long from when I was younger.

Entered short ES S&P 500 via 1800/1810 March Beat Put Spread @ 1.10

Entered short ES S&P 500 via 1800/1810 March Beat Put Spread @ 1.10

Opened up a ZC Corn Calendar spread, +Sept/-Dec long @ -$5.50. Another play to simply take advantage of a seasonal trade. I am not doing big volume on this trade because I am unfamiliar with the behaviour of Corn price movements and it’s leverage. Also I am not scaling up the volume on this trade because the movement isn’t huge, it’s more or less a position taken to keep the available margin working in a favourable way (of course, only up to my maximum of 65% margin usage). I have attached an image of the seasonal tendencies for this spread below, courtesy of SeasonAlgo.com.

Long ZC Corn Calendar +Sept/-Dec @ -$5.50. Simple short seasonal trade.

Long ZC Corn Calendar +Sept/-Dec @ -$5.50. Simple short seasonal trade.

ZC Corn Calendar +Sept/-Dec analysis chart. Courtesy of SeasonaAlgo.com

ZC Corn Calendar +Sept/-Dec analysis chart. Courtesy of SeasonaAlgo.com

ZW Wheat Explodes!

Posted by murphmack


Haven’t posted for a day or so, been busy at work. Consider this the first official post of Natural Financial because everything up until now has been a port over from a thread I started on EliteTrader forums. So, performance over the last couple days has been great. For those who want a quick fix, the TLDR version:

Long ZW Wheat via 700 calls exploded… Entered @ 6.00, sold 40% of position @ 22.00, current @ 19.00

Short ES S&P 500 via Bear Put Spread.. Sold for small loss (-0.20 per contract)

Replaced this position with Long ES S&P 500 Bull Call Spread. March 2200/2210 strikes @ 1.05

Short CL Crude Oil via Bear Put Spread 51/50 still open. In @ 0.20, Current @ 0.28 (+0.08 per contract)

Long CL Crude Oil -Jun/+Dec @ 2.00, still open, currently 2.30 (+0.30 per contract)

Long LE Live Cattle -Feb/+Apr @ -0.80ish, still open, currently -0.40 (+0.40 per contract)

30-Day Account Metrics:

Account Performance for previous 30 days.

Account Performance for previous 30 days.


Woke up two days to find my long in Wheat ZW via those calls has continued strongly in its uptrend. I ended up closing 2 contracts out of 5 @ 22.00, original entry was 6.00. There is no reason at the moment to think it will instantly reverse and sail down from here, but you never know. I just wanted to take some off the table and hedge against the downside.


Long Wheat ZW via March 700.00 Calls @ $6.00 per CT


The equities markets and Crude Oil were rallying hard over the last two days. This didn’t help my short-biased CL Calendar Spread for Jun/Dec. It held up pretty good though, entered at $2.00 and the lowest it sank was $1.90 despite oil rallying in the front months up near $58.50. I also held through my short play CL Bear Put spread for March expiration, 51/50 strike; entered at $0.20 and currently trading around $0.30. I plan to hold both of these, they are low cost trades so doesn’t eat up a lot of margin and potential for profit is significant in these volatile conditions.

Crude Oil CL Calendar -Jun/+Dec long @ 2.00

Crude Oil CL Calendar -Jun/+Dec long @ 2.00

Crude Oil Bear Put Spread March 51/50 @ $0.20

Crude Oil CL Bear Put Spread March 51/50 @ $0.20


Something interesting happened recently in my LE Live Cattle Calendar -Feb/+Apr, trading was halted due to a significant price movement. I will be honest, I didn’t know there were price movement limits in futures until experiencing this myself. This reminded me of the beauty of Calendar spreads though, because my position value wasn’t affected very much, if at all. You can see the halt in the trading activity below.

I entered long this spread @ -$0.80 approximately and it is currently sitting around -$0.40, so I am onside $0.40. The longer term intention of this play is for seasonality, which I stumbled across on SeasonAlgo.com. I won’t pretend to know any of the fundamentals behind the Live Cattle markets, this is purely a statistical play. I will keep holding this and hope that it will break out like the previous year’s averages dictate.

LE Live Cattle Calendar Spread -Feb/+Apr @ -$0.80

LE Live Cattle Calendar Spread -Feb/+Apr @ -$0.80

Seasonal chart for the LE Calendar -Feb/+Apr. Note the chart is reversed due to notation on SeasonAlgo.com

Seasonal chart for the LE Calendar -Feb/+Apr. Note the chart is reversed due to notation on SeasonAlgo.com

And last but not least I have taken a trade off the table and essentially reversed it. I was short on the S&P 500 via a Bear Put Spread, specifically March 1700/1690. It was onside for a little bit, but I decided to close it out after the index started to rally against me. I am also aware that this is a terrible environment to be attempting to profit from a fall in stocks due to the Fed’s endless pumping.

I entered long via a Bull Call Spread on the ES futures, March Calls 2200/2210 @ $1.05 per contract. Currently the position is onside a little bit, and is the largest trade I have made in terms of volume of contracts. We will see how this one plays out.

Long ES S&P 500 via Bull Call Spread; March 2200/2210 strikes @ $1.05

Long ES S&P 500 via Bull Call Spread; March 2200/2210 strikes @ $1.05

TLM Buyout! Positions Update

The large gain on Talisman TLM helped me claw back that loss on the Jun/Dec. I am essentially back to where I was from before taking that trade now. I am actually now back into the Jun/Dec only this time I am LONG at $2.00, currently at $2.20 and for 1/3rd the size that I took before.

Current Positions:
Long CL Crude Oil -Jun/+Dec @ 2.00, currently 2.10ish 2.20ish
Long LE Live Cattle -Feb/+Apr @ -0.80ish, currently unknown… quotes are messed up
Short CL Crude Oil via Long March 51/50 Bear Put Spread @ 0.20, currently 0.25/0.28
Short ES S&P 500 via Long March 1700/1690 Bear Put Spread @0.75, currently 0.70/0.90
Long ZW What via Long March 700 Calls @ 6.00, currently 10.75

So back in black, up to same P&L from before when I screwed up that CL Spread. I am happy.


Dec16_ES_1700-1690_BearPutSpreadDec16_CL_-Jun+Dec Dec16_LE_Calendar_-Feb+Apr



Comment from FCXoptions, Dec. 16, 2014:

Sounds like you are having a better day than me! I let a really good trade go from a nice profit to a large loss this afternoon.

Positions Update

Re-entered the live cattle spread for 2 contracts, I took another look at the seasonality and looks like it is still priming to break out.

5 Main trades on the go:
Short Oil via 51/50 Bear Put spread for March Futures (CL)
Short S&P via 1700/1690 Bear Put spread for March Futures (ES)
Long Wheat via 700 Calls for March Futures (ZW)
Long Talisman waiting for buyout from Repsol or someone else
Long Live Cattle calendar -Feb/+Apr for seasonality (LE)

Good start to the week, I’ll try not to screw anything up.

Here’s a chart of the seasonal (from Seasonalgo.com) I am looking at for the Live Cattle trade. (People love pictures). The notation this chart software uses for Calendars is reversed, so instead of -Feb/+Apr its +Feb/-Apr

Ignore the dates up in the corner those are just for “line drawing” purposes, arbitrarily chosen

Seasonal Calendar LE Live Cattle -Feb/+Apr

Seasonal View of Calendar LE Live Cattle -Feb/+Apr

Positions Update, Loss Incurred

Flat on Jun/Dec CL, loss of $6,000

Got out a few days ago of my Wheat puts, realizing it was too strong (break even). Took 5 calls on it looking for it to continue trend.
Took 10 contracts of a 50/51 Bear Put spread just in case it drops that low.

And Talisman jumped since entry @ 4.20. Go novelty trade!

I also ended up adding two positions, this time a couple of bear put spreads. 50/51 March for Oil, and 1690/1700 for ES. I owned myself being in a position that had a bullish bias in the face of a commodity that was tanking hard. The pain is over and my eyes are opened, I should have been bearish and I certainly am now. Also looking for ES to get pulled down along with it, based only off sentiment of others. Fear begets more fear.

I am not depositing any more funds for this 2 week cycle to teach myself a lesson from that Jun/Dec. If I can’t trade properly with a larger bank roll, then I won’t get the privilege and responsibility of trading with a larger bank roll at all. I am not going to add more chips until I am making better decisions.

Some Back and Forth Discussion: Psychology

Comment from FCXoptions, Dec. 10, 2014:

Yeah I entered back in this morning at $1.52 on that spread. I started off really well on CL outright and then got slapped in the face by a quick move against me. Oh well, done with my stupid outright attempts.

If oil will stabilize a little, I think we might be able to pull a little out of this spread. Are you doing anything with natgas also or just CL? Seems like natgas might have some upside potential. I haven’t really dug into the spreads or anything fundamental yet though

Comment from murphmack, Dec. 10, 2014:

Sometimes the best analysis is no analysis. Haha. After you pull the trigger the only control you have is to get more, or close your position. Kinda funny when you think about it.

Annnd changed my mind. I am going to offer out my cattle at -0.1750. I will buy back in for the same size I currently hold if it drops again. I just want to clear up some margin just in case.


Comment from murphmack, Dec. 11, 2014:

Well, I was away from screen for majority of the day doing work stuff. This Jun/Dec certainly hasn’t gone the way I wanted it to; although it hasn’t moved a heck of a lot, I ended up sizing up a lot larger than I should have. This is one of my problems I am really trying to correct, I am getting too aggressive when I shouldnt. In fact, the size was so large it has wiped out nearly every good trade I have made so far. When will I learn not to do this, or how?

I will look for it to pull back and then use it as an exit, considering it a failed trade. I am obviously wrong about thinking it wouldn’t just keep drifting upwards.

Comment from FCXoptions, Dec. 11, 2014:

So, I got lucky in the fact I was going to add to my position last night, but actually closed it out so I could use that margin towards a volatility trade…I closed out for a small loss entered at 1.52 exited at 1.54. I like the trade, but the way oil keeps having these big down days, I am just not comfortable holding it really.

But so I have the same problem on position sizing. I used to always bet too big right off the bat and then would have nothing left to average in with or adjust and that really hurt me a lot. I still feel like I go too big at times and make stupid moves (that CL outright position I mentioned wiped out all my profit for the past month plus more). I also tend to have a weak hand, it is weird, I will hold a position through a level that I feel most would shake out at…then it never fails price will drop more and I will bail and that always seems to be the bottom, I will sit there watching price go all the way back to my entry point and turn profitable.

I think enough painful losses helped me do better about position sizing, but it is still a weakness of mine. I try to remember how bad it hurts to see all those good gains disappear so quickly and that helps a little. Also, I have a friend that I bounce ideas off of and he typically serves as a voice of reason when I am about to size up too much on a position.

Anyways, I am not necessarily in a position to give advice on this as I still struggle with it, BUT with that being said lately I have tried following a little more strict rules where I account for the max reasonable loss and adjust my position sizing accordingly so I can prevent a blowup. Been doing well with that on spreads, but the single outright position screwed me.

Good luck to you sir!

Comment from gggeorgio, Dec. 11, 2014:

I certainly feel that talking with friends (or blogging in this case) is an excellent way to stay in touch with reality in terms of position sizing and stop loss limits. The easiest person to trick/lie to is yourself so having others to talk things through with is nice for accountability. I’m a bit of a gambler myself and I often know after the fact when I have talked myself out of doing the right thing in order to do the riskier thing…

I’ve also personally found that there are two kinds of people; those that have an increasing risk tolerance the more they are up (on the day, week, year ,whatever), and those that have a decreasing risk tolerance and lock up wins. I’d say neither is a good idea because it means that you’re making a trade for the wrong fundamental reasons, but it’s still good to know which camp your in to avoid the particular pitfalls.

I don’t mean to say that shorting Jan-Dec was a bad trade idea either. My best guess (retrospectively of course) is that you got screwed by the flat price tanking. It just sounded like you were second guessing your sizing and/or mental state, which is probably a good thing to do from time to time


Comment from murphmack, Dec. 12, 2014:

I never look at a trade as a bad idea or a good idea, because like I said, after the trigger is pulled its totally out of your control except for whether you add to your position or you close it out. I can’t blame the market or any other external factors. I screwed this one up. I added to a losing position and I got punished for doing it, it may not have been a mistake if I didn’t over extend how much I should have been taking–so it’s either one error or the other.

Yeah, partially why I made this was to see if I could correct mistakes before I start to get into bigger bank rolls. It’s a lot better to make a mistake when it costs $5,000 instead of $50,000 or $500k.

Completely out of the June/Dec, $6,000 loss which is about 2 1/2 weeks worth of work. From a big-picture and long-term perspective its not a huge loss, but I certainly hope I learned from it.

Playing the Squirms

Comment from FCXoptions, Dec. 9, 2014:

I closed out [Short Calendar Crude CL -Jun/+Dec] at 1.35 this morning for a small gain…then proceeded to lose all my gain x2 trading the outright….not a great morning. Hope you did better


Good quick trade for you FCXoptions. I am still watching it, I’m still expecting it to drop off quite a bit if only for a short time because of the way it has been trending for the last several months (up and down and up and down and up and down). I don’t think I am overly optimistic that oil will just explode back up and help this trade out, but I do think that the proverbial dead horse has been beaten quite excessively. Longs can only make so much money the same way shorts can only make so much money. :D

Cattle spread dropped down to -0.60 ish, bought some now up to half original position size. Decided to get some more because I figured if it was weak enough it would have dropped back down to its -2ish levels by now, which it hasn’t.

Wheat is starting to drop off, might hold it a little big longer than I planned since it managed to weaken up in the face of that large rip.

Bought a couple hundred Talisman (TLM) on the buyout rumor. Barely enough to make a dent in portfolio variance, I just like the novelty of the trade.

Finally seeing the type of behavior I was looking for in the Jun/Dec. Oil is still dropping but now its starting to revert towards backwardation. Oil several dollars lower around 60.50 and spread is sitting around 1.45 when before it was at 63.50 to be at 1.45ish, so the relative movements for the calendar to get pushed down even as oil pushes down is looking a lot more the way I want it to.

This is the chart I am looking at… see it looks nice and squirmy, I am just trying to play the squirms.

Just trying to play the squirms.

Here is an overview and summary of my cattle position. Having it break out from here would be a nice treat.

Summary of Long Calendar LE Live Cattle -Feb/+Apr. Having it break out from here would be a nice treat.

Summary of Long Calendar LE Live Cattle -Feb/+Apr. Having it break out from here would be a nice treat.