Hello and apologies for the huge post gap, it was a rough first half of the year. To begin, I ended up blowing the $2500 account I started with on the back of the monster post-election rally around March. It didn’t go completely to zero but I had so many trades so deep underwater that I needed to shut things down and take a step back to figure out what went wrong. I ended up topping up the account back to $2500 to start fresh in May, drawing down pretty significantly through the summer, and have just started to claw my way back. This won’t be a full post-mortem on the first account but some big lessons emerged that I think are worth sharing immediately:

Trading vol from the short side on a $2500 account is hard, if not impossible. There just isn’t any room to be wrong, and even if you’re right, there isn’t enough capital to do things like delta hedging, shorting strangles/straddles, etc. When I’m selling vol with a small account, I can only accomplish that on individual names with spreads, and I have to choose between taking on way too much exposure to capture the risk premium (i.e. widening IC’s to resemble strangles), or have a BP-appropriate sized position that isn’t wide enough to actually accomplish the IV position I’m trying to take. At least in this volatility environment, I don’t think it’s smart to try and sell vol anymore with a small account.

Trading vol from the long side on a $2500 account is easier, but can be a slow burning wick. Going back through my trades, I found that buying vol when depressed — via calendars, certain types of verticals, and backspreads — showed more winners than losers, but I tended to close them out a little too early. As low vol tends to beget more low vol, I found that these trades also tend to be more successful when placed further out in time. Calendars in particular can take a very long time to show green.

With a smaller account, I also found that even only trading a dozen or so underlyings was too many. Spreading a small amount of capital across a dozen instruments spread me really thin and gave me even less wiggle room to layer on or manage positions. I’ve since reduced that number to around six.

All in all I’ve learned a great deal about trading these last few months and look forward to posting regularly again, which will probably be in the next month or two. Take care.