I expected to land around a 20% return. I carefully track my MoM and annual performance because without those HONEST assessments, it's far too easy to give ourselves too much slack (to protect our ego) and at the end of the year, we have nothing to show for it.
I've been trading for 15 years. This is JUST the 3rd negative year since I started in 2007. This is important to understand for newer traders. Years like this are RARE and provide some of the absolute BEST conditions to hone your skillset. Nobody becomes better when things are easy.
This is why I did particularly well, despite the market closing down ~19%. My first down market was in 2008 (SPY down 37%), just one year into trading. The second down year was 2018 (SPY down 4%), hardly anything stressful. This year I was able to deploy a skillset I've refined over a decade and a half in actual busy markets that favored the product I primarily trade - derivatives.
How I played this year
The first half, I sat cash heavy. My market analysis led me to remain cautious and I'm thankful I followed that instinct. It positioned me well after we trailed down in one of the most aggressive bear market sell offs we've seen.
As we moved into the back half of the year, I knew I needed to deploy to hit my target benchmark of 12% for this year. Cash is a good position, but with inflation high, I needed a positive real rate of return to make mission.
I deployed the covered strangle, specifically targeting periods where I saw variance risk premiums. I had early hedges deployed in volatility that scaled nicely as we saw the downmove kick-off. Once I took those hedges down, I deployed bearish strategies like long puts and put diagonals to maintain short delta exposure (these positions benefit from downmoves) and offset and long delta (positions that benefit from up moves) risk. I regularly traded volatility discrepancies, particularly around CPI, FOMC Rate Statements, earnings, etc.
There were a handful of other things I did, like the batman trade, etc. However, the main points I'm looking to drive home are threefold:
As traders, we MUST adapt to the markets. We do not have the convenience of ONLY trading long or short stock. Credit or debit options strategies. Etc. Our returns depend on how adaptable we are. Build your plan to take advantage of bull and bear markets. High and low volatility. It's important.
Tactical pauses are key. In the Marine Corps, a tactical pause is when we allow the battlefield to take shape before finalizing our action set. This is NOT to be confused with inaction, or paralysis. After the statistically unlikely market movements of 2020 and 2021, I've purposefully been remaining lightly invested (not to be confused with uninvested) to observe how the market was behaving. This allowed me to scale in more meaningfully when I saw opportunity on the second half of the year.
Noise is noise. I've remained a contrarian by nature most of my life. I'm generally disagreeable and am interested in challenging narratives. I have zero interested in WHO is right. I just want to what WHAT is right. I cannot tell you how much nonsense I've seen this year as I've grown further into the social media sphere and can see just how distracting it can be for new traders. I implore people to take the time to create your own written plan that's tested and continually updated. This is HOW I ignore the noise. If I see others making fat stacks, I genuinely am stoked for them - but I don't drop what I'm doing to run into what they're doing. I'm confident in what I'm able to produce - I value consist moderately aggressive returns. It made me a millionaire in my late 20s and a multi millionaire in my early 30s. Create your plan and commit.
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