הרבה דברים קרו אתמול, ואישית עשיתי גם הרבה טעויות אתמול.
ניסיתי לרשום את הכל כדי לתעד את הטעויות ולעשות הפקת לקחים.
אני משתף פה לטובת מי שזה יתן לו ערך, וגם בשביל עצמי. זה קצת ארוך וחופר.
אני נוהג לרשום הערות לעצמי באנגלית, ולא היה לי כח לתרגם - אז זה באנגלית.
תודה ל-
@Yesmad שעזר לסדר את ה-LTR של הטקסט.
LevelUp Portfolio
Vix spiked to about 18 at market open.
I got excited about the volatility spike (wrong response).
I decided this is an opportunity to increase allocation to risk in LevelUp, which I was waiting for for a while being disappointed in missing on much of the XIV gains (wrong response) as my allocation was relatively small out of caution (correct response), and increased target risk allocation from 30% to 35% (acceptable response, as it’s in a small measure and it was pre-planned for a long time, though no exactly articulated), I performed a rebalance at the trade open (wrong response).
As VIX increased, I decided to increase the risk allocation to 40%, then to 45% with increased weights to volatility vs leverage, which should have been equal-weight according to the portfolio (wrong response) and then to 50% with increased weight to SVXY vs EXIV which should have also been equal weight according to the portfolio (wrong response).
Each time I told myself - VIX is reaching unbelievable new levels, and that this is exactly what I’ve been waiting for to increase my SVXY exposure. At a point VIX almost reached Aug’-2015 crysis levels and was only 2nd to it after the 2011 crysis. This was all correct in theory - only that there wasn’t any real crysis in the markets and I knew that but didn't give it weight.
Mistakes made:
• I performed more than one operation per day, against my plan
• I increased the risk allocation by feel, without predefined guidelines
• I traded at day open, against my plan
• I bought more without understanding fully what is going on
• I bought SVXY without being knowledgeable about measuring the risk of termination. I simply assumed that it wouldn’t happen, even as it was at only a few percent away from happening and I was buying.
• I had no predefined averaging-down guidelines / limitations.
The irreversible damage from all of this is the termination of SVXY/XIV. Obviously I had many other unrealized losses in SSO/QLD/EXIV due to the market declines, but those are inline with expectations - the termination of SVXY is not.
Assuming I will get up to 20% of SVXY holding back (due to termination), but probably much less:
Based on the total value of SVXY I held before 5.2.2018, I permanently lost 0.5% of the portfolio.
Based on the actions I took averaging down during trading hours, I permanently lost an additional 1.3%.
After hours crash
My troubles didn’t end there.
In the after hours, SVXY/XIV were behaving very oddly, with SVXY falling much faster than XIV without me understanding why. I then saw that the price of both XIV and SVXY was crashing more and more in after-hours and decided to double-down more (wrong response) to undo the damage so far (wrong response).
Being that it was already after-hours, and the LevelUp portfolio was in an IRA account, I went to my IB account which allows after-hours trading, and which was not meant to be used for volatility, and traded there (wrong response).
I bought both of them believing that this somehow spreads the risk of the phenomena I didn’t understand (wrong response).
The permanent loss from these actions (assuming termination and 20% distribution) is an additional 1.2%.
Termination
After realizing that both of them are likely facing termination, I went to decide to again go “short-volatility”, that is put even more money into an already disastrous position only that this time I would not use instruments that are at risk of termination.
At this stage I was focused on trying to “undo” some of the damage with the belief that we are at a huge volatility spike at the moment, with good odds of seeing this come through.
ZIV
I aimed at 1% allocation to ZIV, and bough without knowing it’s fair value, even though I knew fair value FAILED for XIV and SVXY (wrong response). I assumed that since it was far from termination risk that it would be close to fair value. As the order didn’t execute at my target price of 60$ I raised it to 65$ to “ensure” execution (wrong response), assuming I’m seeing a delayed price, while in fact I was faced with a very sparse order book in after-hours trading. The order executed partially at 65$ which lit a red-light in my head (correct response) that the book was thinner than I thought. I cancelled the remaining order (correct response) and only then saw that the bid-ask spread was 60-68. I also saw the ticker at Yahoo finance go from 60 to 65 on my order. Overall I got into a position of 0.5% of the portfolio.
I decided this would not be a good way to get into a position (correct response) and went to what I saw as plan B - to go short on VXX.
short-VXX
I went short on VXX at 1.4% of the portfolio, sizing the position mostly on how much I’m willing to risk more to get back some of the losses. I later went another 1.4% short as even a 50%-100% gain wouldn’t cover my losses (which I didn’t even know to estimate precisely at the time but believed to be in the single digits percent).
This is a naked short - and if volatility will keep rising I could risk much greater and unbounded losses (unlike with XIV), and to keep a similar profile as XIV I would have to rebalance the short daily(!) which I knew I would not do, and put myself in an uneasy “short” position state of mind for a while, unless I would see quick gains on the position and/or will find an alternative (ZIV or something else). This is still an uneasy position for me, and I need to re-think the implementation of the short-volatility position.
My main line of thought was - “we are at a HUGE volatility spike at the moment - you cannot allow yourself to be out of a short position on the vix, especially that this is the chance to undo some of the damage done today”.
Overall damages so far
a 3% of permanent loss due to termination of SVXY/XIV ETFs.
a 35% overall loss in LevelUp from beginning of year, erasing all gains in this portfolio since its inceptions, and putting it in an 11% total loss.
a 7% overall loss in the entire aggregate portfolio since beginning of year, 4.5% of which are from LevelUp alone.
General
I did not account for the human factor risk enough. I assumed that I know myself well enough that I won’t get scared out of my position during a crash, and that on the contrary I would use the opportunity to “double down” - which is itself a risk I did NOT account for properly - that my expected behavior would be destructive when allowed to be unconstrained.
I did not come prepared enough for dealing with an extremely dangerous asset. When uncertainty grew exponentially fast, I wasn’t able to see the big picture clearly and quickly enough.
I fell to my own hubris, believing all along the way that I knew a good opportunity when I saw it, never stopping to question if I am completely wrong. Even when doubting myself, it was on a micro level (buy more or no), and not on a macro level - understanding what is going on and how I am reacting to it.