October went very badly for us, and we want to show you in this article what led to the current drawdown and how we handle it.
Review of September
September gave us a huge boost in our account, leading to a record high of $132,074.19 respectively 17.43%. We realized profits of $8,364.37. We knew it was an exceptionally good month and that it could not go on like this. Several times, we had to adjust our annual target to continue to pursue an ambitious goal.
Drawdown in October
Although we didn’t get carried away and continued to look at things in a realistic and clear-headed way, we were very disappointed with the extent of the drawdown in October. Now it is time to work through the causes, uncover mistakes and look to the future with a clear vision.
Drawdown in numbers
Facts on the table: We had book losses of $19,532.83 and 14.79% in October.
We closed the following trades in October:
- Simple butterfly strategy in Russell 2000 (RUT) with a profit of $1,374.40
- Long AMD (AMD) with a profit of $3,321.20
- Complex butterfly strategy in the Russell 2000 (RUT) for $7.60
- Long in oats (ZO) with a profit of $1,894.36
- Short call in oil (CL) for a profit of $480.00
- Covered put in wheat (ZW) with a profit of $1,144.36
- Short in natural gas (NG) with a loss of $1,207.00
- Simple butterfly strategy in Russell 2000 (RUT) with a loss of $1,877.00
- Long Covestro (COV) with a loss of €464.58
- Long Intel (INTC) with a loss of $439.45
- Long Micron (MU) with a loss of $666.44
- Complex butterfly strategy in the Russell 2000 (RUT) with a loss of $1,375.00
- Complex butterfly strategy in the Russell 2000 (RUT) with a loss of $699.00
- Simple butterfly strategy in Russell 2000 (RUT) with a loss of $5,167.20
- Simple butterfly strategy in Russell 2000 (RUT) with a loss of $3,049.60
Talking about realized losses, it’s still – $6,794.69.
Causes for the drawdown
The causes are obvious. The Russell 2000 is traded very intensively by us with two different strategies, and we set up four trades every month. These strategies are income strategies that are set up regardless of market conditions. If the markets are going back and forth and the trades are fresh, then losses are accumulated relatively quickly.
If you discount all trades in the Russell 2000 from the October performance, then the picture looks completely different: There remains a realized profit of $3,991.11! We do not want to justify ourselves here or expect pity, on the contrary, we want to show such phases exist. We are aware of this and will consistently negotiate both strategies according to the rules. Both strategies were also responsible for the outstanding performance during the boom months of July and September.
October performance in comparison
Let’s take a look at the bigger picture in order to better rank the performance compared to the market:
Yes, we were inferior to well-known benchmark indices like the S&P 500 or the DAX, but we also perform better when we go up.
Current positions in our real money account
This is how it currently looks in our account:
- 5 of our 7 remaining equity positions are currently in positive territory
- Our oil spread is currently down $86
- Our gold-silver spread is currently down $456
- Our calendar spread in Lean Hogs has an unrealized loss of $607
- The current complex butterfly has a minus of $111
- Our indices selling indices are currently gaining $787
Crucially, our spreads still have a lot of potentials, and so we are sure that we will have a balance of $125,000 at the end of the year, which equates to a time-weighted return of 37.5%. The drawdown in our account should be largely overcome.