One of the benefits of subscribing to the Diary of a Mad Hedge Fund Trader is that you get a daily accounting of the recommendation we have made, marked to market at the close of each day.
The goal is to make you feel like an actual hedge fund trader yourself, which means being held to strict accounting guidelines and principles as well as the harsh disciplines of the market.
It also shows you where your risk is and how well your hedges are working. At the end of the day, it distills your efforts down to a few single numbers: how well are you doing on the day, month, and year.
To access the most recent daily position sheet, login into your account here, click on My Account, click on the blue Current Positions box, and click on the download in excel (XLSX) blue hyperlink. You will find the positions spreadsheet in your “downloads” folder.
To access the subject of today’s detailed explanation of the January 27, 2022 position sheet, please click here and download the spreadsheet.
This spreadsheet is an update and a simplified version of the accounting software I wrote to monitor the performance of my own hedge fund during the 1990s. It has truly ancient origins, but it works.
All the key performance numbers are at the top of the “F” column.
F9 – Performance since the onset of the Trade Alert Service since 2010
F13 – Current Year to Date Performance
F11 – Month to Date Performance
Next, you want to look at the top of column “A” which shows the Mad Hedge Fund Trader Model Trading Book Asset Class Breakdown on a Risk-Adjusted Basis.
In column “A”, you will find individual positions like the (TLT) 2/$149-$152 put spread and in column “B” you will find the portfolio weighting of that position of 10%.
Lower down in column “B” you will find position totals. Long positions are shown in positive numbers and short positions in negative numbers.
The Total Net Position in cell B31, the sum of the positive and negative numbers above and indicates my net market exposure.
Total Aggregate Position is the sum of all positions long and short and lets me know how close I’m getting to a 100% invested position. When markets are doing nothing, I rarely go over 50% invested. During extreme selloffs, I go 100% long. During extreme bubble tops, I go 100% short.
The pie chart shows the size of each position relative to the total.
I divide positions into “Risk On”, or the world is getting better, and “Risk Off”, or the world is getting worse.
The goal is to run a balanced portfolio where “Risk On” and “Risk Off” positions are always balanced and provide a net market position of zero. This is the “hedge” in Mad Hedge Fund Trader and greatly increases your performance while reducing portfolio volatility.
Sometimes, it is not possible to run balanced risk portfolios. This happened during the March 2020 market pandemic meltdown when stocks fell almost every day. Then I ran one-sided “Risk Off” positions. During the enormous rally that followed, I ran 100% only “Risk On” portfolios.
In fact, while the market nearly doubled during 2020-2021, I ran 100% long-only portfolios four times.
And here’s a spanner in the works. Sometimes, asset classes change character and flip from being “Risk On” to “Risk Off” and visa versa. A classic example is when both bonds and stocks go up at the same time. This is theoretically impossible but happens nonetheless, usually when there are abundant liquidity and low-interest rates.
If you don’t adjust your risk models to reflect what is actually happening in the market, you are facing an early and impoverished retirement.
Scroll down to lines 45 and 46 and you will find the details of the matched pair of positions that make up the (TLT) 2/$149-$152 vertical bear put spread.
Column “A” shows the Date Opened
Column “B” shows the Date Closed after we sell or let the position expire
Column “C” shows the security position with ticker symbol, maturity, and strike prices.
Column “D” shows the Asset Class (equity, bonds, precious metals, etc.)
Column “E” shows whether we are “Long/Short” that security.
Column “F” shows the Underlying Stop Loss of the position. If the share price falls below that position, sell it as soon as possible to limit your loss. When stocks go against you, the math on options spreads turns against you very quickly.
Column “G” shows the “Notional Cost” of the position.
Column “H” shows the “Current Market Price” of the position.
Column “I” shows the “Profit & Loss” for the position.
Column “J” shows the “Net Profit” of the two combined positions that make up the option spread.
Column “K” shows the “Portfolio Weighting” of the position.
Column “L” shows the “Leverage” on that position. 100% means no leverage is used.
Column “M” shows “Portfolio Net Exposure” which is another way of showing position size.
Columns “N” and “O” you can skip as we are not using them in our current strategy.
Column “P” shows the “Number of Contracts” for each position.
Go down to Line 77 and you will find the profit & loss for every position we have closed since January 1, 2022. We have the data going back to 2010 on another spreadsheet. Keeping all the data on one sheet made it too slow as there were tens of thousands of formulae.
I hope you find all of this useful. Please feel free to alter the spreadsheet to meet your needs once you have downloaded it.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hege Fund Trader
