Ideas from The Second Leg Down book.

Marcas

Active member
Just finished watching recording of late Raleigh Durham Group Meeting with Mr Hari Krishnan. Regret I couldn't participate live.
I red the book while ago and bit forgot about it. His trading ideas are not necessary directly translated to my, retail account where I implement different strategies than institutional long delta portfolios do. Nevertheless it was healthy refreshment on some concepts I don't spend much time thinking on every day.
Wonder if anybody actually implements what author suggests, regardless if successfully or not.
If one didn't watch it yet, I highly recommend.
Just warning about discussion after Krishnan's presentation. One of members from Raleigh Group (I think it was Ron B., but not positive) 'explains' why author is wrong and misleading. Don't pay much attention to that as it seems that critic doesn't grasp well what Krishnan said. But the presentation itself is highly recommended for meduim+ level traders, especially if one doesn't hear about The Second Leg Down before.
 
I disagree ,in my humble opinion the most interesting part is the part after the presentation(Video from 1.50min on)...the rest rest is just promotion (marketing)for another "Look Ma....I can forecast the past" kind of book.
 
I think it was intersting even before that on the video around 1.24 min
I think Ron is a smart guy and he really goes into the minute details that most of us don't even think about or it's not readily apparent
I am not sure how easily that can be implemented in a small account

I also liked the other video in the library about the Sleep well portfolio It seems to be easier to implement
 
Very good presentation, Q&A and followup discussion. Ron Bertino is brilliant, with attention to detail and insight that is exceptional.
 
Hmmm...
Let me say that being bad speaker myself I enjoyed both Mr Krishnan’s and Ron’s talks. In Krishnan I like calmness, knowledge and sticking to the topic. He stayed focused during the whole presentation and Q&A. In Ron’s talk I recognize easiness of speech and good self confidence, which with graphing tools he used made easy to comprehend ideas he conveyed.
Anyone has his own preferences and can favor one over other but I didn’t refer to that.

My warning about Ron’s part was done with less experienced traders in mind. Many gurus make mistakes, silly mistakes, sometimes they do mistakes revealing they don’t grasp at all a subject they approach (no intention referring anybody particular here), but, to say the truth, I don’t remember presentation with so many questionable statements appearing back to back. Yes, I was triggered a little by accusation of Krishnan being misleading, where the opposite is true. Nevertheless I do not question Ron’s intelligence or his brilliance. I believe he is also a good trader. I had viewers in mind when I posted that warning. I know from experience that absorbing bad ideas early on can have long lasting effects. No need to defend Ron, I’m not attacking him personally. Everybody makes mistakes except of those who do nothing (but that is a mistake in itself).

The reason I wrote in a first place was question if anybody of Aeromir readers use/used TSLD (the book) techniques/methodology in trading. I did play with backratios for a while but not necessary with Krishnan’s setup. I don’t remember anything else. The book is written with big, mandate trading entities in mind - that's something reader should not forget. That said I still consider TSLD as one of the most informative books I’ve read and recommend it to retail traders who want to expand their knowledge. I think I’m not alone with this opinion.
Does anybody, directly or indirectly, implemented TSLD ideas in practice and can share some of that experience/thinking?
 
Hi Marcas,

I am reading the book now, having caught the tail end of the live video. I will also go back and watch the video in it's entirety when I get a chance.

It was actually Ron in another group I am a member of who reminded me of the meeting. I wish I could have participated.

So far, in reading the book, it seems to be from the perspective of a portfolio manager using risk management techniques to provide ways to insure the portfolio against downside risk and to be able to identify lower cost options of insurance, rather than being reactive when it's almost too late and the cost of insurance is high. I am still trying to understand if these strategies can be actionable on their own as a trade apart from their use of risk mitigation. I believe I read that in his (Mr. Krishnan's) opinion, he doesn't believe that the insurance should just be a "cost" to the portfolio, but also provide an opportunistic way of generating a profit on their own to help mitigate their hedging cost.

So all this to say, which elements in your opinion could be considered tradeable strategies?

Thanks,
Steve
 
Hi Steve,
reading the book first, before watching videos, is actually a good approach, imo. Basically in presentation he briefly touches main points of his book, so watching videos after, you get a nice summary and you understand more of what he is talking about.
I suggest watching also old Aeromir/CapitaDiscussion recording where he was a bit more detailed (if I'm not mistaken).

You are right that his focus is on specific type of accounts. In Aeromi's circle his techniques can be applied if one holds huge BWB close to the money, Rhino maybe, or tight RTT - not that it makes sense but as an abstract example. But if you are not looking for yet another setup with bunch of rules, you can learn something from the book. I actually do not use any of his suggested trades but do use his approach. I can say that from this book I started changing my trading style. I didn't know about this back then :)

I guess all of his suggestions can be, in theory, considered as stand alone tactics. Problem is that you can have years of, relatively, small loses between big wins, so you need to have some other income to relay on at the same time. I may be hard to stay consistent for so long. Most appropriate usage of those is in hedging, as in the book, imo.
 
Thanks for your viewpoint.

maybe we can hear someday about the things you have incorporated in your trading.

regards,

Steve
 
Oh, I don't try keep it secret. What I try to trade is nothing new. I trade the markets rather than strategies. It is hard to explain without getting into longish and convoluted explanations on my side. I think others can do it much better.
To give some example and connect to the book. Krishnan says to use different techniques in diff market environments - buy long puts in low vol, spreads when skew dictates it etc. (see his 'main' slide). Oppose that to RTT rules (I use RTT as 'classic' example without even knowing exact RTT rules) where you trade the same sequence in every market.
I do not want to say that rule based trading is bad, one can think of situations that it is the best fit. Overall, though, it is not.

Maybe what I said is a bit of oversimplification but I hope you get the idea. This is what I referred to when I said that Krishnan's book started the way I approach trading. It was just a start and I'm not finished yet :)
 
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Does anybody, directly or indirectly, implemented TSLD ideas in practice and can share some of that experience/thinking?
Hello Marcas,

Having read Krishnan's book multiple times over the years; its an excellent book. There are very few books written about hedging and this one in particular is one of my favorites.

I did test a lot of ideas over the last few years about hedging and the simplest ones are the best of what i have tested. In my opinion simply buying teenies where possible (in low vol) is the best option.. when vol allows you to buy these not too far away. In these environments of high vol, simple verticals are what i have been gravitating to almost 100% of the time. Any more fancy things trying to finance the verticals with same number or more verticals below the market will create all the various kinds of ratio spreads which seem to work in many cases but with the additional cost involved in managing and rolling them as well as the real risk that lurks below the sold verticals.. not real hedges. Yes, with time sometimes humps develop etc.. but for my own trading i have totally been depending on simple methods and am happy with it.

Many ideas in the book are useful; for example just a vol rise and price adjustment of hedges wont help unless you are able to lock the hedge in and get out - or reestablish at favorable prices. Just one of the many ideas in the book that is simple and useful.


My 2 cents.

ps: now i want to go read the book again :)

-gariki
 
Hi gariki. Thank you very much for your 2 cents. They do have weight.
I agree with your thought that simpler is better most of the time. Buying teenies (when appropriate) is a decent practice but, imo, effectiveness of this technique depends on type of portfolio you want to hedge. Main issue is of course the cost. With 'very' long delta portfolios (large long term stock positions) and in rising markets those puts works well. Costs are covered by gains in stocks. In flat markets those costs are more draggish and looking for some way of financing is more relevant. Same with verts that provide less downside protection thus cost more.
One of financing method I've been using is selling in closer dte. This worked well for my purposes.
Today I look at those hedges more like stand alone plays. That is I want to use them not so much as hedges itself but as potential income sources. Here game of shifting risk /reward is more important but much of hedging power is lost but that's fine with me. I became very much risk averse lately so no need to eat those hedge costs.

I agree with your observation about locking in on working hedges. One of nice techniques Krishnan spelled out in his book is 'rolling' from hedge to hedge strategy as market changes. I suppose many traders do that but I'm not sure if fully realizing the process.

And, yeah, presentation made me wanting to reread the book as well. I even dug it out but am swamp in some projects and probably read it later, in leisure time.
 
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Marcas, In your 10/5 post you use some contractions that are ambiguous to me:

"Same with verts that provide less downside protection thus cost more."

Could you please clarify this statement for a reader who does not have your depth of experience?

The other statement that was opaque to me:

"One of financing method I've been using is selling in closer dte. This worked well for my purposes."

I appreciate your patience with this request.
 
D78, some time passed since since this topic was discussed and I could forget some context. I do my best.

"Same with verts that provide less downside protection thus cost more."

This refers to comparison between using long, otm puts and long vertical put spreads. With spreads you finance cost of long put by selling another put farther otm. Spreads usually sits closer to ATM and "kicks in" earlier in a dropping market but theirs protection level is limited by short put while long put's protection is not - that matters a lot in big meltdowns.
My remark about put spreads costing more money referred to the fact that to get comparable protection you have to buy more spreads which will cost you more than a put. Of course this is generalization. Details depend on what and where you try to hedge, in come cases put is a better choice in other spreads are.

"One of financing method I've been using is selling in closer dte. This worked well for my purposes."

Here I referred to 'financing' method I use to pay for hedges. To do that I sell spreads in short dte, and if possible keep repeating that as long as I can / as it makes sense. I wont go into details because there is plenty of stuff to talk about, but I think you get an idea.

Hope my remarks you asked about are more readable now.
 
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