A week Of Blood Bath 8-29-15

You never know when the beast will strike! A week before the passing week we were in this calm and boring range bound. The release of FOMC meeting minute indicated no decision to raise the rate in Sept. Market didn't react too badly. Then came to a small sell off on Thursday pushing ES to the lower end of the range. I was a little concerned the market may break down to the next balance area. Friday's 1+% drop and margin calls in IB had me worried and defenseless in buying power and available margin. I was worried a lot over the weekend and looking for ways to release margin. I reviewed my exit plan. I didn't come up with a lot more solutions other than closing more equity positions and rollover some credit spread positions.

The Black Monday actually started on Sunday night. Futures opened another gap down and continued to fall with Asian markets, especially the Chinese market. Then European market followed the suit. The rest is the history.

My damages were severe. I had to deal with margin issues on Monday and Tuesday. I tried to stay calm and rational as much as I could. I was facing the danger of losing my entire IB account. I am still not totally out of the wood yet.

My realized losses for all of my accounts were about $25K. There is about $85K total losses with other expiration periods and liquidation of S-5 account. Like they said the biggest draw down is in the future. I was just about to recover from last summer's $97K loss in grains. This time it damaged my equity positions. They were all liquidated. I am set back to 0% profit now after trading this strategy for 2.5 yrs. I will have to rethink of my career in trading after this crisis is over.

Lessons learned so far:

1. Not over leverage at any time. I was at 1.5 leverage ratio before the sell off. I have been monitoring my value at risk, VAR. I thought about to look up the meaning of leverage ratio. I kept to delay it thinking I had been OK so far. For that I paid a hefty price. When in doubt check it out immediately.
2.  Get to know a strategy well enough before implement it. I have been using credit spreads for several months. I knew the advantages of limited risk and lower margin requirement for which it saved me for being totally killed. But I didn't know it was very hard to rollover, not even for the same strike for longer DTE.
3. Risk control and exit plan must be very specific.

There are a lot more to list. I will do it later.