My trading platform broke Friday morning.
I was buying a spread for about a dollar, and it should have filled instantly. The platform never sent me the fill. When I tried to replace the order, it filled me twice. “This is what we call clogged pipes.”
Broken messaging is the worst thing that can happen on a retail platform. You fire a trade out, you don’t get the fill back, so you hit it again, and again. Then it goes “bing, bing, bing, bing,” and you own positions you never wanted.
The Paperwork Already Covered It
You’d think the broker is on the hook for that. Read the agreement. It says if there’s a technology issue, that’s on you. “Did you not see the part that says up yours?”
And good luck proving anything. My messages only said “too late to cancel.”
I know how this ends, because I used to sit on the other side of the table. At thinkorswim and TD Ameritrade, I defended the firm in arbitration, and I never lost one. Every case I fought was a client who did something reckless in their account and then blamed the platform.
When the platform did screw up, thinkorswim paid the client. The bigger brokerage firms don’t do that anymore, and it pisses me off.
You Got To Be Comfortable
So on a day like Friday, the only protection you control is how much you have at risk.
The SPX had a $135 expected move priced in for Friday alone. The expected move is how far options prices say a stock or index will travel by a certain date. In that kind of tape, “you don’t have to be good in volatility. You got to be comfortable. There’s a big difference.”
That spread risked a hundred bucks a contract. As I told the room, “I’ll forget about it before I even do it.”
The expected move tells you how to set up the risk, too. On Thursday, I shorted 200 shares of the SPDR S&P 500 ETF, risking $5 to make $5. Why take an even trade? “Because the probability of me going down the five was greater than me going up the five. It had to do with expected move.”
Do not put yourself in a position where you need something to occur. “There are old traders and there are bold traders. There are no old bold traders.”
Build The Protection Into The Trade
Your broker isn’t going to bail you out when the pipes clog, so the protection has to live inside the trade itself, starting with sizing it off the expected move.
I’ve put my whole approach to trading volatility in one place, along with lessons from the rest of the TheoTrade team. It’s how you walk into the next day like Friday knowing your risk before you click.
Learn To Trade Volatility Without Betting The Account
To your success,
Don Kaufman
P.S. The Chaos Compass is one of the classes inside, if you want to see how to set up spreads for the days volatility goes off. Take a look.
