[NOTE: This post was uploaded on April 12 and then very substantially revised on April 13. Commenters above and below noted that the way that option expirations are handled at C2, some expiring options on Saturday show that they are bought and sold in the same minute on Saturday morning, which is an artifact of how C2 reports expirations. To determine profit and loss, one would have to consider longer term options that expired at the same time on Saturday as well.]
The above posts are fascinating stuff.
The Honey Growth strategy shows profits of $18.83 million as of now (the evening of April 12). I downloaded the 1,119 position trades in the CSV file and analyzed them. Necessarily excluding the positions that are not shown in these public data, the net profit from those 1,119 trades was still a staggering $16.60 million on a $150,000 investment.
Because of the way that C2 handles expiring stock options on Saturday mornings, it is difficult to assess exactly how long those positions were actually held. What we do know is that they were at least held overnight. Accordingly, all Saturday expiring options are treated as being bought at least one day before the expiration.
1. Trades held longer than 1 minute lost $1.49 million
Overwhelmingly, the bulk of the profitable trades appeared to be based on either scalping or stale prices (stale prices occur when C2 leaves bids and asks at prices that are many minutes old).
The 127 trades that were held for 1 minute or less generated net profits of $18.09 million, while the 992 trades that were held more than 1 minute generated a net LOSS of $1.49 million . The 552 trades that expired on Saturdays generated a net profit of $1.84 million, while the rest of the trades held for 2 minutes or more lost $3.33 million, resulting in a $1.49 million net loss (3.33-1.84=1.49) for positions held more than 1 minute. (It is not surprising that one would more likely hold winning trades until expiration.)
Thus the records show that the Honey Growth Fund is a bad predictor of the market direction of options.
2. Strategy does not work on manual trading
In this thread, Honey Investing suggested that investors who couldn’t (or didn’t want to) invest the $180,000 minimum necessary to trade at a scaling of 1% at C2 could do manual trading and still get the same profit:
“manual entering a resized position by the subscriber, would still carry the same risk/reward profile as structured on our trades.”
That is manifestly FALSE .
If you were a manual subscriber, there would be no chance that you could log on and trade quickly enough to capture a scalped position and then sell it—all within 1 minute of Honey Growth broadcasting its signal to open a position. You would be lucky even to be opening your position before Honey was closing theirs.
Remember, the scalping trades at Honey are spectacularly and unrealistically profitable—in forward testing at C2—but the strategy has been unsuccessful—even in forward testing at C2—in predicting the direction of the securities that Honey buys and holds more than a minute. Honey is a combination of a directional and a scalping strategy, but realistically, a manual subscriber can only execute the directional strategy—which so far has been hugely unprofitable—losing $1.49 million on a $150,000 original investment.
3. Huge profits on hypothetical TSLA trades on stale data
If the time that TSLA was halted for trading is reported accurately by Yair_S (and I haven’t checked that), then there were no actual trades by anyone in the world at the stale prices presumably listed on C2 at the time of the 68 minute TSLA halt on Aug. 7. Nonetheless, Honey opened and closed 6 trades during the halt, generating $3.81 million in profits on a $2.21 million account just during the halt. Five of the 6 trades were open for a minute or less. So the account more than doubled in value on Aug 7, 2018 during the trading halt with trades that C2 should reverse.
Note that these are probably not the only stale prices that Honey Growth used, just the clearest ones found so far. My impression from looking at the trading pattern is that most of the paper profits for Honey Growth are from stale prices that are not possible to trade, not real scalping or capturing temporary price spikes.
4. Bad ratio of Av Gain / Av. Loss
C2 reports the average gain as $140,557 and the average loss as $253,994. That is well below the 1.2/1 ratio that reduces the chances of system failure at C2. Honey Growth’s ratio is even lower than the .76 cutoff, which greatly increases the chance of it failing or having major problems.
See Study: Risk Factors for Failure or Serious Trouble Are High Win % and Low Ratio of Avg Gain to A
In the study at the link, the relative odds of failure for a strategy with a .76 ratio or lower was 1288% higher than for a strategy than a .76 ratio or higher.
5. What should C2 do?
A. C2 should cancel the TSLA positions opened and closed during the Aug. 7 trading halt when there was no market for TSLA options and the prices on C2 were stale.
B. C2 should investigate the dozen or so most profitable trades not involving option expirations to make certain that there were actual trades in the vicinity of Honey’s prices during the minute that Honey’s trade was made, and adjust the trade prices to fit the best price that Honey could have actually achieved. This would be possible for older options only if they have access to minute-by-minute open/hi/low pricing for expired options, data that is not available for free.
C. Because the profitable part of the strategy is the scalping, and scalping is not doable (if it’s doable at all) without autotrading, the recommended minimum investment for Honey Growth should not be $35,000, but rather $180,000, the minimum to scale at 1% for autotrading.
