pythagoruz

Tuesday, March 31, 2009

IB Olympiad 2009: Closing Remarks

Its been about three weeks now since the fourth annual IB Trading Olympiad concluded, about time for me to make my final comments about this year's competition. Tomorrow I'll be sending out the paper work to IB which is the last step I have to take to actually get the award. Each year its a long process and a lot of work but it has paid off with cash, for me anyways. I didn't do as well this year with a 5% gain that put me in 29th place. Last year I was 19th with a 35% gain and the year before I was 10th with a 19% gain. To a certain degree this competition is definitely about the money, $12k in combined cash prizes goes a long ways for a college kid. That being said, I think the experience of developing a trading system from the ground up will prove to be worth much more than the prize money. Each year I've had new ideas about how to improve my system and have grown more confident that automated trading is the most consistent way to profit in fast moving electronic markets.

Each year I have been extremely impressed by the final results of competitors. This year Kevin Warner placed first with a 344% two month gain. Whats more, his software returned him 192% last year for third place. Now I don't know the details of his strategy or if he even used the same one both years, but the fact remains, his software has consistently returned huge profits. Kevin did stop by the blog and briefly mentioned that he was trading volatility spreads on energy and energy products. He said his strategy wasn't directional but that doesn't surprise me because oil was flat during the competition:

As you may recall, one of my strategies was to buy leveraged oil (DXO) with spare cash. That turned out to be a waste of trading power but it didn't lead to big losses either. My program ended up making all of its profits from shorting spikes in implied volatility. As you can see in the VIX chart below there were plenty of those:

On thing that hurt me was the overall net increase in volatility during the competition. Since my program was generally short options, a rising VIX went against those positions. I will say that I would have expected the VIX to increase much more given the 23% drop in the S&P:

Now that is a sight to behold isn't it? I seriously doubt that this competition will ever see such a big move in the general market in the future. It certainly makes all of those who profited this year look even better. As far as I'm concerned we can all add 23% to our returns since thats how much the benchmark index dropped. So once again I have to congratulate all of the competitors who placed this year. Ryan, Chintan, Kevin and the rest. It was a tough market this year.

IB never responded to my questions in detail, they just directed me to this media relations page. There wasn't a whole lot of useful information there besides this excerpt: "The College Trading Olympiad continues to attract the attention of university professors and their students with applications coming from 41 countries for the 2009 Olympiad with 372 applications accepted. In 2009, students from far-away places including Argentina, Costa Rica, Estonia, Indonesia, Morocco, Peru, the Philippines, Turkey and South Africa took part. " So as Kevin pointed out, "fewer than a fifth of the contestants built a compliant system and ended up with a positive account balance." That speaks to both the difficulty in getting a system working and to getting a working system to actually make money. It also suggests that IB has been successful in attracting an international participation for this competition. Chintan pointed out that IB gets great international press from this and I'd agree. It also means that a new generation of market professionals from around the world will be familair with the IB platform. Chintan is attending school in India I beleive.

So it seems clear to me why IB does this. Its great international pr, it creates customers, it creates employees (they offer internships to some winners) and I'm sure they get some tax write offs for giving money to college students. In Barron's this weekend, Kevin was quoted as saying he was funding a new IB account this week, so IB is sure to see their money boomerang to some degree. I certianly plan to put my $1k into my IB account. But I expect that since this was the fourth year for them to do it that they realize that in the long run they will get more out of it than they put in. I also hope that despite the ever weakening economy, IB will do this again next year. I have some ideas that are sure to improve my strategy. And I could use the money!!

Anyways, thats all from me on the Olympiad for now. Feel free to leave coments with your impressions of this year's competition. If you are interested in what I'm thinking about the markets you can check out my other blog Stock Geometry. Also, if any of you are trading your own accounts, you can often find me in an IRC room that I moderate. Email me at pythagoruz@yahoo.com if you are interested in joining us or have any other things to discuss. Until next year's Olympiad I'll revert back to posting math jokes, cosmological philosophy and other random stuff that I post typically post here. For now I'll leave you with a chart of the Japanese Yen during the Olympiad. A 9% drop in two months is a serious move for the FX markets, what volatility we had!!:

Cheers!

Monday, March 23, 2009

The Olympiad Results: I'm 29th

The results are out!!! I came in 29th with my 4.9% gain, and I'm very happy with that. I will do a more extensive "wrap-up" post sometime in the next week so check back. I just wanted to get these results up on the blog asap. Congrats to all that placed this year, I see some familiar names on the list!

(click to enlarge)

A few quick things I noticed and was suprised by:

The leader for the entire competition ended up in 2nd (Ahmed Taha)
There were not many people who placed (not all prizes were awarded)
The rate of return greatly increased up to first place, much more steep than last year
To get $10k you needed more than a 30% gain in two months
To get $100k you needed more than a 260% gain in two months
Roughly 1/3 of winners were attending school outside the US

IB: Olympiad Manual Trades

This was a post that I wanted to save until after the results had been posted. On March 16, last week, I got this email from IB:

"Dear IB Olympiad Participant:

Our internal records show that some of your orders may have been submitted through a non-API method. Do you have an explanation for this?

We need to receive your reply by 10 am ET on Wednesday March 18, 2009.

Sincerely,

Interactive Brokers"

My response was:

"Dear IB,

I am certain that no orders were submitted besides those by my program via the API. I was very careful with the TWS to make sure that I did not accidentally click on the GUI for anything besides the "account" button and the "trades" button. I definitely monitored the pages for API and portfolio but never clicked on anything within the page. One issue might be that I have a personal account with IB that I frequently use throughout the day and I only do manual trades with my personal account. That being said, I am fairly certain that there was never an instance where I accidentally did a manual trade in the IB account thinking it was the Olympiad account. I closely monitored the many positions that my program held in the IB account so I would have known. Furthermore, I did not trade any of the same securities that I can recall in my personal account except DXO and maybe STT.

Perhaps if you told me which trades you think were manual I might be able to help? My program executed many, many trades and there were glitches, so perhaps one of the trades that appears manual was submitted via the API but because of the nature of it, appears manual. For example, in some cases trades were submitted by my program when it closed. Maybe the API connection closed before the actual execution of a trade submitted just before the connection closed. I might be able to help more with more details.

Anyways, I hope we can sort this out because this is my third year in the Olympiad and I am very much aware of how serious you guys are about the rules. You guys sent me a similar email after the end of the competition my first year, and I think my response was pretty much the same then as it is now (and I was not disqualified). It would be very disappointing to get disqualified this year when I am certain that I did not violate any of the rules. Thanks for doing the competition again this year, I hope you will do it again.

Cheers,
Hunter"

To which they responded:

"Dear Hunter,

It appears one manual trade was placed on January 12, and the other one was on January 29."

Then I responded:

"IB,
This is the record I have of Jan 12th (the first day):
http://pythagoruz.blogspot.com/2009/01/ib-olympiad-2009-day-one.html
My guess would be that the trade in question on that day was in DXO in the first few minutes of the day. I still am not entirely sure what happened with that trade but my program bought twice as much DXO in the first few minutes of the day. Then it sold it all, then bought it all back. I'm not entirely sure why this happened other than that there may have been a delay between when the trade executed and when my program received a report of the execution. I also think that I might have shut the program off when I saw this happen, realizing there was an error. I don't recall if I did actually restart the program or not but it seems like something that I would have done. Assuming I am correct about it being this DXO trade, I think you could see that it wouldn't make sense for me to do this manually. This glitch actually cost me about 10k$ due to the bid/ask spread and commissions. If I had been doing a manual trade I would have just bought the DXO and that's it. With DXO my strategy was to use 50% of available "extra" cash to hold the leveraged oil ETF. My program checked periodically throughout the day and when it closed, if the time of day was appropriate, for this condition. So if I exited the program in those first few minutes, then it might have placed an order when i clicked the close button in my program gui. Also, you can see that there were many DXO trades throughout the competition that aren't showing up as manual, so there would be no reason for me to do this manually because my program was trading DXO on its own.

On the Jan 29th, I don't have much in my records:
http://pythagoruz.blogspot.com/2009/01/ib-olympiad-2009-day-eleven.html
From that record it would seem like the trade in question was to open a naked option position, but that seems unlikely since my program entered many naked option positions but no other days are popping up as "manual." If it was a DXO trade then I would it could be a similar issue with a trade submitted as the program exited. Otherwise, I guess it could be another order that executed just after my program closed. I know that all of the stock trades my program submitted had trailing stops (except DXO), so I suppose a trailing stop could execute while the API connection was not live (but then many more "manual" trades would be showing up). My SSO strategy always canceled trailing stops in SSO when the program was turned on and similarly placed a trailing stop in SSO when it closed. These trades would be right on the connection opening and closing as well. The option trades however, should be well within the time the API connection was live unless it took a long time for an order to get filled completely (which often happened with option orders due to illiquidity of those equities).

What comes to mind is that both of these apparent "manual" trades happened near the beginning of the competition when I was working out bugs and spending more time on the code. So I definitely was starting and stopping my code more frequently as problems arose. Later on, in Feb and March, I made fewer changes to my code and mostly left my code running for longer periods of time.

Hope this helps, if you're inclined I would very much be interested in knowing what it was that happened when this gets resolved.

Thanks,
Hunter"

Did anyone else get a message from IB like this? I guess my response was sufficient because I ended up placing.