AI Trading: Lesson Learned #120: Capital-Aware Watchlist Required for Paper Trading

#ai #trading #python #machinelearning

Lesson Learned #120: Capital-Aware Watchlist Required for Paper Trading

Date: January 9, 2026
Category: Trading Execution
Severity: CRITICAL
Status: RESOLVED

Summary

Paper trading system was completely dormant for 3 days (Jan 7-9, 2026) despite having $5,000 in buying power. Root cause: Phil Town strategy watchlist contained only expensive stocks (AAPL, MSFT, GOOGL, etc.) that required $9,000-$90,000 collateral per CSP, far exceeding the $5,000 account size.

Problem

Paper account: $5,000 buying power
Phil Town watchlist: AAPL, MSFT, V, MA, COST (all expensive stocks)
CSP collateral required for AAPL at ~$93 MOS: $9,300
Result: 100% of stocks filtered out → 0 trades for 3 days

Root Cause

The Phil Town strategy was designed for a $100,000 paper account but the account was reset to $5,000 on Jan 7. The watchlist was never updated to match the new capital level.

Code location: src/strategies/rule_one_options.py line 241-258

Solution Applied

Reordered DEFAULT_UNIVERSE by affordability:
- TIER 1 ($5K): F, SOFI, T, INTC, BAC, VZ (strikes <= $50)
- TIER 2 ($10K): KO, PG, JNJ, HD, MCD
- TIER 3 ($20K+): AAPL, MSFT, GOOGL, AMZN, etc.
Added capital-aware filter in find_put_opportunities():

   required_collateral = target_strike * 100
   if required_collateral > cash_available:
       logger.debug(f"{symbol}: Strike ${target_strike:.2f} requires ${required_collateral:.0f} - SKIPPING")
       continue

Updated system_state.json with affordable watchlist

Capital Tiers Reference

Account Size	Max Strike	Example Stocks
$5,000	$50	F, SOFI, T, INTC, BAC
$10,000	$100	+ KO, PG
$20,000	$200	+ AAPL, NVDA, GOOGL
$50,000	$500	+ MA, UNH, BRK-B
$100,000	$1,000	Full universe

Prevention

Always validate watchlist vs capital when account size changes
Capital-aware filtering should be standard in all options strategies
System health check should verify at least 3 stocks in universe are affordable

PR #1322: Stop paper trading losses - Rule #1 compliance
LL-111: Paper capital must match real
system_state.json: paper_account.valid_strategies

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