NDX weeklies + /NQ hedge = $$$$$$! Sweet!

I just mentioned in my last post how one might use an /NQ hedge to move a losing iron condor into the winning column:

I only realized over the next night that this the /NQ hedge is the key to bringing the win rate from 91.67% to 95% or even 100%! I can imagine some weird reversals in /NQ in the middle of the night, but if carefully managed it looks like one would just lose a bit on /NQ and win the main trade ...

Then with the Kelly Criterion you can pick how much of your trading stake to risk each week ...
The formula suggests betting almost 62% of your money on a trade that returns 15% and has a 95% chance of winning. I can understand that one wouldn't want to do that if not sure of that 95% win rate yet, and in any event the Kelly Criterion is known for producing results that are distinctly volatile:

... and you can still get excellent results using 1/2 or 2/3 the suggested bet of the Kelly Criterion.

Anyway, here's the plan:

• Sell N (1 to the number you can stand!) NDX iron condors (or even sell strangles) at one standard deviation (delta 0.16, or 16% probability in Tastyworks) .. do this within 3 hours of the close every Thursday.
• Set a buy market order when the /NQ price gets halfway (or better! in case it zooms as it did last Thursday to the short call strike price) and a sell market order for /NQ 1/2 the way down to the short put.

That's it ... management of the /NQ position is left as an exercise to the reader (and something I'll be experimenting with working on getting to that 100% win rate!)

Note that the Friday morning NDX price is marked under symbol NDS, not NDX.

Questions?

NDX, not SPX ...

I found an old email reference to this trade I mentioned: 91.7% winners on a weekly NDX trade, not SPX:

So I tried it yesterday:

• sold the 5990 put
• bought the 5980 put
• sold the 6100 call
• bought the 6110 call

This is a '1 standard deviation Iron Condor' ... for which I received $1.79 in one account and $2.00 in another account. The $2.00 credit give a nice round number for calculating the potential rate of returen: Max risk = difference in short and long strikes ($10) - credit received ($2) X 100 = $800. $200 / $800 = 25% return ... in less than 1 day.

But a funny thing happened:

All of these had earnings after the close (just after 1 pm PST), and they all had huge profits, which sent the /NQ (Nasdaq 100) futures on a tear:

If you had looked at this even at 5pm PST Thursday when it was flirting with 6100 and then bought 1 /NQ futures contract to hedge ... you'd have made over $2000 ($20/point), swamping the $800 loss you took on the weekly trade.

Next time, perhaps ... I'll try this again next week, not falling for the fallacy: "well if it's 91.7% winners and we got the loss out of the way the next 9 or 10 in a row should work, right?" I hope so, but the fact is the next trade has the same 8.3% chance of failure as the last one ... not much, but not out of the question.

Anyway, I'm 0 for 1 on these so far: $800 down (actually $804.something with the tiny commissions in Tastyworks ...) 

I'll try it again next Thursday and post the results again next weekend.

Trump crazy rally and my mistake hurt results but ...

This guy mentions Tax Cut and the market rockets up:

I've been doing mostly neutral trades for my own (currently small) account, as well as making a mistake "The S&P 500 will never get above 2520 this cycle, will it?" It did:

In any event, I've been trying the "trade small, trade often" Tastytrade method a bit ... overall it's less risky than the way I was trading before, but also less profitable.

So overall I'm now down to net liq $3599.77 ... which is down just about 10% overall.

I am pretty sure I have $55K or so coming into this account within the next couple of weeks and here's my plan for it:

(1) Continued Tastytrade canoodling, especially with higher-volatility stocks like TSLA
(2) Some earnings trades, selling a (small) 2-day iron condor just outside the expected move
(3) Short futures contracts ... probably 2 or 3 of these, selling puts against them every week
(4) For 25% of the account balance, stepping out of the Tastytrade arena and moving on to Ralph Vince (but using a trade idea from 2013 Tastytrade -- though I can't find the video right now):

Sell a 1 standard deviation SPX Iron Condor weekly option near the end of trading (1:15 PM Pacific) every Thursday, taking advantage of the (excess) premium in the options that remain because even though you can't trade SPX after Thursday 1:15, the actual settled price doesn't come through until Friday a.m., in a vehicle called SET.

I could just swear I saw at some point a customer-published study showing that this trade (or actually
the short strangle: an Iron Condor without the protective wings) works 91.67% of the time.

Assuming that, I'm "safe" risking 25% of my account every week ... each trade making about 15% on margin, so 91.67% of the time making 0.25 * 0.15 = 3.75% per week ... most weeks. If you do that successfully 10 weeks in a row, you gain 44.5% for those 10 weeks:

A monte carlo simulation running this 10000 times shows this hugely profitable ... but I have enough experience by now that I'm just going to test this with 1-lots (risking about $400 per trade) for 10 weeks in some of the (long suffering) people's accounts I am still trading ...before putting it to the 25% test in my own account.

I'll publish the results of the first such test this weekend!