Backtest results delayed; /CL still mostly behaving, otherwise markets still crazy up

I have the Python software done to run the backtest I promised last week, but I found what looks like a bug in the data.

The software just writes a log file of its results and they were mostly like this:

      GAIN: $ 240
      GAIN: $ 360
      LOSS: $ 470
      GAIN: $ 560

... but there was one that came up

     LOSS: $ 3500

I looked at the details and the data shows the loss in one day; options price spiking from $0.46 to $4.39 ... with the underlying spiking from $37 to $43 as well.

I then looked at the data more closely, and the underlying price shows different values for different option strikes all on the same day:

 whenx    | futures_close
------------+---------------
 2016-04-04 |         35.70
 2016-04-04 |         35.70
 2016-04-04 |         35.70
 2016-04-04 |         35.70
 2016-04-04 |         35.70
 2016-04-04 |         35.70
 2016-04-04 |         37.03
 2016-04-04 |         37.03
 2016-04-04 |         37.03
 2016-04-04 |         37.03
 2016-04-04 |         37.03
 2016-04-04 |         37.03
 2016-04-04 |         37.03
 2016-04-04 |         37.03
 2016-04-04 |         46.19
 2016-04-04 |         37.03
 2016-04-04 |         41.90
 2016-04-04 |         44.24
 2016-04-04 |         48.89
 2016-04-04 |         47.72
 2016-04-04 |         37.03

I have a support request into iVolatility to get this figured out ... this is just an end-of-day dataset, not ideal for the test anyway, but geez! It shouldn't show this difference.

I'll get this figured out this coming week and be back with the test results next week.

Oil trade results so far and backtest results coming

As regular readers know, I've developed a point of view that the price of oil should decline over time ... so far I've done only 3 live trades on a small account:

• Oct 2 -> Oct19  +$360 (expired worthless)
• Oct 17 -> Oct 31 +$700
• Oct 31 -> Nov 19 +$800

These were all neutral trades, "short strangles" selling the 49.5 put and the 59 or 60 call.

I had to clear out this small account to handle some domestic expenses, so I put on a paper trade with the more desirable "ratio strangle" selling 2 of the 66 calls and one of the 54 puts.

So far that one looks like a winner too, up $320 so far and with probably another week or so to run until I close it and take the "virtual profit".

So far so good ... but some potential customers just absolutely require backtesting before they will invest.

Today I downloaded a free set of end-of-day of /CL futures pricing from Quandl .. which gives me some indication of backtesting results:

• 2019 -- looks to have lost only 1 (of 13 or 14) potential trades due to run-up from 47 to 56 or so January 1 to 16 ....

But in general it's a guessing game. Without the actual options data and expirations, we don't know where we would have entered each trade, and that makes all the difference. If the prices go up sharply the first part of January, but you happen to have entered the trade late Dec when the prices were higher, you're still OK for that one.

I requested a quote on futures options data from Ivolatility, which I hope to get on Monday.

So I'm waiting until I get the actual data to publish actual backtest results. With any luck I'll have that this coming week.

Details coming then ...

 

Brexit ahoy (*sigh*) ... Oil continues to behave despite OPEC ...

The British Conservatives, led by Wacky Boris, shellacked the opposition and walked away with a majority in the house of commons this week ..

This should mean that they will Get Brexit Done ... but there are a lot of ways that could play out:


(If you enjoyed this Brexit Bookie video from C.G.P Grey ... he has a ton of other content on Youtube, almost all worthwhile.)

But what about the trading the British Pound based on this event? Well:

It was a "binary event" with volatility collapsing after the referendum ... with a Relief Rally and then apparently some second-guessing type selling.

Basically unless they really do a "fake Brexit" I think shorting /6B is probably the right play.

But! Now back to our favorite, /CL:

It was up around 50 cents this past week, still not reaching 60 on any close. So the short 63 calls should be nearing time to close for a profit!

And in this week's other hydrocarbon news:

Chevron is writing down as much as $11 billion worth of assets ...

 Mainly offshore oil and shale natural gas ... 

There's no escape from cheap solar ...

More next week! 

OPEC tries to manipulate oil upward; Qualified and non-qualified investors: a guide

The OPEC ministers met the past couple of days and agreed to cut production ... but nobody is sure for how long.

Oil was up this past week:

But /CL (based on West Texas crude) closed at $59.07, still well short of the $63 call I recommended selling 2 weeks ago. The recent movement in oil has been highly correlated with the Crazy Up Stock Market ...

And once again, whatever OPEC tries to do, they can't work against the declining price of solar electricity!

Until I tried to start getting approval from financial regulators FINRA and NFA, I wasn't very aware of the definition of "qualified investor" and of the restrictions placed on dealing with the "non-qualified."

My original idea was to charge for performance, but I found that's against regulation for non-qualified investors. So I eventually came up with a subscription plan that charges a flat fee regardless of performance. This was OK with NFA.

I'm reminded of a sign that used to be in one of my favorite local restaurants:

No Maximum. Spend as much as you like!

My target market all along has been those who want to retire but who don't have the money to do so in this ongoing low-interest-rate environment. But I'm wide open to also dealing with qualified investors, as well as:

• Those wanting extra income to retire student debt
• One willing to invest $25000 to build it into a college fund for a young person
• Somebody wanting to accumulate capital for anticipated upcoming medical expenses
• Or for anybody else!

So just be clear: the minimum is $25,000 but there's no maximum investment. Let's talk!

More next week ...

Market retreats slightly from record high; oil trade behaves beautifully

The global market declined a bit from the record highs of recent days. We'll see if it amounts to this:

So far, not much: just down 0.4% on Friday.

In the meantime for those of you who took my advice to sell 2 of the 63 calls and 1 of the 49.5 put in the crude oil futures options market (/CL):

Specifically, /CL just kept bumping through 57 and 58 ... and eased back all the way to 55.42 at the close Friday ...

I should have the NFA approval this week and I have one subscriber (I think!) ready to sign up. So you folks who are waiting and want to take the plunge I do have a promotion on right now to save you some fees if you act immediately!

More next week ...

Oil trade closed out: +39.5% since October 1; one more step for NFA registration; promotion for new subcribers

The oil futures trade I had on finally cooperated a bit on Tuesday, getting down around $56, and I closed it out when the short call was finally showing a profit.

It bounced up to almost $59 after that but then dropped right back to the top of its previous range, closing at $57.93 on Friday afternoon.

So: sell 2 /CL $63 calls and 1 /CL $52 put, credit just over $1100, expiring January 15 (51 days, if you do this Monday).  Thank me later!

Navigation Trading continued to "outperform", booking almost all of the profit available on an AMZN trade:

He was short the 1717.5 put and the 1750 call, and closed midmorning today with only $25 of the $273 potential profit still on the table. Wahoo!

I was mistaken about having fulfilled the last requirement for NFA Commodity Trading Advisor ... there was one more:

Yes, I had to send a copy of my fingerprints to NFA so they can make sure I haven't been previously busted for financial crimes under another name, I guess ...

There is a  local fingerprinting business (who knew?) that apparently does enough of these to make a living ...

I sent in my copy via certified mail so I should have final approval by next week, I think!

Finally ... I'm offering a promotional incentive for anybody who signs up by December 1 (2019) ... Details here ...

More next week ...

I passed the "series 3" exam; ready for subscribers! (Oil market is still sort of behaving ...)

As regular readers know, I've been talking about a subscription service I am starting. I should have one or two subscribers signed up this coming week. (Don't be left out!)

The good news is that I just passed the FINRA Series 3 exam, which is the final requirement I had to satisfy to qualify for the NFA Commodity Trading Advisor designation.

As for my short oil strategy, it's hanging in there  ... the technical analysts talk about resistance, which certainly looks like what's happening around $57.80 ... fine if it would stay there or bounce down a bit. I am still not showing a profit on the short $60 call but the short $49.50 put is making up the difference and more.

My plan is to sell 2 calls to 1 put when I have a larger account to work with, and this experience certainly tells me I need to go out a bid wider on the call side!

The rest of the market continued what it's been doing: going pretty much straight up. This works fine for Navigation Trading's Iron Duck ... but not for anything with risk on the upside.

More next week ...

Market zooms, at least for the moment; oil propped up temporarily ...

The broad stock market continued zooming up after noises of the trade war being eased:

SPX the last 2 weeks

And oil went up with it, partly, but some of the push up was dented due to a report that the top producers aren't pushing for supply cuts, and Brazil's attempt to lease oil deposits flopped [source: Bloomberg].

I'm only a week into the trade, now 37 days to expiration, showing a profit due to the short 49.5 put. The short 60 call is still underwater ... I'll roll the whole thing to the next expiration when this one has 21 days left ... or sooner if it gets much closer to my 60 strike!

Otherwise, Navigation Trading's Iron Duck trades continued to pay off. The best example of these was an earnings trade in ROKU:

The Roku price was around $140 when the Navigation guy sold 2 of:

• 135/137 call spread
• 121/113 put spread

... for $2.31 credit. This would give just a tiny profit on the upside ($62) ... but instead this happened:

So instead it was closed for nearly the full profit, $440 or so ... or $4400 if you were doing 10x his trade size!

For those of you looking ... what are you waiting for? Opportunity calls!

More stellar results published; a couple of possible resolutions to the automation challenge

Navigation Trading published November results ... profitable again (*yawn*) 😃It's not as useful as it could be, as they're vague about the size of account that's required to take full advantage of their trading plan (minimum, of course; one could scale this as high as desired if one wanted to do that).

So Navigation Trading for November:

+ $2581 

Their blog gives details on the "closing only" strategy, so please take a look at that.

Their Iron Duck strategy paid off this past week, as the market went mostly straight up:

As for my "short oil" strategy, I have a more traditional report of results:

+25.2%

Note that this is on a small account: $5400 to start, and the trade I put in took about 60% of the buying power available. On a larger account I wouldn't have risked quite so much on this single strategy, but you can see its potential.

But also: I

• sold the 59 call
• sold the 49.5 put

This is a neutral trade, not a short one ... what I will do when I have more money in the account:

• sell 2 calls
• sell 1 put

This is still neutralish, but with short bias ... and would have made even more money than the trade I put on.

As for the automation strategy: I had lunch yesterday with an old friend who's been down the same track I've been working lately of trying to get the Interactive Brokers API to work.

One piece of data he had: he said that they found that the live back end behaved differently than the paper trading account for the API .. some trades worked on the live API that didn't work on the paper API. Sheesh ... this defeats the whole purpose of trying this with the paper API!

As for Vela Trading, I finally talked to them and they're hugely too expensive: $20K per year per market ... whatever that means. (I am fuzzy on CBOE vs CBOT vs the 1800 futures markets) ...

So it's going to be Interactive Brokers or maybe TastyWorks ... I applied for the beta test program for their API.

More details next week ...

Weekly update: some real results this time (+16.09% this month!); continued automation challenges

I have set up a small account starting around October 1 where I have been doing:

• short oil trades (selling calls in /CL)
• some of Navigation Trading's trades, especially the "Iron Duck:"

No, not like that. Like this:

Maximum risk on the upside is $5 (i.e. $500) since the strikes are 3015 and 3010 ... but since this trade returns $6 (i.e $600) credit, your "max loss" on the upside is a gain of $100.

These have been working great, for earnings trades and otherwise ... my intuitive sense of these said they should win 95% or so of the time, and the Navigation guy said as much in his video update ... some user of his who's been doing this a lot has won 40 of 42, he said.

Anyway, my real results since October 1:

+16.09%

Interested? You can subscribe! (But: past performance is no guarantee of future results, as we've discussed before.)

Update on the automation project: nothing new ... waiting on T.D. Ameritrade to tell me about their FIX deal, but no response yet. Also waiting on Vela Trading to tell me the price of their Execution Gateway or whatever else they have that will work for us ... 

Getting impatient on this, but trading my small account until then ... More next week!

Your $150,000 account: theoretical results since 2017

As regular readers know, I've been working on a project to automate Navigation Trading's trades.

It's not clear to me how large an account it would take to take full advantage of results like this, but I think it's around $50000. So with your $150,000 account we could put you in:

• 3x the trade size for all of Navigation Trading
• Short oil and natural gas trades (selling 2 calls vs 1 put in /CL and /NG)

Let's look at both kinds of  results you could have achieved in the recent past:

Date	Nav Results	Your Navigation Results	Your oil/gas results
2017 (Jun-Dec)	$9397.01	$28191.03	$15000
2018	$39682.39	$119047.17	$25000
2019	$25000 (projected)	$75000 (projected)	$25000

At this point, if you're living off the proceeds (plus whatever Social Security or whatever other income you have available), well, wahoo! If you've still been working and have just been letting this money accumulate, then you have the option to scale up and make more money in 2020:

• Go to 4x the trade size for Navigation
• Go to 3 calls / 2 puts for /CL and /NG

... and so on from there.

Caveats:

• PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Navigation Trading has done very well the last 3 years, but anything could happen to disrupt their results going forward.
• The oil/gas "results" are speculative but based on current options prices and the fact that oil and gas have been more expensive than solar electricity since at least 2016.
• Options and futures trades like this involve extra risk that you should understand before investing. 

With all that being said, if interested, please subscribe!

Short oil reestablished; the challenge in automated trading

This past week:

• Oil went nowhere, and I just let the existing trade expire worthless and reestablished it Thursday
• Equities rallied a little bit on the "not yet papered" trade deal and then cooled off by the end of the week

And as I've mentioned here, I've been working on automating the trades from Navigation Trading.

This is supposed to be doable with relatively high-level software from Interactive Brokers:

https://interactivebrokers.github.io/tws-api/spread_contracts.html#bag_opt

The image of trade automation is like this:

The reality of Interactive Brokers' software is more like this:

That's right: it doesn't work! It's even supposed to be available in Python, but even the C++ doesn't work for what I need to do: option "spreads" on equity and futures.

There are a couple of open source providers who provide "fixed" versions of the C++ implementation, and one of those works well enough that I was all set to use it. I got a couple of useful suggestions from someone watching the Github site for this one, and it looked like I was off to the races.

But then I got to trying futures options spreads, and the version (9.71) of the Interactive Brokers' API that this "good" one was supporting doesn't support that.

The other one does, it says .. but I could only get it to work on its example S&P 500 futures  (/ES) and not on anything else I tried.

My client said that 75% or 80% automated isn't good enough, so I went back to the drawing board ...

There are a ton of trading technology firms around Chicago and New York, and I talked to several, including:

• CTS Futures
• Onixs.biz
• CQG
• Trading Technologies
• Vela Trading

A couple of these haven't responded yet, but none of CTS, Onixs.biz, nor Trading Technologies support anything but futures! Meaning: no NFLX, no IBM, no TSLA ... 

I even called Vela but hadn't heard back from the right person by the end of day today. 

I was hoping to find a working higher-level software implementation, and TT seemed to fit the bill with a REST API sort of setup. So I was especially disappointed to get the 'no equities' message from them.

Finally I got to looking around, first for FIX protocol training ... then thought to look for Interactive Brokers FIX support ... and of course I found it!

So I'm back to low-level C++ ... or maybe Go ... more next week!

Short oil trade wins, as expected; new ad on Navigation Trading just released

The price of oil doesn't seem to go up no matter what happens ... this past week an Iranian oil tanker was supposedly attacked ... the price of oil's response?

Specifically, the price spiked very briefly to $55 or so then oozed back down ... currently $53 and change:

I scraped together enough to fund an account with enough to do this trade ... So my short 58 call and the short 49.5 put I added late last week look to be expiring worthless on Thursday as expected ...

And just to reiterate: I am soliciting clients who'd like to take advantage of this profitable trader but who don't feel interested or capable of doing the trades themselves. My new Craigslist ad on the subject just went up this evening. Let's talk soon if interested!

Thanks ....

No risk to the upside ... a condor I hadn't seen before

Hi All ... sorry I'm late with this post as I was busy with the trade automation project I'm working on (more about this below) much of this past weekend.

But the Navigation Trading guy put through a trade this past week that got my attention. SPX was around 2885 last Thursday the 2nd, having been sharply down during the day. So the trade came through like this:

SELL -1 IRON CONDOR SPX 100 (Weeklys) 9 OCT 19 2895/2900/2830/2800 CALL/PUT @6.60 LMT 

I saw this go buy and just thought, "hm, kind of close on the upside ..." then it hit me a few minutes later:

• Max loss on the upside $5 ($2900 - $2895)
• BUT $6.60 credit received
• SO: max loss on the upside ... is a $1.60 (i.e. $160) profit!!

This is just what the doctor ordered:

... as SPX rocketed back up around 2950 the next day!

This trade only works this well with a little volatility in play (like now -- VIX closed 17.86 today) ... but a backtest since 2009 should show this Fabulously Profitable. You almost always either win small or win big ... probably only 5% of these trades should be losers ...

And once again: Navigation Trading available as a to-be-automated service and I can push these trades through for you 'by hand' in the interim. Details here.

Thanks!

Oil and Gold futures continue to pay off ... Impeachment drags equities; Navigation Trading Automation

Oil continued to slide this past week after the excitement of a couple of weeks ago, reaching back down to its previous range, currently $56 or so per barrel.

Gold futures are also volatile, currently around $1500:

These both pay well, for example if you sold:

• /CL sell 2 60 calls and 1 50 put, both expiring November 15, you get about $3000 credit (on Tastyworks)
• /GC 1545 call and 1440 put, both expiring October 28, you get another $1191 credit

Best practice is to close each of these when you get 50% of the credit, so that's about $2100 or so within 20-25 days ... while tying up only $3500 or so in buying power.

Not bad ...

Equities dragged a bit (SPX down to 2961 on Friday) due to this guy:

Enough said about this ... although the most recent impeachment we had did not bother the stock market one bit (possibly due to its happening in the midst of the dot-com boom) ..

As for navigation trading ... 

I watched the trades go by this week and it still seems clear that the trader in charge is a Tastytrade aficionado ... which is a Good Thing!

I'm making progress on automating these trades and can do this for you (as well as a bit more oil and gold trading for extra revenue!) anytime you are ready.

Let me know ... details here ...

Oil market calms down; ready to automate Navigation Trading ...

The oil market calmed down quickly after last week's spike:

And otherwise the market stayed pretty calm except for a down move late Friday ... Chinese officials cancelled a visit to U.S. farm country:

A trade update on the small account I'm trading: It's now up 15% or so since its trough about a month ago ... still much too far down overall, but moving in the right direction.

But the big news is on Navigation Trading and the new service I'm rolling out to automate these trades. I made a breakthrough earlier today on a key piece of the automation software and I should have this ready within a month or six weeks.

But don't wait! I can set you up with an account matched to my master account at Interactive Brokers and do the trades for you "by hand" until the automation piece is fully tested and ready.

Details here ... more next week!

A challenge for the "short oil" strategy; more on Navigation Trading

There was a Yemeni strike on the Saudi oil infrastructure this past week:

You might expect this to cause a spike in the price of oil, and in fact you'd be right:

But it looks like it peaked very briefly at $64 or so but is back down as I write this (Sunday 8:27 pm PDT) to $59.61. The Saudi oil industry isn't the key to the global supply it once was, and though this strike hit a key piece of infrastructure ... there's still plenty of oil washing around in the world supply.

Amory Lovins said that his vision of the long-term price of oil would be that it would be "low and irrelevant." I think he's still right on this point ...

More on Navigation Trading: "keeping the dream alive"

Once again, I'm working on automating access to this guy's trades ..  As you can see, he hasn't posted a losing month since he started keeping records in June 2017. 

How does he do it? For one thing, he doesn't count a trade as a loss until he's given up on "adjusting/rolling" it. For example, He closed out an Intel (INTC) trade last month (August 2019) that he started in late July or early August and "adjusted/rolled" several times before squeaking through to show a $26 profit.

Intel's challenge to neutral trading strategies this summer

This is OK as long as you understand that you won't be able to look at your account at the end of every month and see exactly the performance he's posting. If you have 2 or 3 of these trades going that he's in the middle of adjusting/rolling then you will be down possibly a few thousand dollars from what he posts ... but you should make up those by the end of the next month.

For further exploration of this idea, watch Tastytrade ... they call it "keeping the dream alive" ... There's also a book by an advocate of this approach:

Questions?