I give up (mostly) predicting market direction after a near miss this week

I thought that since the Democrats were widely expected to take the House of Representatives that that would be negative for the market. So on Monday I sold 1 /ES future short at 2722.25.

Unfortunately:

On Wednesday midday with the market continuing to soar, I sold another /ES futures contract short at 2801.50, thinking what a great opportunity that was. It wasn't until Friday, until the market went down below 2780, closing at 2778.75.

Unfortunately the SPX closes at 1 PST and not 2 PST along with the /ES futures, so it missed a couple of points of down move.  This is an issue because I'd also sold short the 2775/2785 call spread in SPX, for $2.50 to $2.55 credit. So loss closing at 2781.01 was $351 for a one-lot, less than half of what it could have been (and that I was resigned to on Wednesday ...)

We're now in position to do what I've tried to do previously when NOT in this position: sell puts against short futures contracts. I have two on right now (expiring Friday Nov 16) and can sell two for the next few weeks at least (I think!) for $1000 or more per week.

(Note: this doesn't mean $1000 profit per week. Depends on the movement of the underlying futures price. I'm ahead on the one I sold short at 2801.50 and behind on the one I sold at 2722.25).  Effectively I'm "reducing the basis" of these ... if I sell one put for $500, that's 10 points for /ES futures, effectively as if I'd sold the losing short at 2732.25 instead of 2722.25 ...

In other action ...

I've continued to sell futures options strangles and butterflies, small, and mostly have won on these. In fact I made $500 on yet another gold (/GC) butterfly with an adjustment I remembered from Dan Sheridan's butterfly guy Mark Fenton: you just sell another butterfly:

This worked beautifully and I'm going to continue to experiment with it.

But I think NDX can continue to be the "bread and butter" trade ... It's "expiration week" coming up this week on the 16th, where NDX settles in the a.m. instead of the p.m. So I'm going to load up on this trade again, at 9:45 a.m. PST Thursday:  "one standard deviation" Iron Condors with very wide wings. That's short at the .16 delta and long 50 to 70 points away.

On "non-expiration" weeks I think the .08 delta NDX trade from Monday to Friday should work at least as well: 91.7% for the a.m. settlement and I'm assuming at least 90% for the Monday-to-Friday p.m. settled trade.

More next week ....

NDX weekly trade wins again: 8 for 9!

I did put a short /ES trade back in for just 1 contract, unfortunately selling a 2nd put against it on Friday:

I had heard (via Tastytrade) that there might be some weirdness the last hour, and boy no kidding!

But back to the NDX trade: it worked again! Now 8 in a row and 8 for 9: 88.9%! And I got $1.86 credit, which is 22.8% return on capital. Wahoo!

That's enough of a test; I'm taking this into "production" next week using 1/2 the Kelly Criterion.

Given the assumptions that I'm going with (11 for 12 wins on average, returning 20% on average bet), the full Kelly Criterion recommends betting just over half your account on every trial. That's a little too exciting for me, but 1/2 that seems OK: 25% of the account.

More next week ...

NDX weekly trade: 7 in a row and 7 for 8!

I did give up on the short /ES futures trade just as it was about to start working:

It stopped going straight up, which is all you need to make money selling puts against the futures contract(s) ... I trust I'll have another opportunity later for this ...

But back to the star of our show: the NDX weekly trade. It won again this week, for 7 in a row and 7 for 8: 87.5% and counting:

Unfortunately I put this trade on at the minimum volatility of the morning and only got $1.00 for it (11.1%) ... based on action later in the morning I could have set an order to fill at $1.35 and got that later ...

Once again, the study I saw showed this trade winning 11 for 12 (91.7%) and we're getting in range of that.

Visualizing 17 in a row! More next week ...

Update: 2 more successful weeks ... and another leg of the trading plan now in place

I've been moving for the last week so missed last week's post ...

We are in the process (after 17 years!) of moving from a house we had built and where we'd lived since 2000. The new house is a rental:

... that looks kind of like this, but on more acreage (no houses around). Our little cockapoo Myla likes the place ...

(This is one of Myla's cousins I found on the Internet.) The only trouble for Myla is those other cousins that are around:

So we have to watch her ... But back to the subject at hand!

Last week I made the NDX trade just before expiration, which only yielded 75 cents: on a $10 wide spread that's 8.1%, and Monte Carlo simulation says that's not profitable even winning 91.7% of the time.

So just to try this out, the next day I put on at 8:30 Pacific a 1-day 1-standard deviation Iron Condor in our favorite volatile vehicle: TSLA. I got 15% on this one ... and 8.1 + 15 == ... 23%, just like last week's fabulous one.

So that's one thing I can try: when I get less than 15%, try a 1-day trade the next day to make up the difference, in whatever is volatile: TSLA or NFLX are two to try.

This week I got the trade in one hour before the market closed and got filled at $1.35 ... around 15% just for this one. It worked again so I didn't do anything extra on Friday.

So the NDX trade is now 2 for 3: 66.666667% winning ..

The other "trade leg" I put on this week is short /ES futures, selling puts against them every week.
I started with $28137 last Tuesday ... got filled at $2070.50 and sold the 8-day 2060 puts against these for $9.50 each (i.e. $475 each, since they're $50 per $1 of options in these futures).

As I write this, the futures have settled back to $2575.75 ... but the puts have collapsed to $2.65 so I'm showing a profit: up more in the options than I've lost in the futures.

And I can sell another batch of puts next week ... and the next. So this looks really good!

 More next week ...

What goes up must eventually come down ...

Something in the news last week sent the market further up to hit more record highs:

This hurt both sides of our trades; the short futures position got hammered ... as I write this the S&P futures price is 2435.50, which is 51.75 points above where I sold it short ... at $50 per point, that's $2587.50.

But! I sold another put for a credit on Friday: a $325 credit, so I'm down only $312 or so on the futures trade. And I'll sell another put every week, forever, and eventually the market will stop going up and even ... go down!

I had to take a 5% loss in one of the neutral trades to meet a margin call on the futures position; the other neutral trades I have on are hurting but not dead yet. Charts below:

Trade Date	Symbol	Result	Profit/Loss	Comment
02/06/2017	SPY	Lost	-18%
02/13/2017	SPY	Lost	-16%
02/21/2017	SPY	Won	+15.4%
02/27/2017	SPY	Won	+17%
03/06/2017	SPY	Won	+15.3%
03/13/2017	SPY	Won	+12.9%
03/20/2017	TLT	Lost	-1.4%	Dumb!
03/27/2017	SPY	Won	+9.6%
04/03/2017	SPY	Won	+6.6%	18 days long
04/10/2017	SPY	Won	+11.1%	only 14 days!
04/17/2017	SPY	Won	+6.7%
04/25/2017	SPY	Won	+8.9%
05/01/2017	SPY	Lost	-5.0%
05/08/2017	SPY	Open
05/15/2017	SPY	Open
05/22/2017	SPY	Open
05/30/2017	SPY	Open

Trade Date	What	Qty	Credit Received	Net Liq Change Since Start
04/25/2017	/ES Put	-1	$362.50	$0
05/03/2017	/ES Put	-1	$487.50	+$70.00
05/12/2017	/ES Put	-1	$337.50	+$1250.00
05/17/2017	/ES Put	-1	$500.00	+$1250.00
05/26/2017	/ES Put	-1	$262.50	-$100.00
06/02/2017	/ES Put	-1	$325.00	-$312.50

The other leg of the trading plan: /ES futures and "reducing basis"

A neutral trade like the one I've been using of the basis of the strategy I'm evaluating is vulnerable to events such as:

That cause market reactions like:

To protect against this sort of thing there are some things one can do. My favorite is to sell short S&P futures contracts and then sell puts against those short contracts.

The characteristics are like this: S&P "e-mini" futures contracts (symbol /ES) move $50 per point, or $12.50 per 25 cent "tick" ... I sold 1 contract today at 2383.25, then one put for "7.25" ... times $50 = $362.50 in credit I received for selling that put.

When the market goes down sharply, this trade pays off nicely and cushions some of the (assumed) losses one would get on the neutral trade in a sharp down move.

Additionally, selling one put against the short /ES contract lets one be "right" and make a profit even when nothing happens or the market goes just a bit up! Even if it goes sharply up, it eventually stops and this trade catches up to any losses with the sale of puts.

Effectively each put sale "reduces the basis" of the trade price, in this example, giving 7.25 more points before we start to lose. It's as if we sold at 2390.50!

This gives an extra chart sitting next to the standard chart we've been using:

Trade Date	What	Qty	Credit Received	Net Liq Change
04/25/2017	/ES Put	-1	$362.50	$0

I'll update the 'Net Liq Change' once a week; the number changes continually.

The standard chart now looks like this:

Trade Date	Symbol	Result	Profit/Loss	Comment
02/06/2017	SPY	Lost	-18%
02/13/2017	SPY	Lost	-16%
02/21/2017	SPY	Won	+15.4%
02/27/2017	SPY	Won	+17%
03/06/2017	SPY	Won	+15.3%
03/13/2017	SPY	Won	+12.9%
03/20/2017	TLT	Lost	-1.4%	Dumb!
03/27/2017	SPY	Won	+9.6%
04/03/2017	SPY	Won	+6.6%	18 days long
04/10/2017	SPY	Open	+11.1%	only 14 days!
04/17/2017	SPY	Open
04/25/2017	SPY	Open