$30-wide wings and .10/.08 delta short strikes work magic again

I stuck to the revised system this week and once again had all winners (so far -- SPX trades expiring Monday 4/30 and Wednesday 5/2 are still alive).

The market went almost nowhere (net) after bouncing around like mad:

The accounts I am trading were up about 4% again this week, and I still haven't lost one of these trades.

Let's go back to our friend the Kelly Criterion ... I got $2.15, $2.95 and $2.75 on the $30-wide spreads this week. This is 7.71%, 10.90% and 10.09%. Averaging these three gives 9.567%. Plugging this into the Kelly Criterion assuming 95% wins:

So half that would be 21% ... not far from the 15% in our system. I'll keep watch on this and possibly boost the amount at risk on each trade based on revised statistics. But I think I'm going to stick with this system without any more tweaks through the end of May.

That's it for this week ... I started a new day job this past Monday, so my next move:

Another 100% winning week and a refined risk idea ... plus fun with the Kelly Criterion!

I put on 3 more SPX and 1 more AMZN .10 delta condors this week and once again all worked. So I'm now 6-0 or 8-0, depending on how we're counting these.

Conditions were very favorable, with the VIX still relatively high (closed at 17.41) and the market going nowhere all week:

I'm using the Kelly Criterion to figure out how much risk to take on each trade, but to figure the K.C. one has to know how often the particular trade in question fails ... Since we haven't had this one fail, we can't use the Kelly. But ...

What happens to the Kelly Criterion for a trade or bet that always works, or almost always?

As expected: bet 100% of your stake/account if you have a bet that always wins ... (Make sure the "always" is true, though ...)

What about "almost" always: 98.5% of the time?

That's almost all of your account, fitting my intuition of what would be recommended. But once again, 1/2 the Kelly Criterion is plenty exciting/profitable: bet 45.5%, 46.75%, 47.75% ...

Just to be conservative while I'm waiting (no hurry!) for one of these trades to lose, I'm assuming 92.5% wins, and I get an average of 18% or so return on each trade. So:

So 25% ... but I'm not even going to do that ... bringing me to my final subject for this post ...

I said earlier that risking 33% overall of an account was plenty ... but the way the trades overlap makes it stopping at 33% leaving money on the table, I think.

If I risk 15% of the account on each SPX trade, that makes 45% maximum at risk ... but only for a few hours on Monday, Wednesday and Friday. Specifically, I usually put the trade on around 8am Pacific ... and one of the overlapping ones expires (worthless, we always hope) at 1:15 pm. So that's 5.5 hours of 45% exposure, 3 times per week = 16.5 hours of the 168 hours in a week at 45% risk and rest only 30%.

This seems like a balance of risk and reward that's worth doing. In fact this is an understatement. The mean expectation using this system (risking 15% on every trade) and getting a 15% return on every winning trade, winning 92.5% of the time, just for the rest of this year (40 weeks at 3x/week) ... a $50000 account becomes, on average, worth $247669.25!

More next week ...

Update: the .10 delta is just the ticket

A condor (or strangle) at the .10 delta for the short strikes is wiiiiiiide ...

This week was extraordinarily volatile, but still the .10 delta SPX trades (even one that I made at .12 delta) were barely tested. Not only that:

AMZN was down $100 on Wednesday after a Trump tweet claiming they didn't pay enough taxes. This whacked the 1 standard deviation condor I had on, but had I used the .10 delta even this would have expired worthless!

TSLA had similar troubles and results: a loss at 1 standard deviation but a win if put on at the .10 delta.

So here's my trading plan:

• continue using the 1 standard deviation condor with NDX a.m. settlement when it's available once per month; I put this on around 9:45 or 10am Pacific
• otherwise put on an SPX trade .10 delta condor every Monday, Wednesday and Friday, 4-5 DTE
• Supplement with high-IV underlyings like AMZN and TSLA and CMG ... all at .10 delta short strikes

That should do it ... more results next week ...