A deeply annoying week made worse by a couple of mistakes I made

The only good thing I can say about this past week is that I wasn't short S&P futures:

Although this move wasn't kind to my neutral trades, of course ... I am short the 2870 SPX call expiring July 3, so I have hope of that trade coming back into profitability and bringing my butterflies (in SPY and QQQ -- IWM is OK) back with it ..

The two mistakes I made this week to exacerbate things were both earnings-related. First:

I meant to trade Salesforce (CRM) for its earnings after the Tuesday close, but instead I traded Chipotle (CMG) ... expiring today, June 7.

I noticed this the next morning, of course, and figured: what the heck, even though I gave up 4-day trades it should still work, right? Wrong:

Finally, Beyond Meat had earnings and I made two mistakes on this one. I forgot again that anything can happen any time and made the mistake I've been most prone to "it couldn't go up from here, right?" In this case, the money-losing stock market darling of late.

It turns out nothing I did would have worked, but I didn't even sell both sides ... just the short call spread, just outside the $12 expected move. Instead it went up $20 and then $30 ... And I was taking too much risk, almost $900 ... actually got out for about a $730 loss on this one:

Anyway, Trump announced late today what the market already figured out: no extra Mexican tariffs on Monday. But I hope that's a "sell the news" indicator:

More next week ...

2nd week earnings: the .16 delta doesn't cut it (at least for defined risk trades)

I traded mostly .16 delta iron condors this past week, with two exceptions:

TWTR (Twitter), where I sold a .16 delta strangle (for $80, netting $40 since I closed it at 50% of net credit received) ... and:

Snapchat (SNAP), where I sold two 6 strike puts (the stock was at $6.70 or so) for $15 each, netting $30 ... which I got almost all of since the price collapsed to $1 at the opening the next a.m.

But the two big (100% of the amount at risk) losers were Chipotle (CMG) and Motorola Solutions (MSI) ... both zoomed up after earnings.

Overall I lost a little money this week, like 2% on one of the $19K accounts I'm trading.

So this week I'm going to go out wider, probably the .08 delta ... the problem with this is that it won't pay enough to be worth the risk for a defined-risk trade. I can do undefined risk trades in my own account, but so far I don't have permission to do them in others.

Also, the Fabulous NDX trade is available again on Thursday in place of any earnings trades ...

Fingers crossed ... more next week!

Jay Powell rescues my long /ES position

I've been trading for almost 10 years now, and the extreme overreaction of the market to statements by the Federal Reserve (both up and down) ... has continually amazed me.

Today it was this guy again:

"Maybe we don't have to raise interest rates quite that quickly if the market is in the tank ..."

And so today:

This worked out for me, this time ... I was kind of expecting such a move based on settlement of the ongoing government shutdown, but no such luck on that:

Trump blames Democrats for shutdown: blah, blah, blah

I made the expected 50% on an /ES strangle, and I cashed out my long /ES position (20 points too early, it turned out) ... but that's OK.

Longtime readers of this blog know that I've been looking for an alternative to the "fabulous NDX trade" that was available every week but now occurs only once per month. I was relying on it exclusively until this change ...

But looking at the results of three different accounts I'm trading makes me think I don't need much to go with the NDX:

• My personal account since 5/17/2018: down 5% (due to experiments and stupid mistakes)
• Another account I'm trading for a guy, doing less experimenting with: +37% since 2/26/2018
• a couple of small accounts (starting with $5500 each or so 7/24/2018 and 8/10/2018: up 40% or so on average

So: can I just rely on the NDX trade and do just a few one-lot trades of miscellaneous types and get these kinds of results going straight on up?

One small test I'm running while waiting for the next NDX in a couple of weeks is with the "tastytrade method": at 45 DTE (Days Til' Expiration) put on your particular trade (Iron condor or Strangle) and hold until you are up 50% of the credit you got at the beginning. This worked great over this past crazily volatile few weeks, with CMG and TSLA dipping way low past the max loss point then coming back to 50% profit for TSLA and almost there for CMG... I reloaded TSLA for a shorter trade, just ahead of earnings ...

I think next week at least on my own account, I'm going to try the 4-day QQQ again (taking 40% if I can get it) ... but just a one-lot max loss of less than $900.

We'll see what next week brings ...

A much better week in the trading trenches, due to short /ES futures well timed ...

The fake trade truce of last weekend briefly spiked the market, but when the /ES futures reached 2806 I shorted them, and from there (this is the last two weeks' chart):

I'm also short the 2580 /ES put expiring Friday the 14th (for which I got $1200 credit!). I am very willing to roll this one down further if this level is breached.

Meanwhile, the 4-day NDX trade is on probation ... I put in another small one (25-wide wings, $2270 or so at risk). Unlike last week, I put in an order to get out with 40% of the credit, and that got filled early Tuesday a.m. That's very fortunate, as the NDX graphic looks almost identical to the one above.

But I was short the 6750 puts ... I received $270 in credit and cashed out $108 of this ... which would have turned into a loss of the whole amount at risk, since the Friday close was at 6613!

I think I'll just try a 4-day QQQ trade with 5-wide wings until I can get some backtesting done on NDX for this one.

Also, in a couple of small accounts I'm trading, I am trying the 'Tastytrade method': start at 45 DTE and take only 1/2 the credit ... (I'm also putting in the Fabulous NDX trade in all accounts > $5000  coming up for a.m settlement on the 21st.) Those tiny trades (just CMG and TSLA) are still 40 days away from expiration and in no danger of breaching anything ...

I'm surprised this took so long: Trump-inspired volatility. But I'm happy to be able to trade on it!

More next week ....

Near miss by falling burrito; Technical analysis update

I went to CMG this past week to get more credit, and just after I put on this trade:

A Chipotle outside Columbus Ohio on Monday 7/30/2018

I had sold the 450 put and bought a 430 put to limit the risk on that side to $20 (minus the credit I received: 98 cents) ... By the time I looked at it Monday morning, the stock was down to $429 (i.e. total loss) ....

But (a) no smoking gun was found and the store was reopened the next day, and CMG stock recovered all the way back, almost:

I think I'm going to stop trading CMG and TSLA and stick with AMZN only for an equity in this 4-5 day timeframe. Both CMG and TSLA have been periodically (and not just during earnings!) prone to these violent moves, CMG from perceived pathogens and TSLA depending on Elon Musk's latest tweet ... and the perceived safety or lack thereof in its cars.

AMZN controls the world ... or at least is so much more a diverse and huge company than either of these other two,  so it should be less vulnerable to this sort of move (IMHO) ... GOOGL is a possibility for this reason also.

And if I want to stick strictly with indexes, I can always use RUT and/or NDX ... both are slightly more volatile (i.e. they pay better!) than SPX. The SPX advantage is its 3 expirations per week ...

Technical Analysis Update

I read a couple of books after my TAC (Technical Analyst Colleague) predicted a Wednesday close almost exactly on the money 10 days ago. But I've concluded that while technical analysis may be valuable for some (including TAC), I don't think it's for me.

I closely read this book:

This guy is a fundamental analyst who reads a lot of newspapers ... I don't do fundamental analysis but I do like newspapers! So this rang a bell with me.

His take on Technical Analysis: Fuhgetaboutit ... gives numerous of examples of public predictions of TA practitioners not working.

Overall: a good book and very enjoyable to read.

Another book I merely skimmed so admit I may have missed something:

The author goes through a lot of space giving the scientific method and statistics and whatnot, all of which I was familiar with coming in and so just flipped through at high speed. 

His conclusion (also read at high speed so may have missed something) was that the only real evidence he could cite was the head-and-shoulders pattern 

... does work for trading futures, but he couldn't cite anything else that was proven to work.

All that being said, I do see traders that swear by TA and are apparently making money using it. So how is this possible?

One possibility is that the best of them have such experience in the markets and looking at the charts that they intuitively see what's coming and where to draw the channel lines, etc. Tim Knight is an example of this kind. In his Tastytrade show Last Call he spends 15 minutes on charts and apparently does well trading this way. But seeing where to put every stop isn't (apparently) one can program ...

Best of luck to all technicians out there, including my colleague TAC, but I think I can win without being a technician myself.

Results chart after this week's trades:

Expiration	Underlying	Long put	Short put	Short call	Long call	Credit Received	Result
07/16/2018/	SPX	2680	2730	2810	2860	$3.60	Won 100%
07/18/2018/	SPX	2700	2750	2820	2870	$3.95	Won 100%
07/20/2018/	SPX	2700	2750	2835	2885	$2.40	Won 100%
07/20/2018 (a.m.)/	NDX	7260	7310	7410	7460	$5.99	Won 100%
07/25/2018	SPX	2705	2755	2835	2885	$2.40	lost 16% of amount at risk
07/27/2018	SPX	2695	2745	2825	2875	$3.50	Won 100%
07/30/2018	SPX	2720	2770	2850	2900	$2.60	Won 100%
08/01/2018	SPX	2730	2780	2870	2920	$2.15	Won 100%
08/03/2018	CMG	430	450	490	510	$1.01	Won 100%
08/03/2018	AMZN	1692.5	1722.5	1887.5	1917.5	$2.60	Won 100%

9 for 10 winners (90%) and the loser only lost 16% ... may present trends continue! More next week ...

Slow learner I am (the right way to get more credit); Amazing Technical Analysis or just lucky?

I went back to "no rolling" last week as regular readers will remember. But I didn't move the short call strike back out to the .08 delta, and was bitten by this for Wednesday expiration. (I didn't have a Monday-expiring trade on this week as I had done the Thursday NDX a.m. settled one last week instead of the normal Wednesday to Monday one.)

And the market bit me on Wednesday; I was short the 2835 call but we had a spike late Wednesday the ran the close up to 2846. It was Trump:

... claiming a deal:

Fortunately the wider "wings" proved their worth; this was only a 16% loss (on the amount at risk) instead of the 100% it would have been if the wings had been 5 or 10 points wide.

I must be a slow learner sometime ...

I got away with it this time, having sold the 2825 call expiring today (July 27) ... but that was the .16 delta ... if not for the (moderately) sharp downturn today I'd have lost this one too.

I was just trying to get a little more credit ... $3.60 (7.8%)  instead of $2.40  (5.0%) or so ... That's OK but this is the wrong way to accomplish this.

The SPX is in record high territory, making its volatility (and therefore the credit we get with these trades) very low.

But there are other underlyings; AMZN, TSLA, CMG that could be used on the Monday -> Friday trade at least, possibly on the Friday to Wednesday trade also (closing early) ... Let's look at the returns these give! All of these are current (Sunday afternoon 7/29) prices and are the wiiide .10 put and .08 call spreads, with wings sized proportionally to the SPX 50-point wings

AMZN with 30-point wings gives 2.50 or so, about 9.1%.

CMG with 15-point wings gives 0.85 or so, about 6%.

TSLA with 15-point wings give 1.65 or so, around 12.1%.

So I'm going to use one of these for at least one of the three trades per week while SPX volatility is so washed out, and for the SPX trades I'm going to stick with the .10/.08 deltas, cheap though they may be.

---

I've generally been ignoring technical analysis, thinking it not useful for what I'm doing and generally that there should be no connection between chart patterns and future prices (other than what chartists inject into the market in "it looks like a head and shoulders top so I should sell!"

But an amazing (or just lucky?) bit of technical analysis this week by a colleague ... He predicted: S&P close around 2845 on Wednesday and a pullback after that ...

Closing price on Wednesday was 2846 ... only after the Trump Deal To Make A Deal announcement late in the trading day ... So what happened? How is TAC (Technical Analyst Colleague) doing this?

• He just got lucky
• He's actually psychic and just uses the chart info the way psychic readers use palmistry or Tarot cards
• There's some deep connection between the charts and underlying reality and the quantum level

Anyway, I'm reading up on the subject to figure this out and will have book reviews later in the week.

---

Here's the result chart so far:

Expiration	Underlying	Long put	Short put	Short call	Long call	Credit Received	Result
07/16/2018/	SPX	2680	2730	2810	2860	$3.60	Won 100%
07/18/2018/	SPX	2700	2750	2820	2870	$3.95	Won 100%
07/20/2018/	SPX	2700	2750	2835	2885	$2.40	Won 100%
07/20/2018 (a.m.)/	NDX	7260	7310	7410	7460	$5.99	Won 100%
07/25/2018	SPX	2705	2755	2835	2885	$2.40	lost 16% of amount at risk
07/27/2018	SPX	2695	2745	2825	2875	$3.50	Won 100%
07/30/2018	SPX	2720	2770	2850	2900	$2.60	Still open
08/01/2018	SPX	2730	2780	2870	2920	$2.15	Still open

Totals: 5 wins, 1 loss (83.3%), 2 still open. 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 ...