Craziness continues; A.M. Triumvirate debuts; equities + futures = profit!

The market craziness continued this week, with equity prices whipsawing crazily all month so far:

S&P 500's wild August 2019

As I mentioned last month, I demoted the "fabulous NDX trade" and moved to use each of the three a.m. settled indices: SPX, NDX and RUT.

I am just trading small accounts right now (mea culpa) so can't do wider "wings" on the iron condors, and this week once again showed why that's a problem ...

The NDX trade was short the 7530 and long the 7540 call, and the a.m. settlement price was all the way up to 7564. That's 100% loss in the case: $737 per 1-lot ... if one had been doing 50-point-wide wings, that reduces the loss to about 65% ...

The other two trades worked ... and didn't. RUT was OK, being the least volatile of the three lately.
SPX closed at 2870, great for the account where I had the short strike at 2875 ... but I put one on later in the a.m. that had the short strike at 2865, long at 2870, so: 100% loss ($390 per one-lot) .... but less than 10% if doing 50-point-wide strikes.

So I think I'll mostly stop doing this trade in accounts that aren't big enough to widen the strikes ...

The two accounts I'm trading right now are both small enough that they can't handle futures trades, and that makes all the difference right now. While the equity positions I've been trading have held up better than I would have thought, they're just down slightly (about 8%) where futures positions would have taken up the slack.

I mentioned the 'short oil' trade last time. Natural gas is similar. But opposite these two is gold, which has been going up:

The thing is, selling calls against a long commodity position is very rich; volatility goes up (and prices go up) the higher you go. For example, the latest gold futures (/GCV9) price is 1517 ... and you can sell the 1525 call option expiring September 25 for $27.30 ... i.e. $2730 credit. This brings your breakeven price to the downside all the way to $1490 ... 

That together with your short oil and gas positions can keep your account humming while equities are going nowhere.

More next week!

Quiet week as market reaches new highs .... more on your $150000 account

The market went up to record highs again this week, but slowly enough in most cases to not mess up the neutral trades I have on.

The one exception is Netflix, which bounced back too strongly from its earnings miss:

My short call strike for NFLX is 335, so I also put on a debit call spread this a.m.:

Long the 330 call and short the 335, for $265 ... meaning that if NFLX is at or above $335 on August 2 when this expires, I make $235.

This covers most of what I can lose on the NFLX Iron Condor I have going, and I can actually do this again the following week if conditions seem favorable (i.e. if NFLX continues up ...)

Now, back your $150000 retirement account ... since you didn't pull the trigger on this immediately you didn't suffer the $5000 (for you $50000!) loss from last week ... instead you'd have had a much smaller loss, as I would have taken 1/2 the risk and diversified over 3 trades:

• NDX would lose 100% of what was risked, as last week's trade lost about 80% because of its very wide strikes
• SPX would break even or lose small, maybe 15% of the amount at risk at most
• RUT does what it's supposed to do: expires worthless for full profit, probably 10% or so

So your loss would have been maybe $7000 .. probably just $6000 for the week because of other profitable trades that week. So you'd have gone from $158000 to $152000.

Once again, this offer is just for one lucky individual willing to try this ... let me know if you're interested and we can get going this week ... or you can wait and watch for a few more weeks, understandably ... More next week!

I'm demoting the "fabulous NDX trade" after this week ...

I had a great run with the NDX a.m. settlement over the last 15 months or so, but after yesterday:

I put the trade on (just slightly wider than 1 standard deviation) just before 10a.m. when it seemed to be going nowhere, but then:

The market went up like a rocket after this Federal Reserve vice chairman Richard Clarida said something that looked "dovish" to the markets about an interest rate cut the end of July ...

Other officials tried to "walk back" the remarks saying that this stuff was based on 20 years of research and not pointing toward the July 30/31 next Fed meeting ... but too late for me!

The NDX a.m. settlement is marked when all 103 underlying Nasdaq 100 stocks open on Friday a.m. ... I knew it looked pretty bad looking at the /NQ futures price, but I have seen anomalously low settlement prices (the symbol for this is XQO these days) sometimes and so had my fingers crossed ... 

No good. XQO price Friday was 7955.76, so since I was short the 7900 call and got $542 of credit .... that's a $5007.24 loss ... out of a possible $7420 or so .... harrumph.

I won at least 12 or 13 of these in a row of these last year, just mechanically putting them on at 9:45 a.m. ... but I can't stand it any more.

The "trade small, trade often" technique I've been using for everything else has been working so well, I'm going to keep this trade but with the following restrictions:

• I'm going to put on not just NDX but also SPX and RUT a.m. settlements
• I'm going to risk a max of 25% of the account on all 3 combined

I had been risking up to 50% on just the NDX trade ... while it was working this was great, but this was beyond terrible timing ...

One little good thing that happened: BIDU came off on Friday for its 50% profit. Wheeeee! :-)

Back on the horse Monday with more trade small ... including a few earnings, I guess ...

Relentlessly straight up market hurts results ...

Our trading plan is neutral, meaning it pays off if the underlying instrument stays within a specified range for the days the trade is active.

The past ten days, though,  it went up just about too much to handle:

The Russell 2000 was similar but even worse, going up even faster at the wrong time:

My question becomes: is this anomalously ridiculously too much can't last, or do I need to change my strategy to take advantage of it?

One thing I've been doing consistently (though not with the RUT trade that lost 17% this past week) is move the short call strike in ... but only while the market is running within a few points of its record high. For example, I had it at the 2860 strike for last Wednesday's expiration, and this just barely worked as the market closed at 2861 and change and I had sold the spread for $3.95 ... so the profit was cut to about 70% of what it would have been ... or within striking distance of what it would have been if I'd just sold the spread out wider on the call side and gotten maybe $2.00 on it ...

Here's to a flatter week this coming week:

Results now 15 wins, 4 losses (78.9% wins ... probably not good enough if this continues) ... details to follow:

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%
08/06/2018	SPX	2720	2770	2860	2910	$2.05	Won 100%
08/08/2018	SPX	2740	2790	2860	2910	$2.05	Won 100%
08/10/2018	RUT	1610	1640	1710	1740	$1.53	Won 100%
08/10/2018	AMZN	1737.50	1767.50	1885	1915	$1.79	Lost about 30%
08/13/2018	SPX	2760	2810	2885	2935	$1.65	Won
08/15/2018	SPX	2760	2810	2860	2910	$3.80	Won
08/17/2018 (a.m.)	NDX	7310	7360	7460	7510	$4.42	Lost 7.07%
08/22/2018	SPX	2720	2770	2860	2910	$3.95	Won 70% of possible
08/24/2018	SPX	2745	2795	2880	2930	$3.30	Won 100%
08/24/2018	RUT	1600	1650	1715	1765	$2.16	Lost 17.7%

A mixed week: nearly broke even but AMZN shows why cash-settled indices are better trading vehicles

I was short the 2860 SPX calls for Wednesday expiration, and was so pleased by its late move out of the money I took a screen shot to commemorate:

But AMZN wasn't so cooperative this week:

I was short the 1885 calls, and it looked bad enough on Thursday that it might go to 100% loss, up 30 points from the 1885 level. But it came down nicely and closed just in the money: 1886.30. Since I got $1.79 credit for the spread, that would have yielded a small profit, right?

Wrong! Unlike a cash-settled index (a lesson I learned in TSLA months ago on ThinkOrSwim), you just are on the hook for being short 100 shares of whatever stock you're trading against (per contract!)  ... in this case 1 contract = 100 shares x 1885 or $188500 I'd have to sell short and then buy back at whatever price I could stand. Most brokerages these days will close out the offending short strike before this happens.

So one can't just let it go to expiration and work it out from there as one can with cash-settled indices. I actually closed out the short 1885 calls earlier in the morning when the price had fallen to $1891 or so ... I couldn't see it necessarily falling further from there so just decided to close at that point.

Harrumph. Not as bad as working in one of their "fulfillment centers":

Anyway, with today's down move I got $3.80 credit on the Wednesday-expiring SPX trade, which had yielded only $2.50 last week.

I'm going to wait and see for Monday, but probably will just use SPX for the Monday to Friday trade ... for one thing it's "expiration week" next week meaning that the Fabulous NDX trade is available again so need to leave space for that one.

The trades 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	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%
08/06/2018	SPX	2720	2770	2860	2910	$2.05	Won 100%
08/08/2018	SPX	2740	2790	2860	2910	$2.05	Won 100%
08/10/2018	RUT	1610	1640	1710	1740	$1.53	Won 100%
08/10/2018	AMZN	1737.50	1767.50	1885	1915	$1.79	Lost about 30%

That's 12 for 14 winners so far: 85.7% winners.

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 ...