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!

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!

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!

Crazy week (it could have been worse) new trade implied by solar energy price crash

"Better positioned for next week?" Silly me:

That's a 100-point range in the S&P 500, and the futures markets in S&P were 50 points wider at least ...

This guy was at it again:

The market recovered most of what it lost and got back into the range where the neutral trades I have on have a chance to make a profit, finally, by the end of the week.

But the big news is the documentary I saw last week ... if oil and gas are now more expensive than solar, that implies that one could go "short" these two ... forever.

The two futures tickers involved are first, crude oil: /CL

And natural gas, /NG

These last two charts show the last 2 years of each commodity price ... had I seen the documentary shortly after it came out I could have been profiting all along!

Two possible trades:

1.  short futures contract and sell 1 put against each contract
2. short futures call option

These are equivalent, risk-wise (according to Tastytrade), but for /CL the short call takes less margin ($2800 versus $4000+ for the combination one above) ... 

More next week ...

S&P 500 down 3.1% ... our system down 0.17% ... and better poised for next week

This was a crazy week in the market ... First, The Federal Reserve cut interest rates:

But not enough, according to the markets, which went DOWN:

I was congratulating myself as I had entered a "put debit spread" on SPX just before the fed announcement: long the 3015 put and short the 3010 put, risking $200 to make $300 in the best case ... on the "buy the rumor, sell the news" theory ...

But then Thursday early the market regained all it had lost on Wednesday until:

... Trump announced a bunch more tariffs:

... making my SPX debit spread happy again, and getting all the other trades I have going in the right spot to be profitable again next week. (Not last week, as volatility increased ... and our trades profit by volatility going down ("short vega") ... or time going by with nothing happening ("positive theta") ...

As for the debit spread in SPX, risking 2 to make 3 ... I'd love to have more of these but I doubt they're really even a 50-50 shot ... so I won't make these part of the plan yet, just will do a bit more experimenting here and there.

Careful readers will recall I put on a debit spread in NFLX the other way last week ... but I closed it out even before all the excitement from Wednesday onward for just a small loss.

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 ...

No mistakes this week but annoying market continues; hope in Fed meeting?

I didn't make any goofs like last week, but the market continued Way Too Up for my short SPX call spread and SPY butterfly.

The short call strike on my SPX iron condor is at 2870 ...

This all started when the market interpreted remarks by Jerome Powell and other Fed Governors that they were ready to cut rates.

But there are plenty of dissenters with this view ... I mean, rates are still at rock bottom in historical terms ... And in any event the market has been very poor at predicting interest rates.

So: hope springs eternal for the S&P 500 trades. Otherwise I have on: TSLA, LYFT, QQQ and IWM ... all of which are showing profits but TSLA, and it's still $10+ below the short strike at $225. So I have expectation that all of these will come in for full profit (25% of butterfly credits, 50% of Iron Condors) over the next week or so.

I'll send another update then ...

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 ...

One for two this week: small /ES (lost) and SPX (won) call spreads; new exchanges!

I looked at a 4-day QQQ and a 4-day NDX trade and the QQQ was too small and NDX more risk than I wanted to take, so instead last Sunday afternoon I put on an /ES short call spread: short the 2570 call and long the 2580 call.

This was transfixing because of the reward to risk ratio: $150 / $350 =  42.8% in four days! (Less commissions.)

Would that it were so:

Fortunately for one of the account holders for whom I'm trading, the person doesn't have futures access. So I put on an SPX call spread for her on Monday a.m., by which time the market was up enough that I put on the SPX call spread: short the 2605 call and long the 2610 call. This was for an 85 cent credit ... reward to risk ratio wasn't nearly as good as the /ES but still not half bad: $85 / $415 = 20.8%. Fortunately, this one won!

I'm not much into technical analysis, but had I paid attention to Tim Knight I'd have saved a little money ... he's saying we're still in a pattern that's headed lower, and his Fibonacci retracement line ... is at 2603.

I'm going to start watching him a little more closely, even though I'm still skeptical of technical analysis as a discipline ... but basically I'm planning to just trade small while waiting for the opportunity of the "fabulous NDX trade" ... which comes up again next week.

New Exchanges Coming

There were a couple of new exchange announcements last week, one from a bunch of big companies ... and one from my favorite brokerage:

The Small Exchange is from Tom Sosnoff and the Tastytrade/Tastyworks gang. They're not divulging details (other than a vague mention that products will be "smaller" than standard futures products now existing.) But I think I can imagine what this will be:

• Smaller notional values
• Standard options values, not like /ES = $50 and /NQ = $20, etc. Probably all will be $100 like current equity options
• SPAN margining (like the current futures markets)

Also ... Sosnoff's announcement of this downplayed the possible appreciation of the membership in this exchange, available free with a new funded Tastyworks account ($2000 or more) and $100 for everbody else. If the thing succeeds, these memberships could be worth a lot more ... and offer any trader a 50% cut in the already-low fees, so should be much less than standard futures fees ...

Unfortunately:

The U.S. government shutdown continues, including the SEC. This is stalling not only IPOs but these new exchanges from getting any motion toward approval.

More next week ...

Wildly volatile week turns out OK after all ...

After this week I feel like I've been ...

(Well, maybe to Purgatory. I haven't read this book, either.)

I stuck with my long /ES futures contract all the way down and back up:

This guy didn't read "what every secretary of the treasury should know" before saying that he called all the banks ...

The banks said they were OK.

... but the market on Monday wasn't so sure, /ES closing at 2342.25 at the end of the 1/2 day Christmas Eve session.

On Wednesday, the consensus must have been "hey, we overdid it" and /ES rose nearly 5%. Thursday was also a crazily volatile day, with /ES dipping back below 2400 before sharply rallying at the end of the day, closing at around 2495. It flattened out on Friday, finally, closing at 2488.

Assuming no other crazy drops from here, that leaves me in good position long one /ES future (bought at 2503, back before the craziness) and short one /ES 2570 call expiring next Friday the 4th. I can let that one expire worthless ... or on a crazy up move cover it and get out of the way.

I also put on a couple of neutral trades in my own and client's accounts that were looking very shaky to the down side but now look shaky to the upside .. assuming the shutdown is going to be resolved next week. I'm almost back even on the 2245 / 2570 short strangle in my own account, and if it gets to being a small profit on Sunday afternoon when the market reopens I'm going to be tempted to take it and run.

Client accounts have neutral iron condors on TSLA, CMG and SPX ... SPX looks scary to the upside (short the 2550 call), but the TSLA and CMG were so beaten down that they have oodles of room to go further up just to get back into the green.

More next week ...

NDX 2 and 0, SPX 1 and 1 ... futures mostly still winning; AAPL wipes out a millenial

Volatility calmed down a bit this week (the Vix was down, closing at 19.15). Our friend NDX:

... was still volatile enough to pay well ($4.38 on a 1-lot, with short strikes at 6475 and 7270) ... it never got near those short strikes and I held it to expiration today for its full $438.

On the S&P 500 I moved to SPY and just sold a strangle for "78 cents" way out wide ... and closed it a day early, just taking $68 of the $78 dollars I would have gotten on that one.

If these two trades really pay off 90% of the time, with "wide wings" I should be able to make a good living trading them (along with the once per month a.m. settled NDX trade) ... fingers crossed!

The futures trades I have on are mostly paying off, still, but they mostly don't have frequent enough expirations to use like the NDX and SPX trades we're trying ... but I'm leaving them on this week because they shouldn't be too troubled by....

Next week is the U.S. election, and with the Democrats all but sure to win the house and the market today only holding up a little bit at the end because of this:

Trump says 'I think we'll make a deal with China' on trade

But this was seen as just a transparent attempt to prop up the stock market before the election ... which gave me a chance to sell /ES futures contracts around 2722 when they bounced late in the day.

Everybody in the world is expecting the Democrats will take the House of Representatives this election, which will mean only one thing for the market:

I am thus staying out of the neutral trades this week and instead just sold futures contracts and a 'bear call spread' on SPX in the non-futures-capable accounts I am trading. (These return about 30% for the week all by themselves.)

Finally, AAPL told the world that they aren't going to report sales numbers anymore, and that was not popular:

Tim Knight reported that one millenial who's gotten used to putting everything into this trade got wiped out this time ...

Let's be prudent out there ... more next week!

Pipe bombs and volatility, SPX, NDX, futures

There's nothing like watching the market for your just about to expire (neutral) options spread when you get this news:

Pipe bombs were sent to George Soros, CNN, other "liberals"

This whacked my SPX trade for a total loss ... This was one of the low points (Wednesday at 1pm PDT of an extraordinarily volatile week:

I'm still trading futures options, but I've decided to try SPX and NDX 4-day spreads at the .08 delta: SPX Friday to Wednesday and NDX Monday to Friday in hopes of juicing the results between Fabulous NDX monthly trades. Bad timing for the SPX last week, but the NDX came in for full profit after bouncing around like a ping-pong ball on Friday. (It actually never got too close to my short strike at 6725).

And (duhhh ...) I can test this with SPY and QQQ ... I've dropped back to using SPY (a short strangle, at 247 and 275.5 (i.e waay out wide). Tomorrow morning I'm going to put on a 50-point-wing wide NDX iron condor and a QQQ trade also (strangle or condor).

I'm going to try all these for 10 weeks ... I speculate that they should work in the 90% range, but we'll see.

Futures options are not quite as fabulous when doing strangles/condors as with butterflies, but I'm still using them also as part of the mix. But with volatility at such hugely elevated levels lately, it's too tempting to mix in equities. The VIX closed Friday at 24.16!

More next week ...

New plan shows great promise during a quiet drifting slowly down week (for SPX anyway)

The trades I put on this week have expirations that all started with 21 days to go before expiration, unlike the 4-5 days I had been using. So far, so good ....

This past week any reasonably wide neutral strategy would have worked, at least for the S&P 500:

The movement was less than 30 points, top to bottom. Easy!

Not so after the wild and crazy week for this guy:

and for his company TSLA:

This is more than a 30 point drop in the same time, from 300 instead of from 2900 where the SPX started. That's more than 17%. Sheesh!

As for our new strategy: it seems to be working as advertised, though I don't think it will be quite as profitable as the previous strategy. But it should be much further between losing trades; I won't be surprised to win the first 15 or 20 in a row of these trades.

We're just looking to get 1/2 the credit we received when opening these trades, and we're on the way for all of them despite the slight pop in volatility (which increases prices instead of decreasing them the way we want after putting on a trade) the last couple of days.

Volatility cuts both ways, though: the trade we will put on Monday a.m. will pay a little better on opening due to this increased volatility.

This kind of trading reminds me of gardening:

Except that we get to harvest continually after the first 10 days running the system ... on average, the 21 days' premium should be half spent after 10.5 days.

At that point, it's going to seem like the crop is this:

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%
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%
08/27/2018	SPX	2760	2810	2890	2940	$2.45	Lost 23%
08/29/2018	SPX	2770	2820	2890	2940	$2.95	Lost 47%
08/31/2018	SPX	2795	2845	2925	2975	$2.55	Won 100%%
09/21/2018	SPX	2750	2780	2980	3910	$2.45	(open)
09/24/2018	SPX	2750	2770	2970	2990	$1.85	(open)
09/26/2018	SPX	2725	2735	2955	2965	$1.15	(open)
09/28/2018	SPX	2700	2720	2955	2975	$2.05	(open)

I'll close the 9/21 expiration trade by the close on Monday, 9/10, even if it hasn't reached its goal of getting 50% of the credit. Tastytrade research supposedly shows that this is optimal ... though they of course are using 45 day expirations rather than 21. It should get close, barring some radical move in the market on Monday ... right now the short strikes are both more than 90 points away from the money.