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 good week: up 8% or so

Butterflies continue to pay off ...

That's IWM, SPY and QQQ ... just one-lot "iron fly" trades for the moment. Basically:

• Sell 1 put and 1 call at the money
• Buy 1 put and 1 call right at the .10 delta

... Take the trade off when you've achieved 1/4 of the credit ... in this case about $250 in SPY, $160 in QQQ, a bit over $125 for IWM. Not bad for around 8 days (typical) time in this trade.

I also have a TSLA trade on ... I skipped the main part of its recent price swoon (in my own account, though I had this on in one of my client accounts, unfortunately) after this analyst remark:

Tesla shares could drop to $10 in a worst-case scenario, Morgan Stanley says

Elon Musk says not so ... and I doubt it too. But it's below $200 and I'm willing to bet it won't go below $170 for the next 3 weeks ...

I also have a LYFT trade on that looks to be working ... LYFT just has not to swoon or soar for the next couple of weeks also.

Finally, I did one earnings trade that worked very well:

I just did a 1 standard deviation short strangle for a nice credit: $2.66 ... and I got a bonus on closing it! I had the standard 50% set for closing out price: $1.33 ... but I actually got filled at $0.95 ... more like 65% of the credit. Wahoo!

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 ...

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 ...

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 ....

Widely diversified bunch of trades show great week (+6.8%) though equities underperform!

Here's a screenshot of my account at the end of the week:

Notice the green on the rightmost column: that's profit or loss since the opening of the trade. (I was wrong about the /ZN trade winning at the end of last week; that was a pricing anomaly. But it's doing well.)

These are all futures butterfly spreads, with a diverse group of currencies (British Pound, Euro, Japanese Yen) and "soft commodities" (soybeans and wheat and corn) and crude oil. None of these have moved very much over the past week, just what we want for these neutral trades. And even the one currently showing a loss is just an artifact of pricing weirdness during the end of the trading day. This should be green when the market reopens tomorrow afternoon, too.

This is my little account that I've had to raid too much the past few months for some real estate and other personal stuff that's going on. But another account is more nearly representative of your virtual $200,000 account. It went from $21537 to $23009 this past week ... that's $15560 in your account!

Here's that account in detail:

This account has the gold futures butterfly with short strikes at 1200 & showing a nice profit. But notice a few more red numbers over to the right ... the Amazon trade is a 21-day iron condor, now with 20 of those days left. It's typical for an iron condor to be showing a small loss for a while until its constituent options start to expire. Even though AMZN has been on a tear upward again lately, I don't think it will get anywhere near the short strike of $2090. So this one should pay the 50 percent of credit we're looking for.

CMG (Chipotle) is a butterfly trade that's right on the edge of getting back to profitability. But the worst one is another butterfly, TSLA.

The ramifications of the "funding secured of TSLA sale at $420/share is assured" tweet from last month are coming due ... Elon Musk was first offered a deal by the SEC that he turned down ... the SEC then brought the hammer down.

But today Elon blinked and made a deal to step down as chairman so he could stay CEO. Thus Tesla shares should recover nicely on Monday ... I think!

Now enjoy this summer cornfield picture and help visualize my corn trades flip into the green ... 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.

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 ...

It didn't take a meteor strike ... the next 100 trades from here

I had a less than perfect week trading ...

I had previously posted that I shouldn't lose 30% for anything but a meteor strike or terrorist attack.
But a couple of cascading errors had the same effect.

First of all I have to remind myself:

ANYTHING CAN HAPPEN AT ANY TIME!

I started last Sunday thinking for sure the market would be down with the latest trade war stuff going on ... I shorted the S&P futures at the open last Sunday afternoon and it went straight up from there.

I finally closed it Monday a.m. for a $1000 loss, bringing my scalping results just below even (-$40) for the year so far.

I compounded the problem early Monday a.m. by selling too-close call spreads, which went 'in the money' almost immediately.

Finally, I was thinking that I could move my short strikes closer (1 standard deviation instead of the .10 delta) and just roll my way out of any problem, based on my experience rolling 'straight across' last month.

Not so this one either ... then I made one final error ... I was hearing from all quarters about the technical indicators pointing straight up at least until Friday the 13th. So instead of holding on for a down move (which finally came Wednesday) I sold at a loss on Tuesday ...

So adjustments from here:

• I'm moving back out to at least the .10 delta, except in cases where we're right at record highs (like now). In that case I'm willing to sell the call short strike just above the record high, if at least 20 points away from the money currently.
• I'm making the 'wings' of the iron condors I'm selling even wider, going from 30 points to 50 points for SPX, with proportionally as wide wings for other trading vehicles like AMZN and TSLA.
• I'm mostly going to give up rolling. The success I had before this incident was an unusual situation, I reckon, so I am going back to 'set it and forget it'.
• I'm ignoring technical analysis ... except, as mentioned above, I expect 'resistance' at record highs

How this works in practice .... I have two trades (plus a scalp) on currently:

Expiring Monday the 16th:

          1 SPX 2680 put

         -1 SPX 2730 put

         -1 SPX 2810 call

          1 SPX 2860 call

Expiring Wednesday the 18th:

          1 SPX 2700 put

         -1 SPX 2750 put

         -1 SPX 2820 call

          1 SPX 2870 call

I expect both of these to win ... credit was $3.60 for the first and $3.95 for the second,  7.7% and 8.6% return, respectively.

My next 100 trades will be based on these parameters, and I'll track the statistics carefully as always.

(And the scalp: 1 short /ES future from 2806 on Friday ... I'll take this off on Sunday afternoon or Monday, a.m. for at least a small profit, I think.)

I expect the main SPX trade to work 90% or more of the time, but even when it doesn't the wide wings should make the losses generally much less than 50%. For example, even if the market zooms up past 2810 for Monday's close, how far will it go? 2820? Breakeven is actually 2813.60, so that's only a 15.9% loss ... versus 100% if we used 5-point wings.

More next week ...

Rolling clarified further: delays profits until the next expiration then wahoo!

A much better week this week! Since AMZN's volatility was so washed out after last week, I tried TSLA this week and had a similar experience:

Part of the boost was Elon Musk buying $25 million worth of TSLA stock this week ...

But selling the 8 delta call was way up at 365, so enough room that I didn't have to roll out to the next week (though I was watching carefully) but all 4 legs expired worthless as desired.

Even better, the narrow winged SPX trade I rolled over Monday (unnecessarily, it turned out, as the market closed just below my 2785 short call) came in fully for Wednesday along with the other trade I had on (short 2805 call: plenty of room) ....

And this was "expiration week" (for monthly options) so I also put on the Fabulous NDX trade, which won again and returned about 11% on a wide-winged 1 standard deviation iron condor ...

And the way I'm thinking about the effect of rolling ... based on this week it seems like compressing a profit spring:

And letting it burst out the next week ... one account I'm trading went from $34400 to $40900 this past week ... though this includes about $900 in scalping profits.

Probably another TSLA 4-day trade going on tomorrow a.m. and I'll report again next week!

Back on track and considering the value of rolling

I lost my 3rd trade in a row on Monday's expiration (details below), but since then:

• 2 SPX expirations, both winners
• the Fabulous NDX a.m. settlement trade was also available this week, winning again

About that third loss in a row: the short SPX strike for Monday the 14th was at 2720 ... the futures market was up all night and the market came back during the day, but not enough. It closed at 2730.13, a 30% or so loser (since the wings were $30 wide; I was long the 2750 call).

But the next day the market was down into the right range, closing at 2711, and only up to 2722 on Wednesday the 16th. So if I had rolled the call wing out and up to short 2730 and long 2760 for Wednesday expiration (for an extra small credit), that would have worked. Alternatively, I could have rolled laterally (sticking with 2720/2750 strikes) out to Wednesday (larger credit) and rolled again to Friday when that showed problems for Wednesday. Friday close was back to 2712, so that also would have worked for full profit.

I hope not to have to put this into practice for the rest of the month ... there are only 5 more expirations in may and I'd just as soon have them all expire worthless without rolling.

But I'm comfortable taking more risk with the rolling strategy on the call side; if the "meteor strike" comes while this extra trade is on, all it does is reduce the overall loss. The "put wing" will already have expired worthless, so an extra one of these rolling for profitability is OK.

Another change I'm considering for next month: substituting certain relatively volatile underlyings (AMZN, TSLA, etc.) for the Monday->Friday trade. This should make a bit more money than doing the trade on SPX at its currently depressed volatility.

The rolling ability for this kind of back-and-forth market is metaphorically a protection for our new growth:

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 ...

Maybe Karen the Supertrader was on to something: 1 Standard Dev isn't enough!

First, the AMZN trade that looked to be "risk 1 to make 1.41" turned out to be an end-of-day pricing anomaly that I didn't see this week. But I did put on a 6-day (since Good Friday is a market day off next week) 1 standard deviation Iron Condor on AMZN today anyway ...

I have been watching TastyTrade for several years ... you can just search YouTube for their conversations with "Karen the Supertrader."

One of her key strategies is going wider on credit spreads than 1 standard deviation. Based on what I've seen from my SPX trades over these first several, that's just what I need to do. I barely lost the one ending earlier today; the 1 standard deviation short strike was at 2590 ... but SPX closed at 2588.26. Not a total loss (since the spread was 5 dollars wide, but just a small L in the record.)

But clearly if I'd gone just 1 strike wider, this L becomes a W. And the VIX closed today at 24.78, making a spread with the short delta options at the .10 delta rather than .16 still return around 17% when held to expiration. And that should bring the win rate up to 90% at least; the Kelly Criterion run on those numbers suggests risking 31% of one's stake on such a trade.

I'm going into "production" next week with this .10 delta trade risking 10% of the accounts I'm running for the first 8 or 10 trades, then possibly move up to 1/2 Kelly after that ...

And as for SPX, so for AMZN and TSLA; I'm going to try them with .10 deltas too.

Here we go ....

Volatility too much for the TSLA trade: now 3 for 5

The TSLA trade failed last week, making it now 3 for 5. It's out of Kelly Criterion range for sure, now and I'm looking for an alternative.

The one I have for this coming week is the old standby NDX trade, since it's monthly option expiration. But for the following three weeks I need to figure something else out.

One possibility:

Its leveraged ETF is VXX, and I'm going to try both of them by backtesting on a dataset I can get from QuantGo:

They resell options and futures data for a pretty reasonable price. I used their service early 2017 when I was trying to develop an algorithm. I gave up on that but now could use this again to more quickly sort through different underlyings to narrow down candidates to test via monte carlo simulation ...

More next week ...

Nasdaq killed my goose!

Here I was, about to go 13 for 14 on the NDX trade:

But I got this email just before the close on Thursday:

NDX Weekly PM-settlement Reminder

They (Nasdaq) changed the weekly options from A.M. Friday settlement to P.M. Friday, making a 4-hour (or less) trade into a 10-hour one, which makes all the difference. Especially this past Friday.

What I should have done (at the very least) would be to get up at market open and close the NDX positions. Instead I waited a little later and closed most of the ones I had on and only let one in my personal account (fortunately just a one-lot) go to expiration.

The really annoying part is that this would have in fact been a winner if a.m. settled, as NDS (the NDX settlement value, which is calculated anyway even if NDX isn't using it):

6,871.33

And I'd sold the 6870 put, so this would have been a full winner, again. Rats!

The real carnage in the market started later in the morning:

Fortunately the monthly NDX options are still a.m. settled, so I can still get this trade in 1 of every 4 or 5 weeks. But my plan was to do it every week and I'll have to find one or more substitutes.

That brings us to TSLA, which was 3 for 3 coming into Thursday If I want to do the Kelly Criterion analysis for this one I need to start gathering data, so: 

$0.32   14.6%  (on a $2.50 wide iron condor)

$0.57   29.5%

$0.59   30.9% 

$0.73   41.2%

... but the last one failed ... If I average these 4 I get $0.5525, or 28.3%. 

The Kelly Criterion for this at a 75% win rate is negative (i.e. "no bet!") But if I change the rate to 80%, it suggests you bet 9% of your account ...

More next week ...

Another winning week ... TSLA traitor notwithstanding ...

The NDX trade won again, now 12 for 13 (92.3%) winners. And for some reason volatility was up a bit this week (even though the market remained at record highs), so I received:

• $2.54 (34.05%)
• $2.51 (33.51%)
• $2.00 (25%)

That's over $500 profit on 2 contracts of this trade ...

Now to TSLA:

This is the Gigafactory, where Tesla makes batteries at scale, hoping to bring the price per unit down.

But on Thursday from CNBC, some employees leaked:

Tesla employees say to expect more Model 3 delays, citing inexperienced workers, manual assembly of batteries

I had sold the 340 put and the 352.50 call, and so when I saw this:

... around 11a.m. Friday I went ahead and closed the put spread for a small loss.

But as you can see from the chart, if I'd held on I could have made full profit on this

trade as the price recovered over $340 just before the close.

Profit I would have made: $0.59 / $1.91 = 30.8%!

Another small mistake to get over with during the test phase for this one ... but officially the TSLA trade is now 3 for 3: 100%!

More next week ...

This week's results: another win for both trades!

We've reached the expected 91.7% win rate for the NDX trade; it's now 11 for 12.

There was for some reason more volatility this week, so NDX paid $1.75 to $1.80 (i.e. 21.212% to 21.951% on margin). If you (following around 1/2 of the Kelly criterion) risk 30% of your account on the trade, that's over 6% for the week!

The TSLA test trade also worked, returning 57 cents on a $2.50 wide iron condor, so $0.57 / $1.93 = 29.5%! It was looking a little scary end of day Thursday but recovered nicely into the groove on Friday:

We don't have enough data yet to project the Kelly Criterion for this one, but 30% of your account risked would yield 9% for the week!

More next week ...

Updated blog name more accurately reflects what I'm doing

I first thought I could get a trading algorithm to work based on technical analysis:

But I realized after doing some research that most technical analysis trails the market rather than leading it, and there are oodles of other folks trying to do these algorithms ...

I then put my toe into the Tastytrade "trade small, trade often" method .... but I didn't give it too much of a chance before realizing that I could make a much higher return using the Kelly Criterion and the ideas of Ralph Vince.

I evaluate trades by running Monte Carlo simulations on them based on past or projected results.

The two trades I have going right now:

• An NDX 1 standard deviation iron condor on expiring options, put on every Thursday late in the trading day (I've been using around 10 a.m. Pacific) and held until the results are in the next day (based on the a.m. settlement price using a symbol NDS).
• A Tesla 2-day 1 standard deviation iron condor, on options expiring at midnight Friday

I have the NDX trade in "production" using around 1/2 the Kelly Criterion for sizing the positions. I saw a study showing that it wins 91.7% of the time, and it's living up to that reputation.

The TSLA trade is just one I'm testing with the minimal 1-lot, so far. I speculate that it should win at least 80% of the time, but I don't know yet.

Management of these two trades is dead simple:

• The NDX trade is simply "set it and forget it" until you check on the NDS price the next morning. (You can obsess on the /NQ futures price in the interim, but it doesn't help!)
• The TSLA trade is just a little more complex. You have to watch it to make sure the price doesn't hit either short strike ... the NDX trade is cash-settled, but the TSLA trade is not. You get assigned 100 shares, short or long, depending on which option price is breached. So just set an alert at those prices so you get in a close the position before expiration ... you may still make a small profit.

That's it ... otherwise I just sit in cash until the next Thursday. It's very peaceful not being short anymore, in the face of the incessant Trump Tax Cut Rally.

A speculative look at possible TSLA returns

The 2-day TSLA trade I mentioned in an earlier post should work around 80% of the time.
I assumed this win rate, earning an average of 30% on wins (and 100% loss when losing) ...
I ran 20000 Monte Carlo simulated 3-year trials ...

Starting with $20000, at the end of 3 years you average having $150381.55 ...

Not bad at all! Now we'll see if it works, starting this week ...

NDX trade wins AGAIN ... but profit was shaved a bit

That's 9 in a row and 9 for 10 overall on the NDX weekly trade!

I did start "production" this week, risking 25% or so of the accounts where I was doing this. Volatility is still quite low so I didn't get as much premium as I have been getting normally. In 3 different trades I got:

• $1.42  (16.55%)
• $1.35  (15.61%)
• $1.20  (13.64%)

But a funny thing happened on the way to getting these full results:

I had sold the 6220 call, and the NDS report for Friday (where the NDX settles and that's how the trade's results come out) was 6220.84. This means that $84 of the potential profit didn't happen, so yields were:

• $1.42 - $0.84 = $0.58  (6.16%)
• $1.35 - $0.84 = $0.51 (5.38%)
• $1.20 - $0.84 = $0.36 (3.73%)

I'll take it! But ... getting the NDX trade filled is weird and difficult. The prices bounce around so and the markets are 'wide' (i.e. the bid/ask spread is probably 50 cents wide on this spread) ..

So I'm going to start testing an alternative (or an adjunct; I can do both): Tesla! Symbol is TSLA and its chart looks like this for the last week:

Putting on a 1 standard deviation smallest iron condor on Wednesday the 3rd would have returned $0.66 ... but on a $2.50 wide iron condor, so return for that would be ... 35.89%! And it would have worked this week ....

So I'm going to start running this ... probably early Thursday morning for 2 days next week, for 10 or 20 weeks just to see how often it works. It should be much easier to fill than NDX, and I can use the 20 weeks of data as a rough estimate (I'll certainly assume that it wins less often than the results show,  and that it returns a bit less) ... and then I can use the Kelly Criterion again if and when I decide to take it into "production." ...

Watch this space next week ....