A somewhat quieter week (but don't get used to it) ; one tweak to the plan but otherwise ...

As weird as it's been lately, at least it's not eighty years ago:

Not that it's not plenty weird enough:

As for the trading plan I described here last week:

• Oil continues to go nowhere up
• Equity markets calmed down ... I made a profit on the neutral equity trades I have on last week
• Gold stopped going up, for the moment

So as for gold, I'd switch from being long (buying gold futures and selling calls against it) to being neutral (selling both calls and puts simultaneously and assuming it will stay in a range) ...

Example trades I'd put on when the futures markets reopen Monday (Labor Day):

• Short the 59.5 /CL (oil futures) calls expiring October 17
• Short the 1470 /GC puts and the 1575 /GC calls, expiring September 25

Once again: I will trade for you for 5 years without asking for any fees if you will fund an account with between $150,000 and $200,000 to retire on ...

I may not have this offer available forever, so please contact me soon if interested!

I gave up on being short too early!

I have been trading "neutral" trades that pay off when the market stays within a certain range for the selected period:

But Mr. Anti-Neutral came back with his latest wacky tariff proposal this week:

And the market responded as though it wasn't thrilled:

I've been using about 30 days for these neutral trades and that will be about 1/2 over tomorrow.
Tastytrade research has been promoting the idea of "rolling" (closing and reopening further out in time) these trades, profit or loss after half the time is gone. Right now (based on the futures prices Sunday evening PDT as I'm writing this that I will be showing losses in all of my neutral trades as of tomorrow a.m. ... but I'm going to close them and reestablish in either event.

Also this past week: 3 winning earnings trades (all "defined risk" Iron Condors):

Good news in an otherwise annoying week.

More next week!

Fabulous NDX trade not so fabulous (and an adjustment to strategy); Technical Analysis bye; Small Exchange one more feature

As regular readers of this blog know, the "NDX a.m. settlement" trade works 91.7% of the time (that's 12 of 13)  ...

Unfortunately this past week was one of the losing weeks:

Look at the peak on January 18 ...

To add confusion, the CBOE even now (5 days later) has apparently not released the January number for NDS, the settlement value that the trade value is based on.

But Tastyworks has the formula, I presume, so I got the bad news Saturday a.m.

I've been using this trade this way for over a year, weekly back when it was available every week then every month without fail. I had had trouble getting the trade filled too much later than 10am Pactific, so I had been executing it at 9:45 am ...

This time, though, NDX continued straight up all day; I was short the 6740 calls (80 points wide), but the NDS close was 6782.something. That's over a 50% loss for this trade. Yikes!

But I have been also managing this $2000 account and decided to try a one-lot (10 points wide) just before expiration for that. Executed immediately!

This one was short the 6760 call, so that would have made the trade I put on only about 1/2 the loss: 25% or so. (100% loss for this one, unfortunately, since I was just using 10-wide strikes on this small account. *sigh*)

So from now on I'm going to put this trade on just before 1pm Pacific ...

This really messed up some nice results I was showing: up 38% is now +1% ... up 40% now down 16-20%. Sheesh.

Technical Analysis: Bye!

As for technical analysis: I give up. Tim Knight first said 2603 was the spot where the /ES futures should stop. Then that broke through and said it was really 2626 ... Not useful for the way I trade, even though it's come back sharply since the latest Trump China thing turned out to be fake.

One Other Feature of The Small Exchange I'm Visualizing

I wrote last week about Sosnoff and company's latest organization The Small Exchange.

One other feature that I want: weekly (or better! 3x/week!) on all products. Since Sosnoff and company invented weekly options back in the day (they say), this seems like a sure thing.

This is something I can use: to go along with the still-Fabulous NDX trade once per month, an array of Small Futures spreads every week ... that should work!

More in just a few days ... 

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 ...

NDX a.m. settlement trade in detail; /ES futures give & take away ...

The "fabulous NDX a.m. settlement" trade won again this week, returning over 20% on the amount at risk ... when everything else was going straight down!

A friend from work (hi DW) mentioned that I hadn't shown exactly what I mean by the "fabulous NDX trade" I've been going on about in this blog ... since I had my whole trading strategy built on it
until Nasdaq made it p.m settled for three out of the 4 weeks.

Anyway, here goes:

• The trade goes on at 9:45 a.m. Pacific time on Thursday before a.m. settlement. This last one was December 20; the next one will be Thursday the 17th.
• It's a "one standard deviation iron condor" meaning:
• You sell 1 put and 1 call (or 10 of each, but let's start with 1, OK?), both near the .16 delta ("Delta" is the ratio of the rate of change of the price option at the indicated strike price as the underlying stock moves. So a .16 delta option would move 16 cents for every dollar the underlying stock moves) ... since this is a two-sided trade, you have to add the odds of losing on each side: 16% (rule of thumb .. more about this below) x 2 = 32% ... the obverse of 1 standard deviation.
• You then buy a corresponding put and call, each at least 50 points away from the short strike; more if you can afford it. 
• Settlement occurs not exactly on the opening price, but when each of the 100 stocks in the index posts an opening price. This is given in a daily symbol called NDS.

Illustrations:

This is an example of putting this trade on not the next day, but a month out. But the interface will look the same, just with different numbers. You get less credit (but not that much less ... I still got $10 to $11 on this trade last Thursday) but the short strikes are much closer together. For example, for Thursday's win I sold this one:

1. Sold the 6140 put and the 6370 call (x 2 contracts)
2. Bought the 6080 put and the 6430 call (x 2 contracts)

I got $10.50 credit, so the risk/return formula is like this:

credit received ($10.50) / (width of strikes ($60) - credit received ($10.50))

$10.50 / $49.50 = 21.2% ... not quite this good because of commissions, but I still took in > $2000 for about $10,000 risked.

NDS settlement value was 6244, so nowhere close to losing. Wahoo!

About the "one standard deviation" ... it's only a rule of thumb and in practice it usually overstates the risk of loss and therefore overpays ... I've been running this trade for over a year and have only seen it lose twice, probably in 24 tries. 

Why you want to use as wide "wings" as possible:

If you have $10,000 to risk on the trade, you can do it with 60-wide wings as I did, or 25-wide wings, and just increase the numbers of contracts. 

The return is significantly higher: 36% vs 21%. But you're much more likely to lose 100% of the amount you're risking than you are with wider wings.

Think about it: your "loss window" is 20 points wide instead of 50 points wide as in my example. So when the NDS value is just above your long call or below your short put, you lose 100%. I lose only about 40% on the same value.

Questions? Leave me a message here.

OK, now for the /ES futures saga. Where's a Santa Claus Rally when I need one? Basically it went down all week:

This would have been OK ... had I held onto my short /ES position ... but I was thinking it had been so far down it was due to recover or at least flatten out, allowing me to sell calls against a long position. So I bought one /ES contract (for my personal account only) at 2503.25. Then:

Oops; I get them mixed up. I meant:

So the futures market closed at 2421.25 Friday. Sheesh.

I have to think:

• This'll have to be over before too long ... 
• It's already "priced into the market" so should flatten out at worst or drift higher
• I can sell calls to make up the difference.

We'll see ... 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 ....

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!

SPX trade: a little too exciting but it won!

I didn't get a backtest done on SPX, but since "fear is overpriced" I assumed that a 1 standard-deviation (68%) iron condor should win 88% of the time or thereabouts. And volatility was high enough that the return on risk on Wednesday for the options that expired Friday was around 20%.

This made the Kelly Criterion amount of suggested risk around 28% of the account; I used 20% of the $10000 in this particular account.

I sold the 2680 put and the 2785 call (and bought wings to limit the risk).

Then this happened:

I'm going to raise interest rates until my hands bleed!

 And this happened:

Let's put tariffs on steel and aluminum! Surprise!

Which led to this:

The market hit its trough at around 2650 early Friday before recovering sharply to close right in the sweet spot: 2691.

This is another example of the value of letting things play out. If you limit risk on the way in and just go with it, sometimes the right thing happens ... and boy, would I have been second-guessing myself if I'd tried to get out of this early (for a loss).

I don't get to do the fabulous NDX trade until next week so I'll try another one of these next week.