NDX weeklies + /NQ hedge = $$$$$$! Sweet!

I just mentioned in my last post how one might use an /NQ hedge to move a losing iron condor into the winning column:

I only realized over the next night that this the /NQ hedge is the key to bringing the win rate from 91.67% to 95% or even 100%! I can imagine some weird reversals in /NQ in the middle of the night, but if carefully managed it looks like one would just lose a bit on /NQ and win the main trade ...

Then with the Kelly Criterion you can pick how much of your trading stake to risk each week ...
The formula suggests betting almost 62% of your money on a trade that returns 15% and has a 95% chance of winning. I can understand that one wouldn't want to do that if not sure of that 95% win rate yet, and in any event the Kelly Criterion is known for producing results that are distinctly volatile:

... and you can still get excellent results using 1/2 or 2/3 the suggested bet of the Kelly Criterion.

Anyway, here's the plan:

• Sell N (1 to the number you can stand!) NDX iron condors (or even sell strangles) at one standard deviation (delta 0.16, or 16% probability in Tastyworks) .. do this within 3 hours of the close every Thursday.
• Set a buy market order when the /NQ price gets halfway (or better! in case it zooms as it did last Thursday to the short call strike price) and a sell market order for /NQ 1/2 the way down to the short put.

That's it ... management of the /NQ position is left as an exercise to the reader (and something I'll be experimenting with working on getting to that 100% win rate!)

Note that the Friday morning NDX price is marked under symbol NDS, not NDX.

Questions?

NDX, not SPX ...

I found an old email reference to this trade I mentioned: 91.7% winners on a weekly NDX trade, not SPX:

So I tried it yesterday:

• sold the 5990 put
• bought the 5980 put
• sold the 6100 call
• bought the 6110 call

This is a '1 standard deviation Iron Condor' ... for which I received $1.79 in one account and $2.00 in another account. The $2.00 credit give a nice round number for calculating the potential rate of returen: Max risk = difference in short and long strikes ($10) - credit received ($2) X 100 = $800. $200 / $800 = 25% return ... in less than 1 day.

But a funny thing happened:

All of these had earnings after the close (just after 1 pm PST), and they all had huge profits, which sent the /NQ (Nasdaq 100) futures on a tear:

If you had looked at this even at 5pm PST Thursday when it was flirting with 6100 and then bought 1 /NQ futures contract to hedge ... you'd have made over $2000 ($20/point), swamping the $800 loss you took on the weekly trade.

Next time, perhaps ... I'll try this again next week, not falling for the fallacy: "well if it's 91.7% winners and we got the loss out of the way the next 9 or 10 in a row should work, right?" I hope so, but the fact is the next trade has the same 8.3% chance of failure as the last one ... not much, but not out of the question.

Anyway, I'm 0 for 1 on these so far: $800 down (actually $804.something with the tiny commissions in Tastyworks ...) 

I'll try it again next Thursday and post the results again next weekend.

Trump crazy rally and my mistake hurt results but ...

This guy mentions Tax Cut and the market rockets up:

I've been doing mostly neutral trades for my own (currently small) account, as well as making a mistake "The S&P 500 will never get above 2520 this cycle, will it?" It did:

In any event, I've been trying the "trade small, trade often" Tastytrade method a bit ... overall it's less risky than the way I was trading before, but also less profitable.

So overall I'm now down to net liq $3599.77 ... which is down just about 10% overall.

I am pretty sure I have $55K or so coming into this account within the next couple of weeks and here's my plan for it:

(1) Continued Tastytrade canoodling, especially with higher-volatility stocks like TSLA
(2) Some earnings trades, selling a (small) 2-day iron condor just outside the expected move
(3) Short futures contracts ... probably 2 or 3 of these, selling puts against them every week
(4) For 25% of the account balance, stepping out of the Tastytrade arena and moving on to Ralph Vince (but using a trade idea from 2013 Tastytrade -- though I can't find the video right now):

Sell a 1 standard deviation SPX Iron Condor weekly option near the end of trading (1:15 PM Pacific) every Thursday, taking advantage of the (excess) premium in the options that remain because even though you can't trade SPX after Thursday 1:15, the actual settled price doesn't come through until Friday a.m., in a vehicle called SET.

I could just swear I saw at some point a customer-published study showing that this trade (or actually
the short strangle: an Iron Condor without the protective wings) works 91.67% of the time.

Assuming that, I'm "safe" risking 25% of my account every week ... each trade making about 15% on margin, so 91.67% of the time making 0.25 * 0.15 = 3.75% per week ... most weeks. If you do that successfully 10 weeks in a row, you gain 44.5% for those 10 weeks:

A monte carlo simulation running this 10000 times shows this hugely profitable ... but I have enough experience by now that I'm just going to test this with 1-lots (risking about $400 per trade) for 10 weeks in some of the (long suffering) people's accounts I am still trading ...before putting it to the 25% test in my own account.

I'll publish the results of the first such test this weekend!

Today's result: up 12.4% since July

I had to pull $2500 out of the account before I got started, so revised basis is $4000. Today's Net liq is $4497.24, which is up 12.4% ....

I'm trading more volatile options lately, not just SPY ... TSLA returns up to 25% ... in about 3 weeks!

More results as they become available ...

Going live with a small account

I funded a Tastyworks account two weeks ago and am going to just post its profit/loss data here ... I think I've proven the neutral trade sufficiently for myself, and I hope for you readers.

I started with $6500 on July 13, and so far the "net liq" in the account is ... $6512.23. As you'll recall, the trade has more room to the downside, so the market lately hasn't been optimal:

But by putting only 1/4 of the stake in every week, this keeps a big chunk from being whipsawed to a Trump-inspired loss all at once.

Also note: this is net of commissions.  Tastyworks commissions are so low, this is very helpful in trying to keep trading profitably.

More soon ...

Bumping along the top!

Well, the S&P 500 didn't go down, but it has started just bumping along the top:

This is ideal for our neutral trade, except for volatility being so low. But this pattern allows us to swing back to a profit on the futures trade, just selling a put every week for another $300 or $400 (at this volatility level) ...

Result charts are like this:

The neutral trade:

Trade Date	Symbol	Result	Profit/Loss	Comment
02/06/2017	SPY	Lost	-18%
02/13/2017	SPY	Lost	-16%
02/21/2017	SPY	Won	+15.4%
02/27/2017	SPY	Won	+17%
03/06/2017	SPY	Won	+15.3%
03/13/2017	SPY	Won	+12.9%
03/20/2017	TLT	Lost	-1.4%	Dumb!
03/27/2017	SPY	Won	+9.6%
04/03/2017	SPY	Won	+6.6%	18 days long
04/10/2017	SPY	Won	+11.1%	only 14 days!
04/17/2017	SPY	Won	+6.7%
04/25/2017	SPY	Won	+8.9%
05/01/2017	SPY	Lost	-5.0%
05/08/2017	SPY	Won	+5.0%
05/15/2017	SPY	Won	+6.1%
05/22/2017	SPY	Won	+2.0%
05/30/2017	SPY	Open
06/5/2017	SPY	Open
06/12/2017	SPY	Open

The short /ES futures trade:

Trade Date	What	Qty	Credit Received	Net Liq Change Since Start
04/25/2017	/ES Put	-1	$362.50	$0
05/03/2017	/ES Put	-1	$487.50	+$70.00
05/12/2017	/ES Put	-1	$337.50	+$1250.00
05/17/2017	/ES Put	-1	$500.00	+$1250.00
05/26/2017	/ES Put	-1	$262.50	-$100.00
06/02/2017	/ES Put	-1	$325.00	-$312.50
06/09/2017	/ES Put	-1	$450.00	+$150.00
06/15/2017	/ES Put	-1	$325.00	+$350.00

Another neutral trade is going on tomorrow morning ...

What goes up must eventually come down ...

Something in the news last week sent the market further up to hit more record highs:

This hurt both sides of our trades; the short futures position got hammered ... as I write this the S&P futures price is 2435.50, which is 51.75 points above where I sold it short ... at $50 per point, that's $2587.50.

But! I sold another put for a credit on Friday: a $325 credit, so I'm down only $312 or so on the futures trade. And I'll sell another put every week, forever, and eventually the market will stop going up and even ... go down!

I had to take a 5% loss in one of the neutral trades to meet a margin call on the futures position; the other neutral trades I have on are hurting but not dead yet. Charts below:

Trade Date	Symbol	Result	Profit/Loss	Comment
02/06/2017	SPY	Lost	-18%
02/13/2017	SPY	Lost	-16%
02/21/2017	SPY	Won	+15.4%
02/27/2017	SPY	Won	+17%
03/06/2017	SPY	Won	+15.3%
03/13/2017	SPY	Won	+12.9%
03/20/2017	TLT	Lost	-1.4%	Dumb!
03/27/2017	SPY	Won	+9.6%
04/03/2017	SPY	Won	+6.6%	18 days long
04/10/2017	SPY	Won	+11.1%	only 14 days!
04/17/2017	SPY	Won	+6.7%
04/25/2017	SPY	Won	+8.9%
05/01/2017	SPY	Lost	-5.0%
05/08/2017	SPY	Open
05/15/2017	SPY	Open
05/22/2017	SPY	Open
05/30/2017	SPY	Open

Trade Date	What	Qty	Credit Received	Net Liq Change Since Start
04/25/2017	/ES Put	-1	$362.50	$0
05/03/2017	/ES Put	-1	$487.50	+$70.00
05/12/2017	/ES Put	-1	$337.50	+$1250.00
05/17/2017	/ES Put	-1	$500.00	+$1250.00
05/26/2017	/ES Put	-1	$262.50	-$100.00
06/02/2017	/ES Put	-1	$325.00	-$312.50