Update: 2 more successful weeks ... and another leg of the trading plan now in place

I've been moving for the last week so missed last week's post ...

We are in the process (after 17 years!) of moving from a house we had built and where we'd lived since 2000. The new house is a rental:

... that looks kind of like this, but on more acreage (no houses around). Our little cockapoo Myla likes the place ...

(This is one of Myla's cousins I found on the Internet.) The only trouble for Myla is those other cousins that are around:

So we have to watch her ... But back to the subject at hand!

Last week I made the NDX trade just before expiration, which only yielded 75 cents: on a $10 wide spread that's 8.1%, and Monte Carlo simulation says that's not profitable even winning 91.7% of the time.

So just to try this out, the next day I put on at 8:30 Pacific a 1-day 1-standard deviation Iron Condor in our favorite volatile vehicle: TSLA. I got 15% on this one ... and 8.1 + 15 == ... 23%, just like last week's fabulous one.

So that's one thing I can try: when I get less than 15%, try a 1-day trade the next day to make up the difference, in whatever is volatile: TSLA or NFLX are two to try.

This week I got the trade in one hour before the market closed and got filled at $1.35 ... around 15% just for this one. It worked again so I didn't do anything extra on Friday.

So the NDX trade is now 2 for 3: 66.666667% winning ..

The other "trade leg" I put on this week is short /ES futures, selling puts against them every week.
I started with $28137 last Tuesday ... got filled at $2070.50 and sold the 8-day 2060 puts against these for $9.50 each (i.e. $475 each, since they're $50 per $1 of options in these futures).

As I write this, the futures have settled back to $2575.75 ... but the puts have collapsed to $2.65 so I'm showing a profit: up more in the options than I've lost in the futures.

And I can sell another batch of puts next week ... and the next. So this looks really good!

 More next week ...

Reconsidering routine use of the futures to save the Iron Condor ... because the projected results are so good without it

Despite my enthusiasm in my last post for using  /NQ futures to overcome any loss in an NDX iron condor going wrong, I am reconsidering the routine use of such futures.

The trade I made on Thursday worked, making this test session 1 and 1: 50%. But the futures graph was very different on this past Thursday and Friday:

I put on this trade late Thursday a.m.:

• Sold the 6270 Call
• Bought the 6280 Call
• Sold the 6170 Put
• Bought the 6180 Put

... for a $1.90 credit. This gives $1.90 / ($10 - $1.90) = a 23.456% return.

After you put on this trade, the only chart you need to look at is the NDX settlement number, which goes under a different symbol called NDS:

... and as you can see by the NDS value from Friday, this trade worked and all 4 legs expired worthless, for a full profit.

If we can really do this 91.7% of the time (make 23%), and we risk 25% of our stake every time, the 1-year (52 week) Monte Carlo results are like this:

• Starting stake $55,000
• Mean value  $281,043
• Standard deviation: $181,147

So the ending results should be between $100K and $462K 68% of the time ...

(I think I can improve this trade by widening it a bit ... for example sell the 6280 calls and buy the 6290 calls ... so what if this returns "only" 18% or 20% if you win 93.5% of the time ...) 

For this test I'll keep doing the "one standard deviation" but will check results against the "one standard deviation and one more strike wide" version. Last week it would have made no difference whatsoever ...

The risk you have to be willing to stomach doing this trade this way is: now and then you will lose 25% of your account. You'll make enough to cover this, many times over. But if you can't stand this you'll have to cut down the amount you risk, which will reduce your expected return.

The Kelly Criterion is even wilder: it suggests risking 57% of your stake on this trade. Great when it works, but hoo boy! I'd suggest being damned sure of the 91.7% win rate before doing this ...

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 ...