NDX trade: can it keep your house from sliding into the ravine?

Try talking to your contractor about this one?

Some friends of our family got an estimate of $300,000 to shore up their house from sliding into the ravine behind the house. (It doesn't look nearly this bad, but $300K to fix, still.)

It turns out that our friends have enough funds from another real estate sale to fix their own place, but if you did (or if you do) have something similar, what could you do about it?

The NDX monthly options, for traditional reasons, don't last until the end of day Friday of their expiration day. Instead, they settle based on the symbol NDS, which is the daily settlement value of NDS. It's valued whenever the 100 stocks in the index have their opening trade, usually in the first 30 minutes after opening (i.e. just before 7am Pacific time.)

There was a study published on Tastytrade showing that trading this NDX settlement overnight with a "1 standard deviation iron condor" (example/details below) ... works 91.7% of the time (i.e. 12 for 13). I've since verified that for myself; I traded this one weekly until Nasdaq removed it from all but the monthlies last February ...

In the couple of losses I've seen on this trade, I've never seen it go very far "into the money", especially after I "widened the wings" of my condor trades.

Given all this ..

It struck me that it made sense to risk even more on this trade that I have been doing. So I risked $30,500 on this trade:

• short the 7060 put
• long the 6990 put
• short the 7250 call
• long the 7320 call

I put the trade on when the index was around 7150 ... when next I looked it had dropped to 7080! But it recovered and actually spiked the next morning on settlement to 7247 ... just within the short call, so fully profitable.

I sold 5 of these for a $9.00 credit each (i.e. $900), so that's $4500 (minus maybe $100 in commissions and fees, so let's say $4400. That's a 14.4% return.

Back to your problem with the sliding house ... If you could scrape together $200,000 to put into this trade, you'd (for example) have made 6.5 times the $4400, or $28600. It's reasonable to assume your winning this trade 5 times in a row, ramping up with increased capital. Volatility will vary, so you won't necessarily make as much as $9.00 all the time ...

In 5 months you could expect to make $100,000 extra, for whatever you can do with that (put 1/3 down on the $300,000 loan you need to fix your house?)

And you could lose $80000 or even $100000 if an extreme loss happens at the wrong time ... this is very unlikely (losses when they do happen are likely to be more like $20K to $30K) ...

So: maybe not an everyday strategy, but if you have only a few months to keep your house from crashing, maybe worth considering?

Finally, your virtual $200,000 account ... was up about $14000 last week. I wouldn't have risked more than $100,000 of this account on this trade, without a house teetering on the brink ...

S&P 500 down 4.5%; your virtual $200,000 account + 0.1%

Finishing up the butterflies that were a drag on futures results limited our gains this past week, but the S&P tanked Wednesday and Thursday and we didn't get any of that on us.

A couple of the butterflies we had on continued to hurt results; I am mostly giving up on these and going to short strangles (on futures only) and iron condors with wide strikes.


Futures options pay better than equities, and the diversified bunch of trades I had on after Wednesday's sharp down move wasn't bothered at all:

So: I'll keep on a widely diversified bunch of futures options trades: strangles if I can afford them and otherwise iron condors with wide wings. I'll add an occasional equity trade as well, favoring those that are highly volatile (and therefore which pay better!) I plan to keep around 75% of my futures-enabled accounts in play (not all them are ... the IRAs don't get futures and futures options until later this year on Tastyworks. For those I still limit exposure to 30-40%.)

And one week of every four ...

This is "expiration week" when the Fabulous a.m. settled NDX trade is available Thursday and Friday. I'm going to hit it hard this week, as it should make about 20% on margin (while risking not much more than that, given 75-point wide wings on the iron condor) ... since over time this trade has shown a 91.7% win rate, the only wish I have for it is that i could do it every week, like in the good old days of earlier this year!

More next week!

Different kinds of butterflies; Futures pricing doesn't hold up when market closes

First of all, when you think of a butterfly this is what you might think of:

But this past week some of them turned out more like this:

It turns out that a butterfly spread, even with the legs at the .10 delta, aren't nearly as wide as a strangle or iron condor. And some of the futures started to move this past week and didn't stay where they needed to for the butterflies to pay off.

The winners: Gold (/GC), Wheat (/ZW), British Pound (/6B), S&P Futures (/ES) ... 

The losers: Tesla (TSLA),  Soybeans (/ZS) ... 

Not sure yet (I put some of these on with greater than 21 days to expiration): Japanese Yen (/6J), Chipotle (CMG) and a few others.

Anyway, I sold my first strangle this week in oil (/CL) futures ... if this oil price stays between $70 and $81 for about the next 8 or 9 days I should be able to get the 50% of the credit profit I'm looking for. The lower margin requirement for futures makes this absolutely compelling ...

Your Virtual $200,000 account: Not sure this week

I got excited last week when it looked as though the approximately $20K account was up 6.8% for the week ... but now I'm not sure. Clearly things haven't gone as well this week, but the way futures options prices bounce around after the close of the market makes it impossible to really tell what's happening until the market reopens.

So I think you're down about $8K or $10K this week (i.e 4-5%), but not positive. I'll have a better read on this for next week.

More news then ... I will have a better view of this 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!

/ZN trade wins, leading to more diversification ... and better profits, I think!

Your $200,000 virtual account made $5734.40 last week. (Watch this space for better results next week.)

I've just been (mostly) trading SPX for the past several months, and that's mostly worked. (The addition of the NDX a.m. settlement trade has been an excellent kicker, adding profit once per month since Nasdaq pulled the plug on the weekly version.)

The /ZN butterfly trade I put on last Sunday has already produced more than 1/4 of its full credit. Unfortunately Tastyworks doesn't yet have Good 'Til Cancelled orders available for futures options, so I'll have to get this done when the market opens tomorrow afternoon.

I just this evening ran the numbers on a range of futures options: gold, oil, the British Pound, the Euro, Soybeans, Wheat and bonds ... The futures margining system, SPAN, is so much more lenient than the standard options margining system that the profit potential is much greater:

Not only that, diversifying by sector like this removes the "terrorist attack" problem by just diversifying within equities. Most of the equities move together during stressful events (like 2008), where futures markets are more diverse.

I've been diversifying over time: putting on an SPX trade every couple of days ... and although that worked well enough, the 2-day-differing expirations are too highly correlated, especially after the weeks like we just had:

I'm short the 2950 calls in SPX, which have suffered on this up move with 10-12 days to go in the two expirations. (But fortunately the overnight NDX trade covered this loss and then some. Yay!)  I'm wide open to a down opening on Monday a.m. swinging these trades to a small profit. But I think I'm going to take them off in favor of this diverse futures setup anyway ...

More next week ...

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	Won 50%
09/24/2018	SPX	2750	2770	2970	2990	$1.85	Won 50%
09/26/2018	SPX	2725	2735	2955	2965	$1.15	Won 52.7%
09/28/2018	SPX	2700	2720	2955	2975	$2.05	(open)
10/01/2018	SPX	2705	2735	2950	2980	$2.60	(open)
10/03/2018	SPX	2710	2740	2950	2980	$2.60	(open)
10/05/2018	SPX	2765	2785	2965	2985	$2.10	(open)
10/26/2018	/ZN	117.5	119	119	121	0"56	Won 25% of credit -- all that we expected
09/22/2018	NDX	7475	7510	7650	7690	$3.11	Won 100%

The joy of theta! Your virtual $200000 account; a /ZN iron butterfly

Options trade characteristics are referred to by Greek letters. Delta is the ratio between the option's price movement and the underlying's price movement. Vega is the movement of an option price when volatility changes. But my favorite is theta:

Theta represents the amount by which an option (or option spread) decays over one day. So if your theta value is 400, then you make $400 a day in profits as your option positions expire. (In contrast, you could have a theta value of -400, where you lose $400 per day ...)

This plan expects option positions to expire by 1/2 the amount in half the time: 10.5 or so days for a 20-day trade. But this past week the trades were running ahead of schedule, getting to 50% on Monday, Tuesday and Thursday ... that's 10, 8, and 7 days per trade.

Your virtual $200000 account made only about $1400 this past week, as volatility's completely washed out of the S&P 500, what with its being right near its record high, again ...

Tastytrade had a segment on Friday that caught my attention on volatility in Treasury futures.  With the extra leverage available on futures, this gives a couple of attractive trades:

This is an Iron Butterfly:

... which I've traded successfully in the past. The /ZN trade shown isn't too big: $1231 max risk (and only 1/4 of that in initial margin) ... /ZB is similar but about twice as big.

These don't have weekly options so I would have to wait for about 3 weeks to get them on with the 21 days of expiration I'm using for everything else. But an Iron Fly (Tastytrade's name for this kind of trade) works best when you take only 1/4 of the credit you get, not 1/2. Thus the options should expire in 1/4 of the time: 10 days ... just like the 21 day SPX trade.

So I just now put it on Sunday 3:56pm PDT! We'll see ...

As for our friend Theta, it works over the weekend too! I put on a "good until cancelled" order just after I put the trade on ... the oldest trade I have on is 12 days until expiration (11 by tomorrow) and was $1.33 on Friday at the close trying to get to $1.00. I won't be surprised at all for it to be closed out at $1.00 early Monday!

Results 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	Won 50%
09/24/2018	SPX	2750	2770	2970	2990	$1.85	Won 50%
09/26/2018	SPX	2725	2735	2955	2965	$1.15	Won 52.7%
09/28/2018	SPX	2700	2720	2955	2975	$2.05	(open)
10/01/2018	SPX	2705	2735	2950	2980	$2.60	(open)
10/03/2018	SPX	2710	2740	2950	2980	$2.60	(open)
10/05/2018	SPX	2765	2785	2965	2985	$2.10	(open)
10/26/2018	/ZN	117.5	119	119	121	0"56	(open)

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.