A nearly perfect week (up 10.7%!) after switching to 0.08 delta earnings trades

I put on 17 earnings trades this past week without a loss!

The underlyings:

• NVDA
• PXD
• CTL
• EQIX
• NTAP
• YELP
• CSCO
• BFAM
• TEVA
• OXY
• AKAM
• ATVI
• TRIP
• UA
• RE
• SHOP
• MOH

There were almost all at the 0.08 short delta, with a few at the 0.10 delta when there was no bid at the .08 delta.

I had said previously I wasn't interested in doing anything herculean to "scratch" an undefined trade gone wrong, and that's still true. But I did start putting on undefined risk trades in lower priced ($35 or less) underlyings where the margin per contract is around $300. This I could afford to lose without doing anything but closing out and going on to the next one.

I did trade an Iron Condor (i.e. defined risk) on NVDA, which was quite volatile (therefore paid pretty well even for a defined risk trade, around 10% ... of which we took half, so just over 5% on an overnight trade: not bad!

Overall this plus the NDX trade, discussed momentarily ... gave us an up 10.7% week on the main account we were trading this strategy.

As for NDX ... I made the change I discussed a few weeks ago, putting this on closer to 1pm PST close of trading instead of the 9:45 a.m. PST I had been using.

Unfortunately, this made only about 1/4 of the profit that it would have if expiring worthless ... NDX was going higher Friday morning and closed I guess around 7078 where my short strike was 7075. This was the only glitch in an otherwise perfect week.

I say "I guess" because CBOE or CME or whoever's in charge of it has apparently stopped publishing NDS, the daily settlement value that the NDX a.m. settlement is based on. Tastyworks certainly has it, though they don't publish it on their UI.

This is just a minor aggravation ... what  I really enjoy about earnings trades is the fact that they're OVER overnight. I don't typically get up at 6:30 when the market opens, but when I do get up and look at my phone and see the Tastyworks app has informed me that I got 6 fills on the 6 (closing) trades I had on, well wahoo!

2nd week earnings: the .16 delta doesn't cut it (at least for defined risk trades)

I traded mostly .16 delta iron condors this past week, with two exceptions:

TWTR (Twitter), where I sold a .16 delta strangle (for $80, netting $40 since I closed it at 50% of net credit received) ... and:

Snapchat (SNAP), where I sold two 6 strike puts (the stock was at $6.70 or so) for $15 each, netting $30 ... which I got almost all of since the price collapsed to $1 at the opening the next a.m.

But the two big (100% of the amount at risk) losers were Chipotle (CMG) and Motorola Solutions (MSI) ... both zoomed up after earnings.

Overall I lost a little money this week, like 2% on one of the $19K accounts I'm trading.

So this week I'm going to go out wider, probably the .08 delta ... the problem with this is that it won't pay enough to be worth the risk for a defined-risk trade. I can do undefined risk trades in my own account, but so far I don't have permission to do them in others.

Also, the Fabulous NDX trade is available again on Thursday in place of any earnings trades ...

Fingers crossed ... more next week!

First week of trading earnings: insights and lessons learned

I traded several earnings announcements this past week, including:

Overall I just about broke even, though my idea of using butterflies didn't work as well as I had hoped.

They just aren't wide enough; I can get much wider with Iron Condors or strangles (should I decide to try this undefined-risk trade ...)

Also their prices didn't seem to collapse as fast as the widely out-of-the-money options ... I had hoped that they would just be at least 15 or 20 percent lower priced on or near the opening, but that was too rare. I wound up just taking whatever small profit was there as soon as the market opened on these butterflies.

Also, the .16 delta Iron Condor for the high-priced AMZN was plenty profitable: I risked $350 to make $150 ... of which I took only $75, 6 minutes after the opening on Thursday ... that's over a 20 per cent return.

And I goofed and traded Paccar (PCAR) even though it doesn't have weekly options! I closed the position I had in my own account for a small loss but let this run in some other accounts I'm trading to see if I can get out for a profit early next week ...

Next week: GOOGL, CMG and CBOE, among others and I'll try applying these lessons to make a profit ...

I'll report back at week's end ...

The solution: earnings Iron Butterflies!

I took the week off trading after my annoying loss last week ... I've been looking for something else to supplement the Fabulous NDX trade (see the last several posts on this subject) ...

I looked at trading earnings reports the way Sosnoff and company trade them: selling premium and assuming that the results of earnings will usually be inside the "expected move" as calculated by the implied volatility (which is calculated for you on Tastyworks and ThinkorSwim and no doubt other platforms), like this:

See near the upper right hand corner? MMM (3M corporation) is expected to move +/- $7.42 from its current price. How to profit from this?

I watched this video from Tastyworks, where a "rising star" talks about trading earnings ... He said use uses "mostly strangles" (i.e. short strangles, an undefined risk trade) ... he says "very conservative" ... around the 0.05 delta.  Looking at this:

This is very likely to pay off, but the risk/reward isn't good enough for me ... on this 1-lot trade you'd probably make $25 or $27 ... while risking "undefined" losses. Almost certainly not an issue with this one: put the $25 in your pocket and go on. But there are a a couple of crazily volatile ones  that give you a large loss. This guy Shervin says "I scratched that Nvidia trade." ... here's NVDA for the last two years:

Do you want to trade undefined risk trades on this one? I don't.

I find that the Iron Butterfly (Tastytrade calls it "Iron Fly" if you're looking on that site) is a much more attractive trade:

Getting 1/4 to 1/2 the credit is 10% to 20% profit on this one, and even the max loss is manageable.

I can do 10 or 12 per week of these during "earnings season", so that's what I am going to do starting tomorrow, starting with MMM, WHR and PCAR.

Wish me luck! 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 ... 

One for two this week: small /ES (lost) and SPX (won) call spreads; new exchanges!

I looked at a 4-day QQQ and a 4-day NDX trade and the QQQ was too small and NDX more risk than I wanted to take, so instead last Sunday afternoon I put on an /ES short call spread: short the 2570 call and long the 2580 call.

This was transfixing because of the reward to risk ratio: $150 / $350 =  42.8% in four days! (Less commissions.)

Would that it were so:

Fortunately for one of the account holders for whom I'm trading, the person doesn't have futures access. So I put on an SPX call spread for her on Monday a.m., by which time the market was up enough that I put on the SPX call spread: short the 2605 call and long the 2610 call. This was for an 85 cent credit ... reward to risk ratio wasn't nearly as good as the /ES but still not half bad: $85 / $415 = 20.8%. Fortunately, this one won!

I'm not much into technical analysis, but had I paid attention to Tim Knight I'd have saved a little money ... he's saying we're still in a pattern that's headed lower, and his Fibonacci retracement line ... is at 2603.

I'm going to start watching him a little more closely, even though I'm still skeptical of technical analysis as a discipline ... but basically I'm planning to just trade small while waiting for the opportunity of the "fabulous NDX trade" ... which comes up again next week.

New Exchanges Coming

There were a couple of new exchange announcements last week, one from a bunch of big companies ... and one from my favorite brokerage:

The Small Exchange is from Tom Sosnoff and the Tastytrade/Tastyworks gang. They're not divulging details (other than a vague mention that products will be "smaller" than standard futures products now existing.) But I think I can imagine what this will be:

• Smaller notional values
• Standard options values, not like /ES = $50 and /NQ = $20, etc. Probably all will be $100 like current equity options
• SPAN margining (like the current futures markets)

Also ... Sosnoff's announcement of this downplayed the possible appreciation of the membership in this exchange, available free with a new funded Tastyworks account ($2000 or more) and $100 for everbody else. If the thing succeeds, these memberships could be worth a lot more ... and offer any trader a 50% cut in the already-low fees, so should be much less than standard futures fees ...

Unfortunately:

The U.S. government shutdown continues, including the SEC. This is stalling not only IPOs but these new exchanges from getting any motion toward approval.

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 ...