Trading a $150,000 retirement account in a crazy era

I've been advertising that one can retire comfortably on $150,000 to $200,000 and I received one interested party via Craigslist. So here are the details.

The key features of the plan and the assumptions that underlie them:

• Solar power is now cheaper than fossil fuels, so the prices of oil and natural gas should not go up in the future
• Gold has been going up for months due to its role as a store of value, and should stay high and possibly go further up
• Equity options are more volatile (and therefore pay better) than they have been for most of the last few years, so there is opportunity in selling these options to capture this extra premium.

The way I'd analyze the application of these ideas to produce enough retirement income is like this:

• Figure out how much monthly income is needed to fund one's retirement
• I can structure trades to bring in 2x that amount per month (most months) and if you're only taking 1/2 that will cover any shortfall in a particular month.

So let's assume $6000 in monthly income; how can we make $12000?

It's unfortunate that we're just getting started talking about this now, as yesterday conformed to the Oil/Gold part of the analysis completely after the latest Trump Tweet Storm:

Oil futures on Friday 8/23

Gold futures on Friday 8/23

For oil and gold, the trades are:

• Oil: sell 15 of the $57 strike calls expiring September 17,  bringing in $5935.20, of which I sell after 12 of the 24 days bringing in $2967 or so ...
• Gold: Buy 5 contracts and sell 5 calls at the $1540 strike (just out of the money), bringing in $12000 credit on the calls ... If the price of gold would just stay put, we can get 75% of that for $9000, getting us very close to our target ... but gold was up $38 yesterday, so we can't count on this ... it may take a couple of months for this trade to show a profit, but selling these rich calls at every opportunity is too good to pass up.

These two together would take about 1/2 your account in margin, around $75000 ...

You can make up the difference with equity options, for example, in Chipotle options:

• Sell the October 4 725 put
• Sell the October 4 890 call

Total credit is $1430; margin is another $8000 from your account. 

Other volatile equity options abound, and I could put in a spread of these to make $3000 to $4000 more per month.

Here's an example from a tiny account I'm trading:

All these trades profit from declining volatility, but volatility spiked yesterday ... but they're mostly still in good shape to come off for a profit in coming days. For example, the Chipotle (CMG) trade is still well away from the "short strikes" of 770 and 870, which is the region it need to stay in to profit.

Craziness continues; A.M. Triumvirate debuts; equities + futures = profit!

The market craziness continued this week, with equity prices whipsawing crazily all month so far:

S&P 500's wild August 2019

As I mentioned last month, I demoted the "fabulous NDX trade" and moved to use each of the three a.m. settled indices: SPX, NDX and RUT.

I am just trading small accounts right now (mea culpa) so can't do wider "wings" on the iron condors, and this week once again showed why that's a problem ...

The NDX trade was short the 7530 and long the 7540 call, and the a.m. settlement price was all the way up to 7564. That's 100% loss in the case: $737 per 1-lot ... if one had been doing 50-point-wide wings, that reduces the loss to about 65% ...

The other two trades worked ... and didn't. RUT was OK, being the least volatile of the three lately.
SPX closed at 2870, great for the account where I had the short strike at 2875 ... but I put one on later in the a.m. that had the short strike at 2865, long at 2870, so: 100% loss ($390 per one-lot) .... but less than 10% if doing 50-point-wide strikes.

So I think I'll mostly stop doing this trade in accounts that aren't big enough to widen the strikes ...

The two accounts I'm trading right now are both small enough that they can't handle futures trades, and that makes all the difference right now. While the equity positions I've been trading have held up better than I would have thought, they're just down slightly (about 8%) where futures positions would have taken up the slack.

I mentioned the 'short oil' trade last time. Natural gas is similar. But opposite these two is gold, which has been going up:

The thing is, selling calls against a long commodity position is very rich; volatility goes up (and prices go up) the higher you go. For example, the latest gold futures (/GCV9) price is 1517 ... and you can sell the 1525 call option expiring September 25 for $27.30 ... i.e. $2730 credit. This brings your breakeven price to the downside all the way to $1490 ... 

That together with your short oil and gas positions can keep your account humming while equities are going nowhere.

More next week!

Crazy week (it could have been worse) new trade implied by solar energy price crash

"Better positioned for next week?" Silly me:

That's a 100-point range in the S&P 500, and the futures markets in S&P were 50 points wider at least ...

This guy was at it again:

The market recovered most of what it lost and got back into the range where the neutral trades I have on have a chance to make a profit, finally, by the end of the week.

But the big news is the documentary I saw last week ... if oil and gas are now more expensive than solar, that implies that one could go "short" these two ... forever.

The two futures tickers involved are first, crude oil: /CL

And natural gas, /NG

These last two charts show the last 2 years of each commodity price ... had I seen the documentary shortly after it came out I could have been profiting all along!

Two possible trades:

1.  short futures contract and sell 1 put against each contract
2. short futures call option

These are equivalent, risk-wise (according to Tastytrade), but for /CL the short call takes less margin ($2800 versus $4000+ for the combination one above) ... 

More next week ...

S&P 500 down 3.1% ... our system down 0.17% ... and better poised for next week

This was a crazy week in the market ... First, The Federal Reserve cut interest rates:

But not enough, according to the markets, which went DOWN:

I was congratulating myself as I had entered a "put debit spread" on SPX just before the fed announcement: long the 3015 put and short the 3010 put, risking $200 to make $300 in the best case ... on the "buy the rumor, sell the news" theory ...

But then Thursday early the market regained all it had lost on Wednesday until:

... Trump announced a bunch more tariffs:

... making my SPX debit spread happy again, and getting all the other trades I have going in the right spot to be profitable again next week. (Not last week, as volatility increased ... and our trades profit by volatility going down ("short vega") ... or time going by with nothing happening ("positive theta") ...

As for the debit spread in SPX, risking 2 to make 3 ... I'd love to have more of these but I doubt they're really even a 50-50 shot ... so I won't make these part of the plan yet, just will do a bit more experimenting here and there.

Careful readers will recall I put on a debit spread in NFLX the other way last week ... but I closed it out even before all the excitement from Wednesday onward for just a small loss.

More next week!

Quiet week as market reaches new highs .... more on your $150000 account

The market went up to record highs again this week, but slowly enough in most cases to not mess up the neutral trades I have on.

The one exception is Netflix, which bounced back too strongly from its earnings miss:

My short call strike for NFLX is 335, so I also put on a debit call spread this a.m.:

Long the 330 call and short the 335, for $265 ... meaning that if NFLX is at or above $335 on August 2 when this expires, I make $235.

This covers most of what I can lose on the NFLX Iron Condor I have going, and I can actually do this again the following week if conditions seem favorable (i.e. if NFLX continues up ...)

Now, back your $150000 retirement account ... since you didn't pull the trigger on this immediately you didn't suffer the $5000 (for you $50000!) loss from last week ... instead you'd have had a much smaller loss, as I would have taken 1/2 the risk and diversified over 3 trades:

• NDX would lose 100% of what was risked, as last week's trade lost about 80% because of its very wide strikes
• SPX would break even or lose small, maybe 15% of the amount at risk at most
• RUT does what it's supposed to do: expires worthless for full profit, probably 10% or so

So your loss would have been maybe $7000 .. probably just $6000 for the week because of other profitable trades that week. So you'd have gone from $158000 to $152000.

Once again, this offer is just for one lucky individual willing to try this ... let me know if you're interested and we can get going this week ... or you can wait and watch for a few more weeks, understandably ... More next week!

I'm demoting the "fabulous NDX trade" after this week ...

I had a great run with the NDX a.m. settlement over the last 15 months or so, but after yesterday:

I put the trade on (just slightly wider than 1 standard deviation) just before 10a.m. when it seemed to be going nowhere, but then:

The market went up like a rocket after this Federal Reserve vice chairman Richard Clarida said something that looked "dovish" to the markets about an interest rate cut the end of July ...

Other officials tried to "walk back" the remarks saying that this stuff was based on 20 years of research and not pointing toward the July 30/31 next Fed meeting ... but too late for me!

The NDX a.m. settlement is marked when all 103 underlying Nasdaq 100 stocks open on Friday a.m. ... I knew it looked pretty bad looking at the /NQ futures price, but I have seen anomalously low settlement prices (the symbol for this is XQO these days) sometimes and so had my fingers crossed ... 

No good. XQO price Friday was 7955.76, so since I was short the 7900 call and got $542 of credit .... that's a $5007.24 loss ... out of a possible $7420 or so .... harrumph.

I won at least 12 or 13 of these in a row of these last year, just mechanically putting them on at 9:45 a.m. ... but I can't stand it any more.

The "trade small, trade often" technique I've been using for everything else has been working so well, I'm going to keep this trade but with the following restrictions:

• I'm going to put on not just NDX but also SPX and RUT a.m. settlements
• I'm going to risk a max of 25% of the account on all 3 combined

I had been risking up to 50% on just the NDX trade ... while it was working this was great, but this was beyond terrible timing ...

One little good thing that happened: BIDU came off on Friday for its 50% profit. Wheeeee! :-)

Back on the horse Monday with more trade small ... including a few earnings, I guess ...

Can you retire on $150,000? Here's an example to consider

One good thing this week: I closed out the SPX trade I had on with the short 3000 call for a profit before the latest crazy up move:

The two SPX trades I have on now are short the 3050 and 3060 calls a couple of weeks from now, which should be safe ...

On to today's topic: retirement on $150,000. My example account had a bit over $14000 in it as of 6/23/2019, so let's use that and assume 10x of a balance in that account ... $14433.06 -> $144330.60 ... then at the close Friday, balance was $15421.78 -> $154217.80   ... up 6.4%, or not quite $10000 in your theoretical retirement account ... in the last 3 weeks.

Full disclosure: it won't be quite 10X as you have to pay more commissions with a bigger account ... but not much more with the brokerages I know of. Commission prices have crashed in recent years, so a frequent trading strategy is feasible in a way it wasn't before.

I am looking for one or two people willing to try this, with around $150,000 to $200,000 to start ... I will trade such an account for 5 years with no charge just to use as a demo account for some advertising I'm doing.

Take a look at the page here for details and contact information.

Thanks and have a good week! (Enjoy the unrelated dog photo!)