Running late lately. Sorry about posting so late. Life happens.
Not a bad day on the YM front….for a Monday
Hey everyone, I’ve enjoyed reading everyone’s posts, and wanted to thank Jeff for inviting me to be a contributor. I’m Sue (AxeCap-Sue at Simpler Trading), live in Colorado, been trading for 38 years. I’ve been a full time options trader for 20 years. You can count on me to be completely transparent with my trades; totally honest on fills, wins, losses. My core skills are income trading, complex setups, defense, earnings events, and CMLViz (backtesting). Here’s my contribution for you: #Bitties. Anyone whose been hanging out at ST has heard over and over again about Bitties. Here’s the bitty story that I wrote recently for the ST Forum:
In May 2017 CMLViz was delivered to many of us in Simpler Options. Everyone started racing to find the high-return plays, 600%, 800% 1000%. A few of us though took the opposite route and began searching for the high win-rates. Trades that win over 90% of the time, with lather-rinse-repeat characteristics. EVERYONE (including me) was skeptical about these trades because the risk/reward is upside down. A LOT of risk for little reward.
It turns out that 25 Delta, either naked put or as the short anchor of a put spread, is a real sweet spot for these high win-rate trades. I call the 25-delta my “Jeep Wrangler” of deltas, because it can get very smacked around, up hills, down hills, stuck in ruts, and usually can always land on its tires.
I started doing the trades (all naked puts or put credit spreads) on SPY, LMT, MSFT, FB, QQQ, IWM, SPX, NDX in May—not sure at all how this little experiment would work out (because like most of you, risk:reward has been pounded into my head). I always size trades for risk and assignment assumptions, so the trades (with high risk) remained small. After a few days the close orders started hitting, for $150.00, $170.00, $300.00 profit, over and over and over. That’s how they got the name “Bitties”…because the profits are “Bitty”….but it’s like picking up money off the sidewalk. Within just a few weeks the profits (in multiple accounts) were adding up into the thousands, with close orders hitting every couple days.
Flash forward to November 2017, I’d like to say I have not had a single loser or assignment since starting this in May, that is almost true. 2 weeks ago I closed an LMT put spread early for a $170 loss (that is the only loss I’ve taken on Bitties since starting). Profits in just the above-mentioned tickers will hit $100K this year Not quite all of that is Bitties, but Bitties are definitely the majority.
Bitty strategy is fluid and always evolving. Those of us doing Bitties are always looking for ways to limit risk, gain more profit, foresee vulnerabilities, dial in time frames and profit targets.
I’ve found the sweet spot for Bitty expirations are 20DTE. Short timeframes provide more events/year with accompanying payoff. Although even tighter timeframes (19-7 DTE) test out well historically, they really don’t provide enough range to absorb normal market volatility.
In the past my favorite bitty was naked SPY puts, 20DTE, 25 Delta, with a mutli-year 98% win rate (at an 80% cover). With the end of the year here though, a great trading year in my book, I’m definitely focusing more on spreads for risk protection. The SPX $5-wide spreads give a really nice risk reward setup for a #Bitty, much better than SPY (roughly double the premium for the half the risk in SPY (25/5 spread), with no assignment/div risk).
As of right now the SPX 25/23 delta put spread, 20DTE, 50% cover, no stop, is backtesting at a 97.1% win rate over 3 years. A 25/23 is such to capture a $5-wide spread in the backtester.
One last thing everyone always asks….what about when the market rolls over. For me, that’s easy, the bitties flip to #Jade Lizards (or skewed iron condors) with additional premium collected on both sides of the trade: higher premium on the put side and the call credit spread kicker extend the downside range. The Jade Lizards are modified for risk using a 25/5 delta put spread coupled with a 35/30 delta call spread.
The Bitty trades I have on right now:
NDX Dec 8 (only way to get a $5-wide), 6330/6325 .80 cr placed today 11/27/17
SPX Dec 8 2570/2565 .70 cr, getting close to target, trade is in multiple accounts
SPX Dec 11 2565/2560 .70 cr, getting close to target, trade is in multiple accounts
Listen I totally get it if you don’t understand the rationale behind these risk:reward setups. I was there too. But I will just point to the win rate and say….it’s been an awesome year. I’ll keep reporting on Bitty trades here, but wanted to give some thorough background about them in the first post.
#ShortStrangles – The grind continues…
Bought to Close AAOI DEC 1 2017 44.0 Calls @ .10 (sold for 1.15)
Sold AAOI DEC 15 2017 42.5 Calls @ 1.15
#ShortPuts SVXY Sold to open Dec 15th 100 Puts @ 1.40 with SVXY @ 114.16. Meant to save the order in ToS but hit the send button and was filled immediately. No chance to correct. Rats.
$SQ #fallingknife candidate in the making
Major drop today, look for opportunities to sell puts
What do you guys think about tweaking LEAPs to a modified covered straddle? In other words using WDC as example at current prices, buy at leaps call either ITM or close to money, then sell weekly/monthly straddles against it. You could also buy an OTM put leap as disaster insurance. Similar to our synthetic long/shorts but the advantage by selling a straddle or strangle each week is that you bring in a lot more premium, double in most cases but on individual names I don’t like selling calls naked. Burned on HNZ a few years ago on a strangle.
For WDC example BTO 85 2020 call. STO 12/8 87 call. STO 12/8 85 put. Could put it on for about 15.62 at current prices. On a 10 lot break evens of 84.2 and 93.61 with 11 day profit of 2554 max.
Adding a 75 2020 put would add 12.30 or so and narrow the break evens and lower max profit to 1321 but limits downside risk to 10 points. With 781 DTE that would give potentially 111 weeks to sell straddles. Figure 25% would need adjustment but still a killer return. Figure $3-4 premium each week with ATM options could cover the entire trade in about 3-5 weeks if, and a big if everything stays in a tight range.
The reason I am thinking about this is I accidentally did this with GILD and selling straddles/strangles has really improved my recovery on a trade gone wrong. Going out 2-4 weeks I can sell an ATM straddle for about 4. I was assigned at 79, cost basis was 78.1 and change. 2 weeks of selling straddles I am almost at break even with GILD at 71.55 and have some long LEAPS puts at 77.5. So effectively covered on both sides and can sell the crap out of weekly options to both sides without having to tap into too much margin.
Thoughts, comments? Anyone else doing this or tried it?