Being mechanical and following my own rules.

EOG 97/98 16 DTE credit spread was breached on the short side this morning. I delta neutral hedged it by buying back 5 of the 10 contracts at the 97 strike . Actually could have done 3 but was in a hurry. Price was 3.1 after I had sold them for 1.48 last week. The math is complicated because I now have a 5 short: 10 long ratio against a put #fuzzy but looks like anything above 99.04 and I break even or make money. If we drop I can always sell 5 again to take the ratio back to 1:1. Since doing that I am up $1635 on the credit spread part this morning.

I will be doing this with any breached credit spread going forward based on the TT research that showed violated credit spreads rarely return to the original range. As long as there is more than a week left to expiration. If inside that would roll first out to 21 DTE or so and then back ratio.

EXPE STO 10 of the 23 DTE 118/120 CCS for 0.40 against a 20 contract put #fuzzy.

Will start some #spycraft on Monday once my LNG and XBI cc are assigned.

#spycraft version 3.2 Ok guys…

#spycraft version 3.2

Ok guys (and gals). I did a bunch of research over the last 2 weeks. With the market volatility I wanted to restart these trades and also want the consistency back. My trading has been all over the map the last 14 weeks. I used to belong to a service that used this tactic exclusively but I dropped out after I thought I knew everything there was (wrong I still could not contain the max loss trades). Anyway, I was able to find results and trades going back to 11/14/14 to present. I had most from the service up until last year but was able to find a track record up to just a few weeks ago. I will spare you the details but the numbers are still impressive and include some wicked volatility spikes. I looked at every trade and if I had questions about the close used thinkback to see where prices were for opening and closing. Yes it was a lot of work but worth it.

Trades were placed every Friday during that time.

A total of 6 losing trades over that time but only 3 went to full loss. You can probably guess the dates (2 in August and 1 in December of 2015). Surprisingly Feb. 2018 did not result in a loss. The other losses were shut down early and I think that is what saved the service from having major losses. There were a few that were closed early either for a scratch or only a few pennies within the opening price.

Over that time the trades made 563.2% total returns.
78% annualized returns.
93.9% win rate, expected win rate was only 84% confirming what a lot of TT has proven. There is your “edge”.

So anyway I am restarting these in 3 smaller accounts, all under $7500 and one with only $1500 with the goal of doubling the account yearly.This most recent year they had 299% returns. I plan to manage it very mechanically but there are other options for those that want to do it differently.

Here are the rules and some guidelines to be consistent and prevent the big blow outs that can happen with credit spreads/Iron condors.

1. This is designed for SPY but would also work on SPX or /ES for those with larger accounts. However other tickers may even be better. I am sure IWM, QQQ, DIA would all work. I will use SPY.
2. 1 trade opened each week, usually Friday but since I am off Thursdays that will be my trade day.
3. Most of the time open an IC with short strike deltas around 16. However may leg in when the market is whippy.
4. DTE 21-56 but most often will be 3 weeks to 5 weeks. I plan on starting 21 DTE.
5. Run it as a ladder, each week will add a new rung.
6. 2-5 points between strikes. Need to have a little room there for adjustments but will also bring in more credit but keep the risk reasonable. The service mostly used 3-4 wide on the strikes. I will use 3 at first to not use up too much margin.
7. Keep enough cash available to make adjustments or close early. You will probably need enough cash to either buy back half of your shorts or add half as many long options between the strikes.
8. Delta neutral hedge when needed to create a back ratio. I personally will be using 2:1 but a ratio of 3:1 or even 4:1 may work depending on how early you catch it.
9. Expiring options that look like they really will close OTM will be allowed to expire thereby saving commissions. However, a lot of the time they will be closed early if there is enough profit.
10. Options that are close to being ITM will be rolled to new series.
11. There are probably 3 ways to control risk when the short option goes ITM but I am using a hard rule for this now. As soon as the short strike is violated I will do 1 of 3 things. This based on some TT research that showed violated credit spreads return to their range less than 2-20% of the time. If the strike is violated, you are probably in a trending/directional market at that point. These also depend on how much time to expiration. If there are a few weeks will go directional. If in expiration week will just shut it down.

A: buy back half of the short options creating a 2:1 back ratio. Then if we keep moving, you make some money from
the directional kick.

B: If I don’t have enough cash for that then I will just close the violated spread. In TOS you can probably set a
conditional order that would get you out for a 1.5-2 x the credit.

C: Add some long options between the strikes in same ratio as A, 2:1. This may be cheaper than buying back
the short strikes. Since SPY has 0.5 strikes would go 1.5 strikes from the short on a 3 point spread.

That’s it. We know this works, just have to control the losses and I think that is the key to success with this tactic. Let’s see how it works again with the hard rules for adjusting.

Credit spread tweaks

EOG STO the 21 DTE 97/98 ccs for 0.23. Cb now 14.41 against a 120/120 and 125/126 put #fuzzy
EXPE STO the 21 DTE 117/118 ccs for 0.20 credit. Cb now 9.43 against a 110/110 put #fuzzy.

It rained over the weekend and my family was busy so I watched a bunch of tasty trade re-runs. 2 things I forgot about. They did a section on defined risk and looked at the number of times tested credit spread returned back to the level you placed the spread. It was less than 2:10 times, actually I think as they looked across multiple occurrences and it was much lower around 2%. So gave me an idea for credit spreads and #spycraft which I will start up again next week after some CC are called away.

I will be very mechanical in adjusting credit spreads now. As soon as the short strike is breached, I will delta hedge it to neutral and create a back spread. Odds improve that if it is breached will not return to that level so at that point you have a directional trade and might as well take advantage if it.

What this means is that if the short strike is breached, I will buy back half the # of shorts calls/puts as the original credit spread thereby creating a 2:1 back ratio. Then if we keep moving in that direction you get the boost from the directional kick.

Probably best to set these up 21-45 DTE so you have some room. A weekly probably would not work as well once ratioed because of the gamma effects close to expiration.

Reading posts a lot of…

Reading posts a lot of us are under water on a lot of tickers. Out on a bike ride I had a thought. Obviously selling below the cost basis a snap back rally you then lock in your losses if assigned.

I have been saying it for a while but have yet to do it, sell ATM call credit spreads. Bring in a little income, if the market rockets upward you are long stock, short an equal # of calls, but then have the same number of calls long or any ratio you choose. No cap to the upside.

Personally I am going to do this on my TQQQ trades with the next roll. Roll down right to ATM and then be long net calls for free.

Probably not the best to do these with weeklies, I would go out 30-90 days to give them some room. Then if you want back in the stock, let your long calls exercise.

As for my losing put #fuzzy, duh on my part, I should be selling CCS spreads all the way down. We reverse and I will back ratio them. The problem is I always do it too late. From now on if I sell a delta 20-30 and it reaches delta 30-50, that is the point I will back ratio and hopefully get a directional kick. If nothing else at least reduce the max loss.

Thoughts? Other ideas?

#atomicfuzzy, #callcreditspread

Lots of trading and work,…

Lots of trading and work, not much profit. The #fuzzy trades hold up well but since I am so far out in time and so far ITM on some of these now, not much income or fast theta decay. Had I known we would be in a full bear I would have unhinged them and would be collecting profits now.

EOG 110/110 puts are now way ITM. Market makers are being greedy. I have an order in to roll the 29 DTE out to 43 for 0.45 credit but no one will take it. If I can’t roll it will reset or shut the entire thing down for about a 6 point loss as it gets closer to expiration. Hoping for at least a little bump in oil prices. cb 14.64
EXPE 125/126 and 120/120 rolled the 15 and 22 DTE out to 36 and 43 DTE for a total of 2.1 in credits. Cb now 9.63.
GILD 70/70 nice bump today. Cb 8.48 and will roll in a few weeks.
MU 35/35 cb 14.80. Getting dragged down further into the black hole by AAPL.
WDC 40/40 cb 19.11 same as MU.
XBI 80/80 cb 13.97
LNG 50/65 cb at 14.54
GILD lot 2 67.5/69 cb 8.9
Most of these are out 15-22 days before further rolling.

TQQQ 50 cc at 57.60 cb. Will either roll to a leap in 2 weeks or hope for rebound. IRA so I can sit on it but would like to be generating some income.
TQQQ lot 2 50 cc 58.10. Same story.
LNG 61 cc expires next week, cb 57.7 and if expires ITM will be first real winning trade in 13 weeks.
LNG lot 2 61 CC cb 58.53 sam as above.

SQ 55.5/55.5/56.5 straddle expires tomorrow rolled down to strangle 54.5/55.5/56.5 for 0.49 credit. Total credit now 2.04 with cb of 53.46 if assigned and no risk to upside.

I really think the jade lizard will be an excellent tweak to the #pietrades and possibly increase returns another 10% annualized. As I unwind some of these other trades will be putting more of these on.

I also need to be much better at directional trading!!!!

As I have said before, the income will not keep up with the drops, as much as the market is a 50-50 proposition, the more I trade the more I realize being right on directional makes a huge difference to the success of a trade and profits in general.

Happy New Year!

Good riddance to trading in 2018. I survived but given the SVXY melt down in Feb. and the last 3 months did not make any money, in fact flat for the year at the same levels I dropped to in Feb. Some accounts up a little, some down but the total portfolio basically flat.

However, as much as I thought I knew I learned a lot more, thanks to a lot of people on this site.

Some fairly decent changes and adjustmentswill be made to my trading for next year. The biggest changes will be changing my directional bias early, always keeping a portfolio hedge (but not until VIX drops and options are cheaper) and bringing in more income with proven strategies.

You will see a lot more #lizardpies using either straddles or strangles depending on the ticker, #unhingedfuzzies, #spycraft will be resurrected but with a hard rule for adjustments based on deltas/gamma, and a lot more synthetic trades to capture directional moves. This may include #riskreversal or outright #synthetics.

Cheers to a new year, new opportunities, and the collective ideas of the group making us all more successful traders!


GILD #fuzzy. Rolled the 70/70…

GILD #fuzzy. Rolled the 70/70 18 DTE out to 39 DTE for 0.56 credit this morning at the open. Cb now 8.48.