I just joined today and wanted to share what I do for small gain / high predictability trades. I sell SPX credit spreads (weekly and monthly) that have a high probability of success based on the actual % moves for the SPX over the time period holding and based on similar periods of volatility based on VIX. In 2014 I did some overnight trades and weekly trades. Most losses were from the overnight trades so I stopped doing those later in the year. Here are the trades I did to double an account in 2014: https://www.dropbox.com/s/i3sc35t11j0u973/2014 Double.pdf?dl=0 The biggest negative of this strategy is the catastrophic risk when selling a bull put spread (BuPS). I don't like to rely on any trading system to tell me the probability of being out of the money so I use my own data back to 2004 to analyze actual SPX % moves over the time frame I need and then apply that to the current SPX price. For example, at the end of the day yesterday if I was looking for a BuPS next week with about 95% success rate of not having the short strike pierced while holding for 7 days, it would be the 1960 short strike. This is based on all the Friday moves from 7 days prior back to 1/1/2004 when VIX was between 10.5 and 21 (I use current VIX * 1.2 rounded up for the upper VIX range). And I like using a success rate for the intra-period, not just at op ex as intra-period is what would shake you out of a trade. Here is what my data looks like: https://www.dropbox.com/s/946u2v132l7h7rp/SPX Calculator example.pdf?dl=0 I prefer to do both a put spread and a call spread (iron condor) when premiums make sense. I do that on the monthly spreads I trade. For the optimal management / protection, using this strategy for monthly spreads opened about 5-6 weeks has worked well. I can usually make about 4-5% monthly.
No, not Howard. I trade primarily SPX and AAPL. SPX as it is an index and has more protection from any bad news specific to a company. AAPL as it is the company I have traded the longest and know better than any other company. I have a similar spreadsheet for AAPL to analyze how it moves over any time frame. I love to analyze data to find potential option trades. And I'm a spreadsheet "nut" so am constantly making spreadsheets to help quickly analyze the data. I love the ability to stream live data from some platforms into Excel (I use ToS). For example, for my SPX spreads analysis spreadsheet I also have a "live" one I use that also provides current premiums for the spreads I am looking at. Here is what could be considered for an April SPX Iron Condor that pays about $1 credit on a $20 wide spread. http://screencast.com/t/mnaS4aMDKW And I always look at the chart to see how a spread may look based on the chart. For example, this week I had the 1970-90 BuPS and I have an April 1805-1825 BuPS. I am trying some longer out IC's and put on a June 1675-1700 BuPS / 2300-2325 BeCS for $2.10 credit 2 weeks ago. I could close buy it back for about $1.25 now. Here are how my positions look on the SPX chart: https://www.dropbox.com/s/57svv3159a6098j/Screenshot 2015-03-12 12.17.58.png?dl=0
I like to know how SPX trades over all sorts of scenarios. For example, today SPX is up 1%. I have set up my spreadsheet so I can see how SPX has moved any time period after a 1% up day. Here is how it has moved since Sep 1, 2014 the day after any 1% up day: http://screencast.com/t/nFTuKrzGI SPX has had a 1% move 17 times since Sep 1, 2014. 7 times it was up the next day / 10 times it was down. On the screen print above you can see the individual moves. (Note, ignore the words "Op Ex" for low and high close. I usually use this for analyzing moves prior to options expiration. I am a big believer in the more knowledge / data you have, the better your trades.
So all your entries and exits are discretionary, but your go or no-go decision is based on the historical data calculations on your spreadsheet. Is that correct? Do you try to put the volatility levels into context? Such as using the current levels of the VIX as a filter?
Yes, entry / exits depends on what is going on in the markets. Weekly trades I like to enter on Thu or Fri for the following week. If monthly employment report is on a Friday morning, I will wait until that has passed to enter the next week trade. And yes, VIX is a critical part of the success. My spreadsheet is set to extract only historical data for weeks when VIX was at similar levels as the present VIX. I use current VIX plus 20% for weekly trades and VIX plus 30% for monthly. So with VIX around 16 now I would look at past 5 day moves when VIX was below 20 if putting on a 5-day trade. Exits are discretionary depending on what is happening. I had been opening weekly iron condor trades for about $1 credit on Thu / Fri and would close by Tuesday for about $0.40 to keep number of days exposed to a minimum. Lately with big swings in SPX I have targeted smaller credits for BuPS ($0.30) with higher probabilities of success and letting them expire.
Ofc, awareness to what could affect realized vol. So, that 20% or 30% margin is what forces you to sell at a premium. Check. Unfortunately, the temptation to hold to maturity is hard to overcome especially on an IC. Your adherence to a $1 credit must have you jumping around to different strikes as the body expands/contracts due to changes in intraday vol/skew. ToS probably has a very good order ticket. Since your trading far-OTM, is there consideration of the skew which can affect the richness of the premiums?
The 20% - 30% increase to VIX for extracting the prior historical moves proves some extra protection as I am looking at historical periods that were actually a little more volatile than the current period. This year I have been selling mostly SPX Bull Put Spreads (BuPS) for around $0.30 - $0.40 weekly and letting most expire worthless. They usually have $100+ downside protection. And I only sell them if they have about 95% success rate intra-week. Many brokers will tell you the probability of a strike being OTM at expiration. That is not useful to me. I want to know how often the SPX will get within a certain $$ amount of my short weekly strike anytime while holding. That is what would shake me out of a trade. I typically use $30 for my "distance to management". If SPX gets within $30 I will most likely be in a situation where I have to manage the trade. This obviously varies depending on if it happened the day after opening my position versus the last day of holding it, but it works pretty well overall. So I run my calculator looking for 95% success rates of SPX not piercing INTRA-WEEK my short strike plus $30. Again this is based on 10+ years of SPX weekly data and I can limit it to only comparing past weeks when VIX was near current levels. I have a strict rule to close a trade when they are at a $1 loss. So if I sold them for $0.40, I will buy them back if they get to $1.40. This keeps my losses limited to only a couple of weeks of gains. This is CRITICAL to the success of this or any trading strategy. Have an exit plan and stick to it. Take the emotions out of your trading -- which is the hardest thing to learn. This year I have done 10 weekly trades. 9 wins / 1 loss. Total return is at 15% YTD. This is not a "home run" strategy, but one for small, consistent gains. I use ToS for trading and it is very easy to adjust trades / adjust strikes as needed.
Agreed. Adherence to an exit strategy is paramount. That's why I can't make money with IC's on a consistent basis. Also, there is considerable effort in getting the right fills on your trades. I would say 10%-20% pf your return in relative terms (not absolute!). Have you ever considered that you might have a model for trading the underlying? There is less potential slippage. Now, I'm going to have to throw some stones. Succesful strategies like these usually ends up in a witch hunt. Especially, Iron Condor strategies! Your presentation of the 2014 performance will be brought under suspicion. Possibly, claims of rear view optimization of the strategies that were employed during each period. You never took a hit! Personally, it's up to me run the numbers with what you have disclosed and see if I can make (sell) a buck. Thank you for being so forthcomng and welcome to ET.
2015 started out with the first trade as a loss for my attempt at another Double my $$ strategy for this year. Since then they have been all gains: 1 loss / 9 wins and it is up about 15% YTD. After the increased volatility and up / down swings over the past several months I decided to target smaller gains ($0.30 - $0.40 weekly). Here are the results for 2015 so far: https://www.dropbox.com/s/qlu7o9ptq9lvnmz/Screenshot 2015-03-12 21.43.56.png?dl=0 Note that this is a strategy I only use with a small part of my capital... no more than 15% due to the catastrophic exposure. I have a similar spreadsheet I use for trading AAPL (and NDX and RUT) and use that for trading longer term positions and for selling puts / covered calls. One thing I have learned over my years of trading is to "test and adjust". No strategy tends to work forever or under all market conditions. Use a strategy as long as it is working. If it starts to break down, take a break and evaluate why it is not working. Don't blindly stick with it and continue to lose money. So I have tried to build an arsenal of strategies for various market environments. For example, I do very well trading debit IC's on the high flyers (GOOG, PCLN, NFLX, etc) at earnings. Buy an IC right before earnings are released that pays off if the stock moves more than about $10 after earnings. I track how much they have actually moved in the past and stay inside of those moves. Typically make 5-10% on those on an overnight trade.