One Day before GDP Release. Whats up with the Qs?

The 28 May 365/385/315/295 QQQ Iron Condor circles between 25% and 30% P/L. If it hits 30% today I will take it off. If it waits until tomorrow for GDP release I hope it will jump up more. But who knows, not me. This is a pretty happy trade with a $8.5 P/L per day per contract. 8 days x 5 contract  = $340.00

Our entry strategy

Our chance to get taken out within one week increased slightly from 2 weeks ago. On the CALL side it is 1.9% and on the PUT side it is 3 %. This means in 3 trades out of 100 our position might be taken out within one week if, if, if we dont do anything about it. This is a pretty safe bet. This is like owning the bank in the casino. You dont want to play the slot machine, do you? After two weeks of flat markets the Deviations are still the same in play. So our chance stay the same! 3% if we have to stay in for another week.

Even though the markets are totally flat as we can see options sometimes work magic. The price of QQQ is $339.00 as it was 2 weeks ago! Still our position gained value! Love it.

We can see that we sold the IC for $2.59 per contract on April 21st and the value decreased to $1.93, which is our Buy Back price if we dont want to let it expire, 25% as of now. We would buy it back cheaper as we sold it. Just a reverse trade. Sell high and buy back low.

What would it cost you to make a 25% return on the ETF if you bought it outright as the banks want you to do?

You buy the shares for $339 and add 25%. Thats 423.75. The difference is $84.75. To make a $340.00 Return on Capital, ROC, you had to buy 340 / 84.75 = 4 shares of a total of $1,356.00 and waited for about 9 months!!!! You would have bought 4 shares on July 24th, 2020 to get the same result. Of course you could have doubled your shares and so could I double the contracts! Same thing. Your shares could have gone to ZERO for whatever reason and bear an 100% Risk value because you can lose ALL your money. My risk with 5 contracts is limited to the Spread minus Credit. The spread between short CALL / PUT and long CALL /PUT are 20 Dollars. 500 x 20 = $10,000 - Credit = $8,705 max risk IF the market hits strike price at expiration. But we do not let it come to this since we have our mechanics to limit losses. Remember? We roll out and we roll up or we sell it. And we calculate the chance of being hit at the 3rd DIVIATION, it is safer than buying stocks outright because you know your limits and gains beforehand.

My Option, the Iron Condor did not cost me anything BUT it generated a CREDIT of 1,295 Dollars on 5 contracts that went into my account!!

Economic Outlook for the next 3 months

My prediction for the GDP coming out on Thursday: 19.5 to 20.4 Trillion Dollars. And here is why

Manufacturing Index, PMI. Finally after the Covid impact in 2020 when all numbers turned red we see a bettering in the employment numbers. While orders in manufacturing is picking up as well as production and lagging employment, suppliers cannot keep up. A lot of back orders and prices increasing due to basic material shortages. Import and Export improving since some time.

Unemployment numbers, Continuing Claims and Initial Jobless claims, are below 12 month average and coming down substantial. Even though they are NOT at pre-Covid levels.

Service Sector is also improving. Nevertheless employment is lagging and so is Customers inventory. Exports and Imports are at neutral levels and backlogs are less than in the manufacturing sector. Service Sector is lagging Manufacturing

Consumer Sentiment Index is increasing and we can see the impact it had in May 2020 after Covid hit. But it is increasingly becoming better. CSI shows where the economy is going within the next 6 months, up.

Building permits are growing fast and we can see the Covid impact in 2020. On the left side you see the start of the housing crises in 2006! Covid is minimal impacting the economy compared to the Mortgage Lending Crisis accumulating in 2006.

The Chinese Manufacturing Index is retracting while the AUD is not following yet. I assume the AUD will follow the PMI as it always does. But maybe this is also an indication that companies are leaving China. I hope they would. China is a communist country and is enemy Number One of the Free World. Shorting Australian Businesses in the expectation of a AUD decline?

All over all the economy will be recovering for the next 3-6 months. GDP is coming out on Thursday 08:30 ET. My bet is anywhere from 19.5 to 20.4 Trillion USD. The Numbers are just confirming or denying what you think was right but since these important numbers are coming out 4-6 weeks after the Quarter they are old. But we can see the RED is building in the S&P500 in the early 2020 and hence is a leading market indicator. Now we also can see the increasing GREEN color and the S&P500 Buy signal for the coming months. The market seems to move full ahead. The growth on the S&P500 is my upper limit and the growth between the two preceding quarters is my lower limit. Here you have it. The markets wont crash the next three months

END OF THE ECONOMY ASSESSMENT FOR 2021

The Apple Credit Play

The Volatility increased a little by about 5.5% yesterday and that made my deals hit target. Our Bear Call Spread, Selling Calls in the anticipation of a small down trend /retracement, paid out. The market is a little more shaky and hence is moving more volatile. Great trading opportunities.

We closed our position at the red candle. Is there more to come? I dont know. Our Call Spread hit 32%. Thats it, target.

The move was not that much but volatility increased as mentioned before and hence PUT prices went up due to the bearish sentiment, and our calls lost on value quickly. GOOD!

The scenario paid out big time. What about next time? We dont know and we dont need to know.

The Iron Condor of the Spider

When I was condensing my thoughts on the Qs the Spider also hit the target and I took it off.

I was still looking at it and then a few minutes later, bang! A third hit today, all good.

• Closed SPY Iron Condor for 32% Profit
• Closed QQQ Put for 10% Profit
• Closed QQQ Call Spread for 34% Profit

Celebration Day. 

Since we have to diversity there is no trade today. We already put up another QQQ today.

• We can not put our trades back to back but wait a few days. 
• Also not everybody should be in the same vehicle. 
• Trade Limit 10-15%. 
• SL 15%

We close the trade at 32%, Great day!

 

The Credit Spread of the Qs and the PUT

Finally the Red Candles came down on us. Excitement of crashing markets? The market pulled back for 3 days on the QQQs. Today after another initial drop it recovered and I closed my PUT since it hit the STOP sign. I closed it for a 10% Profit. We take what we get. Of course it would have been great if the market would have fallen further but hey, who are we to tell the market what to do. It does what it will, all the time. 

Remember we do a Hedge Fund, we dont act like investment banks. They only go long and cannot buy or sell options. We have an advantage and are much more flexible. Remember, since I bought a naked PUT yesterday and was already holding a Credit Call Spread I was bearish. I said this 13 day uptrend cannot go on for ever and must retrace. 

I waited for the market to give me RED CANDLES, please go down a lot. We make money in both direction and even if the market is flat and flatter. Flat like the the Salt Flats in UTAH. We make money. If it doesn't work out immediately it will eventually. 

Our Goal

Our goal at this point in time is to stay consistent profitable. We are in the game to stay, not to win every battle. We will win this war. We do not have any big winning parameters defined. Just a few:

• R >= 1.5. Win Ratio of 1.5. Means for every Dollar we lose we shall make 1.5 Dollars 
• W >= 60%, Winner to Losers to be >= 60%
• Our Kelly Criterion shall be greater than 20. Dont ask, google it.
• Be consistently profitable.

This is our number over a period of 6 months and we are getting there.

• W = 51% winners since I still make avoidable mistakes
• R = 1.43
• Kelly = 17% means only 17% of our total accounts should be in any given trade. We run it at 23% though.

We are more on the strategy of a Guerilla. We attack where we are familiar in the environment and with the means that work and take home what we can carry. We will move into other areas. We are here to stay. We are not here to win every battle because you cannot. We are not here to cash in a certain amounts per battle /trade. This would be an finite game. A finite game has strict goals. I.E. Make a certain amount of money every week. We dont.

• Environment we battle: Mostly liquid ETF (QQQ, SPY) and Blue Chips Stocks (AAPL, MSFT, etc)
• Means: Call and Put Credit Spreads, Iron Condor, sometimes naked Puts or Calls. Very few stocks, only Acceleware
• Other Areas of advancement: Earning Reports
• We take what we can carry: 25-30% P/L on each trade.

The Bear Call Call Spread

The Call Spread hit target gain of 34% and was taken off. The initial down move this morning pushed us through the target. 34%!!! Happy day.

The Standing: 

• AAPL is almost there for harvest, 23%
• IWM needs to grow a little more, 11.5%
• SPY waiting for the trigger, 29.94%

SPY is to be taken off tomorrow regardless of profit as long as there is one.

The Trigger Rule is 

• 14 days on or
• 30% P/L.
• If negative keep it until positive or
• Roll it if DELTA >= 30
• Book a loss if it hits Strike Price

End of the Week, APR 16, 2021

QQQ did not give me two more bear candles yet. Instead it moved further up. The market is pumped up with money from the government. Sooner than later it will collapse. Inflation is looming. You cannot just print money and say, hey, Everybody gets free money. Capitalism just doesnt work like this.

Thus, with QQQ and IWM and SPY rising to new heights our positions are still in the green.

We remember? Waiting on QQQ to hit 331. It didnt happen on Thursday nor on Friday.

All three ETFs hit new highs since three days. See comparison below. QQQ is the least in the money since it is a directional trade. SPY and IWM are market neutral. While QQQ is more a lottery ticket I sold, SPY and IWM are insurances plus lottery tickets. They doing better.

We can see when the entry was and how they moved up AGAINST our position, because QQQ is a short position, a credit spread, contrarian.

I have the feel there is a big retracement coming soon. The market seems too pumped up. The S&P500 is going up since 13 trading days. This are almost 3 weeks!! Never seen that before. One will start closing and then all start selling.

IWM only moved very little. Our profits might be gone when volatility increases. Our short positions become more expensive, hence closing becomes more expensive.

Our positions are still up as we can see in the account. The average wait time for 30-50% profit should be 10 days. As long as DELTA stays below 30% I dont see the need to manage it. Thats what the mechanics are saying, So I expect to close two of the trades next week.

Sell Iron Condor on IWM

Beside managing QQQ and the SPY Iron Condor, TSM naked Call and GM, I sold another Iron Condor from IWM. 

What is IWM? I dont really know. A RUSSELL 2000 ETF. IWM is like a VIN number. Do I really care color, make and model of the car? No. It is just a VIN number, the subject /underlaying of an insurance contract. Every car insurance company writes down your VIN number and let you sign the contract. 

I do the same. I sell insurance contracts against stock value drops and lottery tickets for up movements. Both sides cost money, I write down the number: IWM. As before, it is boring and always the same. Do your distribution bell and determine your Standard Deviation entry Points. Sell it, manage it, buy it back for less or let it expire, rinse and repeat. 

What happens when your insurance expires? The insurance company keeps the premium. So do I. But when I get a good deal I give it to someone else earlier.

QQQ Update on the Bearish Call Credit Spread

QQQ did not generate another Bear Candle today to make our Call Credit Spread a 50% profit so that we could have closed it. Instead it went up by $5.00 and made a new all time high. Our position tanked to 0.6% from 25%. As said before, if it goes 30% into negative, or DELTA turns -0.30 we will roll it up and /or out. DELTA is -0.16. So even with 2 days going against our position now plus a bear candle that gave us hope, our position is still not in the negative! The market went $5.00 against us but we absorbed it. Lets see tomorrow.

Remember: Calls are not always designed to profit from uptrend. Buyers of naked Calls, yes they are. But Sellers like me take the other side of the trade and we are directional bearish, even only for a few days.

QQQ Bear Call Spread Trade

Now today came the candle we were all waiting for. QQQ made a red candle and the price dropped $4.50 the share. 

We were forced to roll our position out in time yesterday and thus collected 200% of the original premium. Our original entry was lower and would have been ATM, at the money now but not ITM, in profit. So we moved it up the food chain and waited for that red candle. We are ITM, in the money now by 25%. If the price drops to 331 both position would be ITM, but our new rolled position makes more profit.

• Selling high and buying low.
• Selling high and letting it expire

I expect that QQQ will drop to somewhere in between the closing of today at 336 and the 20 day SMA, the green line. Lets say 331. My $10 target for this trade. Lets see.

Call Credit Spreads Digest

OK Guys. This post will be the detailed description on HOW to put a small pipe into the huge Market River. We like the steady flow. We will divert waters onto our fields to grow our fruits. The fruits of hard labor. So we dont want to become too greedy and breach the dam or flood our fields. We will take out constant water to make our mango trees grow. The more mongo trees we plant the more water we will take out. One Mango Tree at a time. Only in the Philippines money grows on trees, literally. Thus, we will grow money on trees. Which means it becomes a no brainer. Really!

But I also warn you that you need an IQ of at least 115 to understand what I am going to explain. If you dont have that it will not be impossible but difficult for you. If you have any questions ask my wife, she can explain it well. She comes from a village and has an IQ of 115. If I havent pissed you off yet, welcome to the show. Dont feel offended or maybe yes, please. I write this down to get my understanding together as well. This is all new to me too. But I do the research and spend my time on it. So, it is already digested for you. 

Call it OPTION DIGEST.

For educational reasons we will buy or sell 1 contract to keep a standard. One contract are 100 shares hence you  have to multiply the price of the option by numbers of contracts times 100. Thus, 2 contracts with a price of $1.20 will generate 2 x 100 x 1.2 = $240 Cost or Premium.

Where to start?

We run our example on QQQ. This is one heavily traded ETF but we could use any other one. Out of the data, which can be obtained publicly on finance.yahoo.com we generate a Bell Curve that tells you distribution of the underlaying /stock at any given time and probability of finding your asset price on any section of the curve. This is the most important part of generating your entries. You want to have an estimate of where the price might go and how often. 

Why staying outside a potential movement? Dont we want to gain WITH the trend? NO! We dont. We sell premium trades into the market. We want to cash in on the premium and we dont want to lose them back to the market if the market might move against us. So, we stay away! That is the basic concept.

Do I know where the market goes in the next 14 days? Absolutely not. Do I need to know? No! As I said before I do not care where the market goes. I only care about the speed and that it moves. Dont run me over since I need some time to make decisions.

These are weekly data over 5 years. We see where they fall. You can read the probability that this is getting hit within ONE week. It is as low as 1.9%. We plan to keep it for 14 days only and then we will close it. That time frame will also be very low. If you like more risk go with the 1 Std Dev or the 2nd. Up to you. The mean is at where I opened the trade. 

In the image, Gain / Losses, they translate into gains or losses but actually describing the move of the underlaying up or down, which translates into gains or losses depending on your strategy. Frequency means how many occurrences we have in the 5 year data set. Probability is how often they might appear. And QQQ stands for the stock price at the given deviation. These will be our entry points.

So, you can read at 3 Std Dev that a 7% Price movement, gain or loss, occurred 2 times in a 5 year period and this makes 0.8% of the data sample. To calculate the Hit Rate you have to add the 4th and the 5th Std Dev und that came up to 1.9% for a one week period.

What is a Bear Call Credit Spread?

AKA a CALL Credit Spread. We assume a bearish development, thats why BEAR. Bears down and Bulls up. We create a Spread, this means we have two options, one at the front, our premium, and one at the back to hedge. This limits our total risk and defines the capital needed in the account. It is a Credit spread since we sell it and collect a premium for it, like someone is buying insurance from me. Your car insurance. Do you always make an accidents? No, but you buy insurance. I sell it for stocks. This is my front option, the short call for premium. And I buy a back option, a CALL for some costs to hedge. This is MY INSURANCE. Like the CHMC insurance you must buy to protect the bank when you buy a house. The difference is the bank puts it on your mortgage payments and I pay it myself. Got it?

What is the goal?

As previously said we sell premiums and we want to keep them outside of the movement of the underlaying, below or above the Strike Price. This gives us the profit.

There are three scenarios.

1. Best Case scenario. The stock price falls and the Call option loses on value. The deeper the price falls the less value for the option, the better. I sold the Spread, buy 380 Call and sell 360 Call, for a $149 profit. 360 is the strike of the short call. I am short on it, I owe it and have to buy it back. 380 is the strike of the long call. I am long, I own it, I can sell it. Now when the price of the underlaying, here QQQ, drops both Calls lose value, the short call, closer to the current price loses compared to the long call, further from the current price, its value in a ratio of 3/5 and both might end up at $75 total. Just to pick a number.
   
   My short Call, the one I owe, becomes cheaper to buy back.
   My long Call, the one I own, will also lose money and I can sell it but for less. But all together gives me a profit, always.
   
   Then I Sell 380 and buy 360 and have 149 - 75 = $74.00 per contract. Turn around time in average 14 days. This is about 50% ROC on the trade. Do it twice a months. Sell, buy, profit, rinse and repeat.
   
   
   
   
   
2. Second best scenario. The market stays where it is and does not move much. It does not reach the strike price until expiration. The market is flat and has little to no movement or goes against me but not too far. Then we simply wait and let the option expire after lets say 45 days, the option simply will disappear from the account and we keep 100% of the premium. 100% profit. The disadvantage is that we have to wait a period of time without being able to use the capital.
   
   
3. Worst Case Scenario. The market moves against our position, the price goes up. My Calls getting more expensive and it will be more expensive to buy them back, loss. Or they threaten to hit the Strike price, max loss starts to become reality. 
   Thus, yesterday I was waiting for the market to turn around. It didnt. Now we have 13 trading days as an uptrend. This is not real and very, very unlikely but we see it happens. Can we predict the market? No, and I dont care as I said.
   After our position accumulated a 30% loss I rolled it. YEAH! You ever heard of rolling stocks out or up? Of course not because you cannot roll a stock if you are losing money. 
   
   
   Imaging to roll your stocks back into profit if they lost some value.
   
   Go and ask your banker how to do that. Maybe ask your Mutual Fund manager at the bank. But we can roll options! That is the lovely thing about options if you understand them. And I am getting there.
   
   

I bought back my position for a loss. Exit price of $2.02 = minus $202 exit + $149 entry = $53 loss, almost 30%. Now that I bought it back I used the same strike and added 14 days to the position and paid my fees. It is a Rolling Order to add Time or to change Strike Price of your position, which results in additional profit. Ask your banker how to roll stocks back into higher profit.

Now we ended up with more premium, $307 per contract. Deduct $53 and our position turned into gold again. Plus $254 now. More than before since the price action of the stock also drove the prices up for the further dated Calls. And on top of this, our cost base is better now too. We still have the same risk since we didnt widen the spread, it is still 1 x 100 x $20 spread minus Premium.

• In the beginning the max loss per contract could have been 1x100x20 = $2,000 minus $149 = $1,851
• Now with the rolled position our max loss per contract got reduced to $2,000 minus $254 = $1,746
• This also generated a better Break Even Point. So it is a winner never the less.

What did we gain in our worst case scenario?

We made money, our position is up. We collected more premium. We reduced our max loss potential and we got a better break even point, we bought time.

1. The best case scenario would have generated a 50% ROC within a short period of time, voluntarily.
2. The second best scenario would have generated a 100% ROC within a longer time period, voluntarily or forced by the market.
3. The worst case scenario would have generated more than 200% ROC of our original position within any time period, forced by the market.

Will the market come down today? I am not sure. Probably it will. If not we will roll it again. Our Strike is still $20 away and needs about two more weeks to reach it if it runs higher and higher with this speed. This is very unlikely. We just wait for a turn around and collect more premium on the way. If it hits 30% or 40% loss again we will roll it OUT for 14 more days. We can let it gain some more losses and hence our roll will be more lucrative.

There we have it.
And if this is not good enough we will also roll it UP. This means we will put our Spread again further out of the money, OTM. We just move it up and out and out and up! UNTIL. Yes, until the price comes down.

Another option is to create a Bull Put Credit Spread on the other side of the price for a premium out of nothing with the same expiration date as our Call Spread. Thus, we would collect an additional premium, converting our Call Spread into an Iron Condor. I love options!

In order to compensate for the fees involved and the $53 initial loss the stock needs to fall about $5.00 to cover all. Our goal is to close this position anywhere between a 25-50% profit. This is the $307 premium collected divide by 100 equals a 3 Dollar, 50% of it is $1.50 move down on the option. With an DELTA of -15 now for the Position, which means for every dollar the stock moves the option moves $0.15. So we need roughly a $10 move in the stock to make a 50% return.

So the final question is....

Can QQQ drop by 10$

Can it drop from yesterdays close of $341 to $331? Or do we have to roll it first? Or do we have to see it winding down over a few days? This will only the market tell you. Either way is good for me.

Thus, this is the water pipe I am talking about. I do not care where the market goes, up or down or left and right. Sit there or move. Even if the stock price doesnt move at all the option will decay over time. This is the THETA value. What can you do with stocks?

Let me ask you this questions and think about it for a second

1. What do you do when you think a certain stock goes up? You buy?
2. What do you do if the stock goes down? How to take advantage of it?
3. What do you do if the market doesnt move at all? Can you take advantage of it?
4. What do you do if the market crashes and threatens to wipe out your holdings?

One thing about Bear Call Credit Spreads is that my position also wins if there is a terror attack and the market crashes like on 9/11. This is also true for another Black Swan event like China's Covid19. 
Why? Because the stock prices will collapse and drop as they did due to panic. My calls will be ready to be bought back for nothing. PUTs will be very expensive and so BULL Put Credit Spreads! The markets might be closed for a few days. My calls will be immune.

Thus, this strategy is good for market crashes. Your stocks or ETFs can be wiped out over night or lose tremendous amount of value. ETFs never go up endlessly over night because they are a basket of stocks.

Are you ready for a crash?

If you came thus far, congratulation! You made it. You can ask me questions now. If you didnt, what the majority will be then your IQ was not high enough and you lost it on the way. Or you are satisfied with your current situation and money flow and that is totally fine. Maybe this is simply not your thing, totally fine. I respect that. There are thousands of opportunities all over the place. You will find yours. 

How far down the Rabbit Hole you want to go?

After having a great last week and an eyeopener on the weekend we are continuing to enhance our Game. My principles.

• Whatever you are doing, be best, Melania Trump. Be the best in your field.
• This requires a lot of work and learning. Thus, dont be lazy and dont be mentally sleepy.
• You cannot cut corners on education or experience. You have to pay your dues.
• You need to be a little bit technical and analytic. You must love Numbers and have a basic understanding of Excel. Be less human helps a lot.
• You must fanatically fall in love with the subject matter.
• You must change your life for without you will continue to do what you did so far. 

I was asked more than two times now if I can teach. I cannot because I am not ready yet. Will I teach? Probably not. Maybe in schools to light up financial illiteracy. Can I give guidance? Yes, one time. You do what I suggest to you. If you cannot follow through dont ask me any further question. Dont waste my time. You have to proof yourself to me, not me to you. I am fine. 

I am way ahead down the rabbit hole and I love it.

While it is true that all the information you need is out there at your fingertip it is also true that you only need about 3% of it and the rest is background noise and distraction. It is NOT a get rich quick scheme even some people want you to believe it. Most beginners, as I in the beginning 10 years ago, have the need for the feeling of getting out of the Rat Race, QUICKLY and they long for that feeling of: Finally I found it, Trading. You can be a genius in no time. Yes, of course. 

There is the HERO to ZERO Rule. 90/90/90 

90% of traders, lose 90% of their account in 90 days. I have done it too.

Those who long for that Hero feeling will feel attracted to all the charlatans that are out there on the Internet selling to you what makes you feel good. They are selling your dream back to you. 

Yes, you need a mentor or pay for the "right" courses. Those who think they can develop it all by themselves think like the burglar who thinks he is smarter than the police or surveillance cameras. The novice trader thinks he is smarter than the market and the professionals. The Finance Industry has history, you dont. You are no one, darling.

Then there are those who make thousands of Dollars for a while despite they have no fundamental analysis. Luck runs out one day. Some people are looking at lines and candle patterns all day long, like the Oracle telling the future after throwing in some bones. 
All of them have no clue what the difference is between gambling and trading. The dumb money. And of course there is the lucky dumb money too. Some people are lucky risking all their money to make a fortune. I have seen it, been there, done it. I lost a fortune. Not my style anymore. I learnt. 

I spent about 1,000 hours on education since beginning of January, 10 hours a day, every day. If you think I can show you a trick and you copy it, you are mistaken. If I knew I would make you pay a lot.

One sort of people I do not like at all: Gold Diggers. People who are looking for the quick buck and are too lazy to work for it. 

One thing you cannot do without is support. You must have a wife that supports you without hesitation and questioning. You need to clarify and discuss the issue what if you lose it all. Will there be fight if you cant do it or if you run out of luck? You have to be totally open to your spouse and even show her what you did and planning to do. Over time they will learn. My village girl will be able to explain to you what a Bear Call Credit Spread is and what Deviation you set it up best! She will also tell you at what distance we put the Hedge and what it looks like in various instances. She can explain the skewness to you and how important the mean of a dataset is. She is really smart! I am so proud of her. She cant program though but that is a minor.

I am so proud that I am married to my wife who is super supportive and loving. In the very sense of the sentence, yes, she promised to make this marriage unforgettable for me and the best time of my life. I can feel it! Without her this would not be possible! She is the foundation of it all. I love you honey!

Now I can say it, and I will show what it is all about later, I cracked the jackpot. Not the floodgate but a crack in the market, which pulls money away from it. Like a little pipe you put into the river to water your fields. You dont flood them.

Lets continue the journey. I am still looking for a name of this project.

By the way, can you imagine this 5'2" of 90 lbs tiny girl jumps onto a 200 lbs 6' black 20 year old criminal kid, beating him up as much as she could and then obtaining injuries of it? She is a fighter. She takes no prisoners if you attack our family. Guaranteed. She is good now. Thank you Lord.

Analysis of a few ETFs and what the Distribution Curve means

Who can tell what the market will do tomorrow?

Stay away from the believe that lines in charts run the underlaying assets or that they can predict the future. The future is unknown. I dont know what the market will do tomorrow. I actually do not care. If it goes up or down or nowhere. But we can put the odds in our favor and that is how you make consistently money in the market. You take little bites here and there. Thats why I love options. They have uncountable combinations and limited risk if you do it right. 

Remember, we want to own the Bank on the Roulette Table.

We dont want to put the chips up on Black or Red. 

What do Distribution Curves tell you? Is it just stupid math? 

Ones you figure it out and can insert the data it shows you very clearly what to expect and what stocks or ETF to buy, to short, to credit Spread Trade. Here are a few examples I generated today and last night.

I compiled 5 years of weekly data from Yahoo Finance. Deriving the standard deviations, statistics of the mean, max and min and skewness. Spread Trades I do on weekly data sets and daily charts as the lowest time frame. The weekly data are good for a month and dont even have to be updated every week since the market stays within its usual parameters. 

Each asset has its own characteristic and attitudes. Like little teenagers with attitudes and good and bad habits.
And you see it in the analysis. GM for example has many more days doing down and not up. IWM is all over the place and runs up with the same speed as down and it wont stop doing it. QQQ has huge tail ends to the upside and tend not to go back that often. 

And I dont care much what a stock does during the day. My earnings will be calculated on Happy Fridays. And then I have alarms set for each trade to give me a warning in order to look at it, and a You-Must-Act-ALERT. Other than that my trading is mostly Excel Spread Sheets.

I am bringing this trading down to a very boring mechanical level. Just numbers and numbers.

ETF Review

This one will not make your money grow fast since the SPY is THE MARKET. It is a little leaning positive and the tails are considerable. Credit Spreads working pretty well here since 95% of the time everything stays within the 1st and 2nd deviation, the tail ends.

This is the DIA, the DJI market index ETF. The PUT side is flatter and hence more appealing for PUT Credit Spreads. Also this one wont make you big money if you bought it.

This is the QQQ. Nice to buy if you want to be a little bit better than the market. Great leaning to the upside with huge tail ends

This one is the IWM ETF which is all over the place. Seems to go up greatly and then also collapses with the same speed. I wouldnt buy it nor doing any spread trades on it.

This is TLT. Nice confinement. 97% it stays WITHIN the 2nd Std Dev. Only 3% of the time in the past 5 years it moved outside. Then consider that the Deviations means both sides! Only 3% in general it went outside BUT this means about 1.67% it hit the upside and 1.33% the down side. If you put your spreads here you run the bank.

Thats one way you analyze an asset. You use data. With the data you can also predict the weekly movements and the expected return in any given week, hence months and so on. 

Update Consideration on the Iron Condor

Even we can see that at the 2nd Std Dev the Short Call has only a Trigger rate of 3.16% and the Short Put has a trigger rate of 2.18%, we will NOT take this trade due to the fact our trade MUST have a DELTA of 10% or less. This is considered roughly also the possibility to be ITM but it is the rate of change in reality. For every Dollar the underlying moves up or down the option moves by 10 cent. Since we selling a double spread for a collectable premium we dont want the option to move too much since time decay THETA works in our favor.

The DELTA for the 2nd Std Dev is 20% and too high. We close or roll at 30%.

Here we can see what DELTA means. It is always negative for the PUTs and positive for the CALLs. a -0.0947 means 9.47% and -0.02045 means 20.45%. We need the 10% Criteria filled and a 20% is a no, no!

Here are the Strike Levels in the Daily Charts

And there goes the order

Tomorrow is Iron Condor Day

What Is an Iron Condor?

An iron condor is an options strategy consisting of two puts (one long and one short) and two calls (one long and one short), and four strike prices, all with the same expiration date. The iron condor earns the maximum profit when the underlying asset closes between the middle strike prices at expiration. In other words, the goal is to profit from low volatility in the underlying asset.

https://www.investopedia.com/terms/i/ironcondor.asp

Before we do that, remember to determine the probability of the trade to go south. We also have to determine the Standard deviation of the underlying /Stock. Options are DERIVATIVES. Their value derives from an underlaying assets, the stock or something else. It is a contract with obligations and rights between buyers and sellers if exercised. This is what we trade for the most part.

Tomorrow

We determined our Entries for the Short legs of the wings. 3rd Standard Deviation or a DELTA of =<10%

We collected our data from 5 years back and run them in Excel to determine standard deviation and probability of the trade. 

Remember, we want to be the bank in the Casino. 

We want to make the money.

We dont play the slot machines and rely on luck.

We have our "visual" Distribution curve with the Deviation, the mean and skewness, our statistics of the data sample.

Yes, we do our data on a weekly background! Then Excel will tell you everything else. What Call to buy or sell and what Put to buy or sell. It calculates the Premium collected. Here a $1.62 per contract times 100 shares. So 5 contracts make you $810.00 on contracts. Since the price at expiration cannot be on both strikes at the same time one side will always win. The 3rd Standard deviation also guarantees you with an average moving market up or down or sideways to make your money. Here the Short Put Strike has a chance to get triggered of 0.78%!

Why is this significant?

It means that out of 100 trades only less than 1 trade will hit the strike in an average market. 99 trades will make the total amount. At the strike the trade is not lost yet since the other side is much in the profit. We can either close it for a small loss and move on or we roll it out into the next month and collect more credit or we roll only the untested side to stay in the profits. There should even less loser then. 

We can also generate predictions what the average price of the underlaying should be if the market goes bad for 2,3, or 4 weeks in a row. This is indicated by the Avg Worst case Up or Down trend. We see that an average moving market will never hit the strike even after 4 weeks. We plan to hold the position for a max of 3 weeks and then close it for whatever profit. Of if it hits 50% profit before we also close it and establish a NEW position with new Strikes! So we also always stay out of trouble and the bank turns in money on a weekly base.

With the Volatility Index VIX we see that the markets are going up quite well. VIX is down. It was that far down last February 2020 before the Black Swan event, the China Virus. It is sailing much below the monthly average, the orange line. Very good environment for Iron Condors.

Thats it! Simple. No guessing involved. Only numbers and probabilities to consider. Stack the odds in your favor.