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.

SPY 14 May 375/350 BULL PUT SPREAD

The markets moved higher today and the price action is very bullish but CANNOT continue at this pace. Our position with the SPY Credit Spread is 42% in the profit. Still 8% to go and we might hit it tomorrow.

The Rule for Exit:

• Close it when it reaches 50% of Max Profit plus all fees.
• Close after 21 days if it has a profit.
• If it is a loser wait until DELTA => 30% 
• If it is a loser wait until it is a winner

The S&P 500 hit new market high above 4,000! The momentum seems to stall for now. What will be the outlook for tomorrow?

SPY 350 / 375 14 May, BULL PUT SPREAD

I assume the market to be bullish, hence the official name. I would call it a PUT Credit Spread because I sell puts and collect a premium, therefore credit and because it is hedged it is a  spread trade.

But also here the Short Put is far out of the money now and the hedge position even further. Will be a winner 95%.

Month of March

Great Trading. 

Even GM was a wrong entry the stock recovered as expected. The fundamentals are usually playing the melody in the longer song. This trade could have been much more profitable but we take what is offered.

Remember we made a worst case scenario entry! 

BTO $7.31

STC $9.70

Why did we close it? The price action was too big and my guess is it will retrace and then we might buy it back.

We made a 33% Profit on this trade! Excellent.

GM soaring along today. 

The Call option gained big time today. 

Calgary Option Project

 

The truth hurts and offends.

Most people haven't realized it yet but they have the most information and in excess of all information there ever has been accessible before at their finger tips. More information than the whole human race ever had in all its existence. Very few people use it. And most of those who use it think the pure existence of access to resources and access to markets will bring them instant wealth. Others think "Information" is a nostalgic movie on Netflix.

95% of people refuse to learn and refuse to put in effort to reach their goal for whatever reason. What is their goal in life, what is their purpose anyway? They think they deserve a life in instant luxury with the newest gadgets. They pretend and show off that they have it all. They compete over virtue signaling and flashing their "wealth" without showing you their debt level or pawnshop receipt.

Wealth

Real Wealth is a measurement of how many years / months you can live with the same level of expenses. How long can you live without working and do what you want? 

In this regard prisoners are not only the most cared for people but they also are the most safe and "wealthy". But they put this all into the hand of the state. They did not create any wealth but they reduced their expenses to zero. Therefore they lost their freedom. Thus, Freedom to do what you like is internally connected to Wealth. The Freedom to go where you want and the money to pay for it is WEALTH.

But what do most people do?

They tell you that they live in a nice neighborhood but forget to tell you that they are renting a small basement.

They claim to be Gold investors but forget to tell you that their clunkers are uncertified pawnshop necklaces. 

Then there are those who pretend to buy houses and need more space when you know they can hardly pay their rent.

Others seem busy all day long looking into the small screen of their iPhones and they think they have figured it all out. Life is good. 

Others win big and pretend to have a winning concept which makes them lots of money but wont share it with friends.

Then there are people who confuse their opinions with facts because they are too lazy to educate themselves.

All those people are fake and plastic. Sorry for not buying it. 

We will educate ourselves and others. This is the best time in human history beside the threat of the Reds and their socialist /communist agenda and their major three means to topple or kidnap the Free Western World.

• Pushing the Man Made Global Warming Hoax for control and green profits.
• Pushing the Race War for destroying capitalism from within and dividing us.
• Brain washing people with Wokeness, the liberal mental illness at hand to make us confused and weak.

But beside this garbage and the overload of information we probably only need 3% off all available information to succeed if you know what your purpose is. 3% and some hard work. Everything else is background noise.

In this respect, we truly believe in:

• Free Markets, Capitalism as the best to bring wealth and progress to billions of people.
• Small Government because we believe that the people don't need others to think for them. 
• Governments shall make sure that we stay free in all respects, and the playing fields are leveled and laws are the same for all people.
• We believe in free contracts and competition. Free Choice and Free Speech.
• Financial education and taking your investments into your own hands are key to wealth.
• We believe in regional independence and diverse autonomous countries, sovereignty.
• Some cultures are better than others.
• We believe in the God given right to defend yourself, your family and your property with all means necessary. Your home is your castle.
• In God we trust.

We founded the Calgary Option Project.

We scour our world for opportunities. We think we found it in Option trading. We know there are endless opportunities. One for everyone to find. 

• Educate yourself. It costs time and money, there is no short cut.
• Practice live, start small
• Grow slowly
• Become a fanatic in what you do. Be Best!
• Establish a plan, benchmarks and milestones
• Establish mechanics to follow
• Document
• Repeat

Setting up a Bull PUT Spread, AKA PUT Credit Spread, the Money Machine if done right

What Is a Put Credit Spread?

A Put Credit Spread is an options strategy that I use when I expect a moderate rise in the price of the underlying asset, here The S&P500 and its ETF the SPY. This strategy employs two put options to form a range, consisting of a high strike price and a low strike price.
When you sell a spread, you receive a credit for the trade because the Short PUT is closer to the money and hence creates a bigger premium and the HEDGE, the Long PUT is further OTM and hence is cheaper. The sum of the spread is your Premium earned upfront. Like selling car insurances but here we do it for stocks and ETFs. And I am using similar statistics to determine the Price of the underlaying and its deviation from the mean and hence we calculate the probability of losing a trade /winning a trade. 

It is good to have a 90% winning rate on Spreads.

That means I receive cash up front for the trade! Credit spreads are risk defined spreads so my max profit and max loss are both defined before I even place the trade.
Max profit is the credit I receive for selling the spread - you can't make any more money than the initial credit received. Max loss is the difference between the width of the spread and the credit received for selling the spread.

For further reading:
http://tastytradenetwork.squarespace.com/tt/blog/4-keys-to-placing-your-first-credit-spread
https://www.investopedia.com/articles/optioninvestor/02/041202.asp

What happened today

We sold a 370/350 vertical PUT Spread, Expiration May-14-2021 for a $1.68 premium.

This means $1.68 x 100 Shares for one contract. If you traded 5 contracts this would amount to $840.00 premium. These trades you establish on a weekly base and close them after 2 weeks. With a not fast moving market /S&P500 (which is the market) we can constantly turn in a profit on a weekly base.

This number amounts to about 4 time $840 = $3,360.00 a month. With a 3.44% Failure rate, you will see later why, the amount should be reduce to about 96% = $3,225.00. Deduct $6,600 losses, see below for details. It comes to about a 84% total Gain in average!

So now include these trades for not only SPY but also for other slow moving ETFs like QQQ and DJI. Here is your path to a good monthly income of $10,000.00.

With closing the trade we can either wait until expiration of the option on May 14th and they just disappear from our portfolio and we keep the money or we buy them back at a much reduced price due to the fact that the underlaying is moving up and time decay Theta eats away the option price. OR the underlaying doesnt move at all or slightly down and we just profit of Theta. We want to exit in about 2 weeks for a 50% of the max profit. A win/win either way.

Why would we do that instead of letting it run to expiration?

The reason is The success rate is statistically much higher if you close it after 14 days or between 50-75% of max profit than waiting to expiration to squeeze the last Dollar out of it. The daily P/L will go up and so does the Risk / Reward Ratio and the Kelly Criterion which is important to measure your performance as a trader.

How do I determine the Strike levels?

I run historical price data on SPY and all other assets!!! That is the fundamental analysis. We dont pick investments due to feelings or if we like them or due to lines on a graph. This is for amateurs. We pick what makes us money. 

If you like the Casino you better own the bank,

do not play the slot machines. 

When you statistically analyze historical data of the assets you will find out how much the distribution of the underlaying is diverging form a normalized distribution. You will also find out what the standard deviations are and how many times they get hit in the data set.

Statistics are great!! They put the odds in your favor. Since I enter at 3rd Deviation it means that actually my trade will be established at the END of the Deviation. Not the beginning. 

What are the chance to get hit and triggered?

In the data of the past 5 years we find that 3rd Standard Deviation for the SPY (Upside and downside), is only triggered less than 1%. Since the SPY is tending more up and has a positive gain on a yearly base the Deviation is skewed to the upside. 

The 3rd Standard deviation is triggered statistically less than 1% BOTH sides!

If you know a little bit EXCEL and can find your way through formulas this is an easy piesy.

Here we have the Short PUT Entry and the Long PUT Entry calculated. They are at 375 and 350. And since the numbers are a little overlapping the Trigger Rate is a little higher and sits at 3.44%. We can also see if the underlaying moves against our position at average rate it will just slightly hit us after 4 weeks with 377 to 375. Will the underlaying move 4 weeks against us? Very unlikely.

In a Black Swan Event it is likely, like COVID in 2020, Oil Crises in 2013, Housing Crises in the US in 2006, the DOT COM Bubble Burst in 2000, yes. Those events happen every so often. 

What is the Stop Loss Level?

Lets do some math here because if this strategy is all about numbers we totally exclude emotion.

SPY is $400 today and according to our statistics the underlaying can move up in average by $5.00 a week. This is the uptrending black arrow. Since we close within 14 days as a target we shall close at 16th of April, the yellow vertical line. Under average circumstances the price of the underlaying can be anywhere between $410 (Gain of $650) and $390 (Loss of $330) if executed. But then we wait longer if negative!

The green staggered green arrows indicate the 50% of Max Profit mark. We see that the longer we wait the Profit level gets lower and lower. This is Theta, the time decay in an option.

This means if nothing happens and we just wait we will still be profitable at an even lower stock price.

I love Options!!

Our Stop Loss will be at 20% of Max Loss. Here at $11,000.00 it would mean if the trade runs close to our STRIKE of the Short PUT, $375 we bail out with a loss of $2,200. That seems a lot but is not!!

Our success rate is under normal conditions about 97% or more. Only 3 out of 100 trades will generate a $2,200 loss. A total of $6,600. Compare this to 97 x $840 x 50% = $41,000

With all those 3 trades that hit the Strike Level you would end up with a 16% total loss over 100 trades. So whatever your allocated capital is every dollar you would turn into a profit of ONE Dollar and 84 cents! This is a money machine. 

One more important thing is to set up Alarms to get notified if your position runs through a certain level! Very important.

But you will only get it if you are abstract savvy. Think about it.

Max Loses sound gigantic but they just tell the story of  an unprotected position. As when you buy stocks and then you don't put a management or Stop Loss Order in place to limit your losses, your stock can go out of business over night and all your investments are zero. That is a max loss in stocks. Here its similar. 

http://opcalc.com/sJb

These data can be obtained publicly and dont cost anything. You should be familiar with programming Excel though. If not pick the OPTION with a DELTA of less than -0.10 which equates to less than 10%

Thats why in the beginning I deducted 3.44% since 3.44% of trades will be losers over time. Those trades will be closed when they fall through the Strike Level of the Short PUT.

Who is the bank?

I guess whoever understands this and there are not many since we all are so brainwashed and financially illiterate, can make a fortune over time. Most people feel intimidated because it hurts their feelings. I dont care.

If your winning strategy is 96.56% than you are the bank! This is the same reason and comparable to insurance companies. You buy car insurance but dont want to have an accident. But you pay monthly to the insurance company. It is the same here with PUT Spreads. You sell insurance to the asset owner! You earn premiums every time you sell. And the ocean is limitless.