Plan




Options trading Strategies

What Stocks Options Do I Trade?

I trade the weekly stocks which comprise of major companies that have a high degree of liquidity.
Picked from the S&P 500
Are diverse covering all sectors

What is my trading assumption for the market and/or my stock

Bullish - Bearish - Neutral
Has the market over extended and due for a “mean reversion”?
Is IV high and about to contract due to an event or announcement?


Trade SPX, RUT, NDX

Strategy of Selling Credit Options Spreads far out of the money using some technical analysis.
Summary
  • A strategy to profit on Theta (time decay) and volatility
  • Rules may be changed depending on market trend and volatility
  • Sell calls or puts or Spreads independently
      • Sell more puts depending on market trends (I use a weekly chart to determine overall market trend)
      • In 2013, maxed out on the put side to sell twice as many puts as calls
  • Sell call spreads with greater risks as market does not crash up
  • The variable ratio of put to call contract sizes allows the strategy to adapt to market trend
      • In 2013, I should have stayed light on call side and to sell calls with shorter period of time (in late Nov I was heavy on Call side and suffered some pain.  
Trading Vehicles
  • Traded SPX RUT and NDX options mainly, sometimes I sell puts in stocks
  • I trade QQQ, IWM, and SPY and do not worry about taxes.
  • I like trading the SPX best - No problems with SPX option liquidity
  • I go to the RUT and NDX when I  need other positions to put on. Long (or Short) deltas are are essentially the same in all three when I try to “balance the portfolio”.  
  • I sell puts in stocks
Sell far out-of-the-money, high probability options depending on market volatility
  • In 2011 & 2012 when volatility was higher (VIX >= 15), sold puts with 2 SD (5% ITM Probability)
  • In 2013 when volatility was low (VIX around 11 to 13), sold puts with 1 SD (15% ITM Probability) to 1.5 SD (8% ITM Probability)
  • Sell calls with 10% ITM probability


Option Cycle Selection
  • 30 days to expiration for calls in general for 2013
  • 56 days to expiration for calls if price can be projected and good premium can be obtained from far above the projected price
  • Use trend analysis including 2 SD Bollinger bands, resistance, and FIB retracements and Fractals
  • 56 days to expiration for puts spreads


Trade Entries Triggers
  • Sell calls spreads for credit when market rises
  • Sell puts spreads for credit when market falls
  • Trades are entered in multiple days around predetermined option expiration days
  • On a Bollinger Band Touch or a Fractal Breakout (reversal soon) when the market is still rising - I sell call spreads and try to “load up” allowing my portfolio to go un-balanced
  • On a Bollinger Band Touch or a Fractal Breakout (reversal soon) when the market is still falling - I sell Put spreads and try to “load up” allowing my portfolio to go un-balanced
  • Because I am using Defined Risk Trades - I do not worry about my portfolio going un-balanced
Trade Exits
  • Actively take profits and risks off the table
  • For options (puts) starting around 56 DTE
    • Close positions if profits reach 50% within 1st 16 days
    • Leave positions on after the 40 DTE neighborhood if they are not closed yet so that they can expire worthless
  • For options (calls) starting around 30 days
    • Close positions if profits reach 20% to 30% or even better 50% in a few days
    • If price continues to rise with 1 week left for call options, then take the calls away and move them to next week while keeping puts on
Trade Adjustments
  • Close out losing trades that have a DTE of less than 14
  • Try to make up the loss either through selling more put or call contracts


Money and Risk Management
  • Use Defined Risk Trades
  • Do not over-manage positions


Psychology and Mindset
  • Control the emotions of both fear and greed
  • Trust statistics and high probability (Use 1 SD or better odds of success)
  • Use structured method and manage positions well
  • Require a high level of confidence and repeatable successes for a long time.


Team Members

  • None

Nadex


3/5/17 Just defining Strategy
Monday - Tuesday

D1 --- Use Nadex Weekly and take arrows near the Zig in direction of the ZIG

Wednesday
4H --- Use Nadex Weekly And take the directional Arrows

All Days
15M ---- Use Daily or 2 hr and Take the directon of arrows

If down Channel and price is in upper - Do a Nadex 20-25 ---- 75 - 80 OTM Down
If in Lower - do a 70- 75 ITM Down.

If UP Channel and price is in Lower - Do a Nadex 20-25 ---- 75 - 80 OTM Up
If in Upper - do a 70- 75 ITM up.

If Level Channel and price is in upper - Do a Nadex 20-25 ---- 75 - 80 Iron Butterfly



Nadex Iron Butterfly



Market Watch

VIX Chart

Upgrades and Downgrades from Marketwatch


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