Advanced Options Strategy Blueprint

Transcription

1 Advanced Options Strategy Blueprint

2 Disclaimer Certus Trading Inc. provides education and training services only. The services and materials provided should not be interpreted as investment advice, an endorsement of any stocks, futures, options, and currencies, or an offer to buy, sell, hold or trade stocks, futures, options, and currencies. Certus Trading Inc. assumes no responsibility or liability for your trading or investment results. You assume the entire cost and risk of investing and are solely responsible for any and all gains and losses, financial, emotional, or otherwise, experienced, suffered, or incurred by you. PRIOR TO MAKING ANY TRADING OR INVESTMENT DECISION, IT IS STRONGLY RECOMMENDED THAT YOU SEEK OUTSIDE ADVICE FROM A QUALIFIED INVESTMENT ADVISOR. CERTUS TRADING INC. DOES NOT PROVIDE OR GUARANTEE ANY FINANCIAL, LEGAL, TAX, OR ACCOUNTING ADVICE OR ADVICE REGARDING THE SUITABILITY, PROFITABILITY, OR POTENTIAL VALUE OF ANY PARTICULAR INVESTMENT, SECURITY, OR INFORMATION SOURCE. Please visit our website at to view the full disclaimer. CFTC RULE HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

3 Module 6 Crocodile Condor

4 Crocodile Condor Concept (1) Sell 1-10 Delta OTM SPX Put (2) Buy 1 Put 20 PTS below (1) (3) Sell 1 OTM SPX Call equal distance from current price compared to current price to (1) (4) Buy 1 OTM Call 20 PTS above (3) (4) = (3) Super High Probability For Profit!! S&P 500 (SPX) = (2) - $$$ $0 (1) +$

5 Crocodile Condor How It Works 1. For traders who prefer 100% mechanical trading 2. Time Decay + Low Delta = HIGH Success Probability 3. Enter Crocodile Condor on 1 st trading day of each month 4. Use monthly options closest to 45 days to expiration (1) Sell 1 OTM put option closes to -10 Delta (2) Buy 1 OTM put option 20 PTs lower than (1) (3) Sell 1 OTM call option equal distance from current price compared to (1) Note: this call option will be < 10 Delta (4) Buy 1 OTM call option 20 PTs higher than (3) 5. Put legs will always give more credit than call legs 6. Call legs must give $0.20 net credit or more 7. Hold position till expiration may see interim loss during trade but SPX has a strong tendency to close between short strikes at expiration due to mean reversion and pinning effect 8. Goal is to let all legs expire worthless

6 Crocodile Condor (Results: Jan/13-Oct/15)

7 Case Study #1 SPX

8 July 1, 2015 Case Study #1: SPX (July ) Key Points When Entering Trade: OTM puts have high premium at 10 Delta and monthly options are very liquid this means mid-quote is achievable OTM call options (equal distance to 10 Delta puts) are less liquid and have less open interests than puts and therefore have lower premiums For OTM calls, $0.20 for 20 PTS SPX spread is achievable For market makers it is the overall spread that matters Crocodile Condor should get filled with the above criteria Should attempt to get an extra $0.10 to $0.20 to start, then move down as needed Expect to get higher net credit with higher IV, and lower net credit with lower IV

9 Case Study #1: SPX (July ) Days to ExpiraSon = 50 SPX Price = $ IniSal Credit = $150 Current P/L = $0 Return (% of Credit) = 0.0%

10 Case Study #1: SPX (July ) Days to ExpiraSon = 44 SPX Price = $ IniSal Credit = $150 Current P/L = $30 Return (% of Credit) = 20.0% 6 days into trade SPX moving sideways

11 Case Study #1: SPX (July ) Days to ExpiraSon = 38 SPX Price = $ IniSal Credit = $150 Current P/L = $93 Return (% of Credit) = 62.0% Nothing is happening with SPX this is exactly what we want!!

12 Case Study #1: SPX (July ) Days to ExpiraSon = 31 SPX Price = $ IniSal Credit = $150 Current P/L = $120 Return (% of Credit) = 75.0% SPX retessng swing high but ssll trading in the middle of the condor and nowhere near the short strikes

13 Case Study #1: SPX (July ) Days to ExpiraSon = 24 SPX Price = $ IniSal Credit = $150 Current P/L = $82 Return (% of Credit) = 54.6% SPX right in the middle of condor but profit decreased because IV increased with market decline

14 Case Study #1: SPX (July ) Days to ExpiraSon = 17 SPX Price = $ IniSal Credit = $150 Current P/L = $121 Return (% of Credit) = 80.7% Markets trading in a range and Sme decay is really kicking in now! Today is the first trading day in August which means Crocodile Condor Sme!

15 Case Study #1: SPX (July ) Days to ExpiraSon = 10 SPX Price = $ IniSal Credit = $150 Current P/L = $145 Return (% of Credit) = 96.7% 10 days leg hang in there and let the Crocodile Condor expire worthless

16 Case Study #1: SPX (July ) Days to ExpiraSon = 3 SPX Price = $ IniSal Credit = $150 Current P/L = $150 Return (% of Credit) = 100% Only 3 days leg and trade at full profit! Buy back short opsons if you really can t wait for them to expire

17 Case Study #1: SPX (July ) Days to ExpiraSon = 0 SPX Price = $ IniSal Credit = $150 Current P/L = $150 Return (% of Credit) = 100% Done deal!

18 Trade Management Crocodile Condors overlap and serve as continuous adjustments and recalibration based on SPX price movements Don t care if SPX is in uptrend or downtrend this strategy is about statistical probability and mean reversion The hardest part about Crocodile Condor is having the discipline to take heat Don t leg in calls and puts enter Crocodile Condor as one trade with one net credit Try to get more credit to start off and reduce as necessary to get the trade filled (must get minimum mid-quote for puts and $0.20 for call spread) Try to put in order during first hour of trading (9:30 am to 10:30 am EST) on Friday to get trade filled with higher net credit Trade Crocodile Condor or Fly On Points, not both Don t risk more than 0.5% of your account on a trade

19 Case Study #2 SPX

20 Case Study #2: SPX (August ) August 3, 2015 Key Points When Entering Trade: Call options bid/ask can seem weird at times don t panic Focus on getting mid-quote for put options + at least $0.20 for the call spread In this example: ( ) + ( ) = $1.45 Should be able to get $1.45 net credit Can be more aggressive to start shave $0.05 off each leg for an extra $0.20 credit $ $0.20 = $1.65 If it doesn t get filled after an hour or so in the morning, reduce $0.10 credit If it still doesn t get filled after another hour, reduce another $0.10 credit

21 Case Study #2: SPX (August ) Days to ExpiraSon = 45 SPX Price = $ IniSal Credit = $145 Current P/L = $0 Return (% of Credit) = 0%

22 Case Study #2: SPX (August ) Days to ExpiraSon = 38 SPX Price = $ IniSal Credit = $145 Current P/L = $55 Return (% of Credit) = 37.9% 7 days into trade SPX moving sideways

23 Case Study #2: SPX (August ) Days to ExpiraSon = 31 SPX Price = $ IniSal Credit = $145 Current P/L = $75 Return (% of Credit) = 51.7% The calm before the storm

24 Case Study #2: SPX (August ) Days to ExpiraSon = 28 SPX Price = $ IniSal Credit = $145 Current P/L = $- 175 Return (% of Credit) = - 121% IV increase + big down move

25 Case Study #2: SPX (August ) Days to ExpiraSon = 24 SPX Price = $ IniSal Credit = $145 Current P/L = $- 915 Return (% of Credit) = - 631% Strategy calls for holding posison Sll expirason because we expect mean reversion inside 10 Delta by expirason If you can t hold it, don t trade it!

26 Case Study #2: SPX (August ) Days to ExpiraSon = 22 SPX Price = $ IniSal Credit = $145 Current P/L = $- 673 Return (% of Credit) = - 464% SPX trading right at short put strike

27 Case Study #2: SPX (August ) Days to ExpiraSon = 21 SPX Price = $ IniSal Credit = $145 Current P/L = $- 330 Return (% of Credit) = - 228% Back within crocodile jaws and IV also decreasing rapidly

28 Case Study #2: SPX (August ) Days to ExpiraSon = 9 SPX Price = $ IniSal Credit = $145 Current P/L = $- 365 Return (% of Credit) = - 252% SPX consolidasng for past 2 weeks

29 Case Study #2: SPX (August ) Days to ExpiraSon = 7 SPX Price = $ IniSal Credit = $145 Current P/L = $- 468 Return (% of Credit) = - 323% 7 days leg and 12 points away from short put strike of 1940

30 Case Study #2: SPX (August ) Days to ExpiraSon = 6 SPX Price = $ IniSal Credit = $145 Current P/L = $- 310 Return (% of Credit) = - 214% 6 days leg and 21 points away from short put strike of 1940

31 Case Study #2: SPX (August ) Days to ExpiraSon = 2 SPX Price = $ IniSal Credit = $145 Current P/L = $- 115 Return (% of Credit) = % 2 days leg and 38 points from short put strike - some breathing room

32 Case Study #2: SPX (August ) Days to ExpiraSon = 1 SPX Price = $ IniSal Credit = $145 Current P/L = $8 Return (% of Credit) = 5.5% 1 day leg and finally back in the green

33 Case Study #2: SPX (August ) Days to ExpiraSon = 0 SPX Price = $ IniSal Credit = $145 Current P/L = $118 Return (% of Credit) = 81% IV ssll elevated from August crash far OTM opsons ssll have a small premium remaining on expirason day

34 Case Study #2: SPX (August ) Days to ExpiraSon = 0 SPX Price = $ IniSal Credit = $145 Current P/L = $145 Return (% of Credit) = 100% Bumpy ride to expirason but successfully kept 100% credit

35 Case Study #3 SPX

36 Case Study #3: SPX (September ) September 1, 2015 Key Points When Entering Trade: Minimum net credit = ( ) + ( ) = $1.70 Higher net credit due to elevated IV Try to get another $0.20 for $1.90 net credit to start off on Friday If not filled after an hour drop $0.10 to $1.80 If not filled after another hour drop another $0.10 to $1.70 Hold at $1.70 for the rest of the day and it should get filled First hour after opening (9:30 am to 10:30 am EST) best chance to get filled

37 Case Study #3: SPX (September ) Days to ExpiraSon = 44 SPX Price = $ IniSal Credit = $170 Current P/L = $0 Return (% of Credit) = 0%

38 Case Study #3: SPX (September ) Days to ExpiraSon = 35 SPX Price = $ IniSal Credit = $170 Current P/L = $107 Return (% of Credit) = 63% Elevated IV gives higher net credit and wider crocodile mouth

39 Case Study #3: SPX (September ) Days to ExpiraSon = 28 SPX Price = $ IniSal Credit = $170 Current P/L = $143 Return (% of Credit) = 84% Remember the August 1 Crocodile Condor is expiring today 9/17!

40 Case Study #3: SPX (September ) Days to ExpiraSon = 21 SPX Price = $ IniSal Credit = $170 Current P/L = $152 Return (% of Credit) = 89% Moving sideways very nicely

41 Case Study #3: SPX (September ) Days to ExpiraSon = 14 SPX Price = $ IniSal Credit = $170 Current P/L = $162 Return (% of Credit) = 95% It s October 1! Time to put on another Crocodile Condor

42 Case Study #3: SPX (September ) Days to ExpiraSon = 7 SPX Price = $ IniSal Credit = $170 Current P/L = $167 Return (% of Credit) = 98% Almost there!

43 Case Study #3: SPX (September ) Days to ExpiraSon = 0 SPX Price = $ IniSal Credit = $170 Current P/L = $170 Return (% of Credit) = 100% Done deal!

44 Trade Management Crocodile Condors overlap and serve as continuous adjustments and recalibration based on SPX price movements Don t care if SPX is in uptrend or downtrend this strategy is about statistical probability and mean reversion The hardest part about Crocodile Condor is having the discipline to take heat Don t leg in calls and puts enter Crocodile Condor as one trade with one net credit Try to get more credit to start off and reduce as necessary to get the trade filled (must get minimum mid-quote for puts and $0.20 for call spread) Try to put in order during first hour of trading (9:30 am to 10:30 am EST) on Friday to get trade filled with higher net credit Trade Crocodile Condor or Fly On Points, not both Don t risk more than 0.5% of your account on a trade

45 Next... Module 7: Double Date