Posted by DigiNomad on 15th of May 2023 at 04:07 pm
It's been a printing press. Awesome while it lasts! I was
considering putting on some long delta today to even out my
predominantly short delta positions (I keep hearing bullish
sentiment on here and on TV although everyone says everyone is
negative). But I'm more worried about a trap door opening up to the
downside one of these days than I am worried about the market
crashing to the up side.
DigiNomad, could you be kind enough to post your recent trade
log to illustrate your method? I cannot connect all the pieces
enough to use it. Many thanks in advance!
Posted by DigiNomad on 15th of May 2023 at 04:14 pm
Junkie - this is essentially what I have on the board now. It's
quite unusual for me to be this far out (I usually stay between 21
and 45 DTE) but I already took all my profits in June (twice in
some cases) and I was more comfortable with the levels I was able
to sell in July. I'm constantly adding at short term extremes and
taking profits as a position reaches around 50% of potential
profit. It definitely keeps me busy.
DigiNomad, I can see that these are your current positions. I am
curious about how you open and close them over the span of several
weeks. My understanding is that your open at an extreme high, and
then wait for that position to gain 50% and then close it for a
profit. Then you repeat the cycle. Am I close?
Posted by DigiNomad on 15th of May 2023 at 04:27 pm
Yes, close. A lot does depend on the technical AND fundamental
outlook. Also, If I'm watching the newsletter and Matt & Steve
convince me there's a super high probability of going higher in the
short term, I will add a layer of long delta trades underneath to
buffer a bit (more of a condor approach). This is the first
period in a long time where I've been so heavy to one side. Last
time was probably backi in the bull market days and then I was
heavy on the short put side. My last BIG trade was Friday at
the close where I sold a bunch of 4370 spreads. So, extreme at the
moment, but not extreme on longer time frames....just a bit starved
for action at the moment. I prefer 16 delta for the short
strike (80+% Probability of Profit on the overall spread).
That said, I'm a LOT more comfortable selling 16 delta with a
VIX in the mid 20's to 30 than I am selling 16 delta here.
That's why I see the downside trapdoor as the biggest risk to
my style. The expanding Vol can catch you off guard pretty
quickly.
DiginNomad, is there any reason for delta 16 versus delta 20? I
was taught that delta 20 is good enough, and a stop goes to 3 times
the credit received.
Lastly, how do you define extreme? Wave 5 completed with
divergence? A double top with divergence on 1-hour charts?
Thank you very much for these notes! (aka DN top picking method
:-) ).
Posted by DigiNomad on 15th of May 2023 at 04:42 pm
I prefer the higher probability of profit. I consider myself
fairly risk averse. Also, I took an options and derivatives
course in graduate school but the professor was horrible and I
don't think I really learned anything. I didn't really follow it up
after that with any formal education. I'm basically self taught so
it wouldn't be surprising to find out some of the institutional
guys on here with derivatives experience probably think my notions
are crazy. My biggest influence in options has probably been
TastyTrade and it seems like they stress 16 delta quite a bit (up
there with "trade small, trade often"). Unlike me, they also jump
around constantly looking for the the highest IV on board, no
matter what it happens to be....and they don't believe in technical
analysis (Tom Sosnoff especially). That's where my style diverged
from what they teach. I put my stop (mental) at 2 times the
credit received. Extreme just depends on the present
environment. If I wasn't doing it manually, I would need a better
definition, but for now I'm a manual trader, except for Matt's
systems.
DigiNomad, I learned the bulk of it from Kody Ashmore on
youtube. I am struggling with being profitable on the indexes.
I feel and can money on grains, often on gold but not on the
indexes. Your method resonates well with me, and I am willing to
try with smaller spreads and 45 days out (45DTE) on the weekly
expiry schedule.
You sold your last call spread on wave 5 on Thursday, if I am
not mistaken, didn't you?
Posted by DigiNomad on 15th of May 2023 at 05:09 pm
Junkie, no problem. Keep in mind that you have to establish a
way to size your portfolio. There are many methods. Some people use
theta but I have been successful by targeting a reasonable return
per period and working backwards with the knowledge that I may have
to defend a position, if touched. Which, if I want to keep my
period return intact, involves rolling up or down....but not
out...and adding contracts. In 2022 when the bottom was
falling out, because I started positions at extremes, I never had
to double down more than twice before we got a reversal...but that
wouldn't have been the case if I was selling 30 deltas. My
current target is 24% annualized. That means I have to start with
4% of Net Liq on the board for each months expiry if my intent is
to take profits at 50%. Once you get into defense mode, that 4% can
balloon quickly. During 2022, I was targeting 12% so I only started
with 2% on the board in order to achieve 1% per month. Maybe I was
lucky and now I'm taking too much risk...but I'm always willing to
change as the markets change.
DigiNomad, assuming that you took 4370-4420 Bear CS last
at 4160 on SPX cash index, and the market moves to touch 4230. How
would you defend your position by doubling up?
If the market moves 5 waves down from 4160, you could close your
position for a profit, I assume in order to buy higher again. I
could replace the 5 waves with a measured move from a pattern
(wedge, etc.).
Posted by DigiNomad on 15th of May 2023 at 05:18 pm
It's hard but when the market moves against me hard I try and
take the pain until I actually get touched (as long as it's not
much above 200% of credit) then I roll up to the next 16 delta
short strike and add spread contracts until I'm back to the same
premium level (often a double). It's definitely not the
textbook way of doing it. I would ONLY do it with large, stable
index trades (SPX, but never something like IBB). If you used
this same method with single stock options, you would eventually
get your ass handed to you and break your account.
Posted by DigiNomad on 15th of May 2023 at 05:25 pm
That and diffusion. Because SPX has 500 components, there's not
much chance of it squeezing to the moon and crashes to the downside
are also much less likely to maintain momentum past a standard
deviation or 2...maybe 3, but only on very rare occasions. If
you sell 16 delta on an index and wait to defend until that strike
gets touched, you are rolling at an extreme, by definition. It's
only supposed to reach that price 16% of the time.
The direction is a coin
SPX Daily
Posted by junkie on 15th of May 2023 at 03:44 pm
The direction is a coin toss, and timing is Wdnesday based on Steve's vacation indicator: big moves when Steve is away :-)
It's been a printing press.
Posted by DigiNomad on 15th of May 2023 at 04:07 pm
It's been a printing press. Awesome while it lasts! I was considering putting on some long delta today to even out my predominantly short delta positions (I keep hearing bullish sentiment on here and on TV although everyone says everyone is negative). But I'm more worried about a trap door opening up to the downside one of these days than I am worried about the market crashing to the up side.
DigiNomad, could you be kind
Posted by junkie on 15th of May 2023 at 04:09 pm
DigiNomad, could you be kind enough to post your recent trade log to illustrate your method? I cannot connect all the pieces enough to use it. Many thanks in advance!
Junkie - this is essentially
Posted by DigiNomad on 15th of May 2023 at 04:14 pm
Junkie - this is essentially what I have on the board now. It's quite unusual for me to be this far out (I usually stay between 21 and 45 DTE) but I already took all my profits in June (twice in some cases) and I was more comfortable with the levels I was able to sell in July. I'm constantly adding at short term extremes and taking profits as a position reaches around 50% of potential profit. It definitely keeps me busy.
DigiNomad, I can see that
Posted by junkie on 15th of May 2023 at 04:21 pm
DigiNomad, I can see that these are your current positions. I am curious about how you open and close them over the span of several weeks. My understanding is that your open at an extreme high, and then wait for that position to gain 50% and then close it for a profit. Then you repeat the cycle. Am I close?
Yes, close. A lot does
Posted by DigiNomad on 15th of May 2023 at 04:27 pm
Yes, close. A lot does depend on the technical AND fundamental outlook. Also, If I'm watching the newsletter and Matt & Steve convince me there's a super high probability of going higher in the short term, I will add a layer of long delta trades underneath to buffer a bit (more of a condor approach). This is the first period in a long time where I've been so heavy to one side. Last time was probably backi in the bull market days and then I was heavy on the short put side. My last BIG trade was Friday at the close where I sold a bunch of 4370 spreads. So, extreme at the moment, but not extreme on longer time frames....just a bit starved for action at the moment. I prefer 16 delta for the short strike (80+% Probability of Profit on the overall spread). That said, I'm a LOT more comfortable selling 16 delta with a VIX in the mid 20's to 30 than I am selling 16 delta here. That's why I see the downside trapdoor as the biggest risk to my style. The expanding Vol can catch you off guard pretty quickly.
DiginNomad, is there any reason
Posted by junkie on 15th of May 2023 at 04:35 pm
DiginNomad, is there any reason for delta 16 versus delta 20? I was taught that delta 20 is good enough, and a stop goes to 3 times the credit received.
Lastly, how do you define extreme? Wave 5 completed with divergence? A double top with divergence on 1-hour charts?
Thank you very much for these notes! (aka DN top picking method :-) ).
I prefer the higher probability
Posted by DigiNomad on 15th of May 2023 at 04:42 pm
I prefer the higher probability of profit. I consider myself fairly risk averse. Also, I took an options and derivatives course in graduate school but the professor was horrible and I don't think I really learned anything. I didn't really follow it up after that with any formal education. I'm basically self taught so it wouldn't be surprising to find out some of the institutional guys on here with derivatives experience probably think my notions are crazy. My biggest influence in options has probably been TastyTrade and it seems like they stress 16 delta quite a bit (up there with "trade small, trade often"). Unlike me, they also jump around constantly looking for the the highest IV on board, no matter what it happens to be....and they don't believe in technical analysis (Tom Sosnoff especially). That's where my style diverged from what they teach. I put my stop (mental) at 2 times the credit received. Extreme just depends on the present environment. If I wasn't doing it manually, I would need a better definition, but for now I'm a manual trader, except for Matt's systems.
DigiNomad, I learned the bulk
Posted by junkie on 15th of May 2023 at 04:49 pm
DigiNomad, I learned the bulk of it from Kody Ashmore on youtube. I am struggling with being profitable on the indexes. I feel and can money on grains, often on gold but not on the indexes. Your method resonates well with me, and I am willing to try with smaller spreads and 45 days out (45DTE) on the weekly expiry schedule.
You sold your last call spread on wave 5 on Thursday, if I am not mistaken, didn't you?
Yes, I pulled the trigger
Posted by DigiNomad on 15th of May 2023 at 04:58 pm
Yes, I pulled the trigger a bit early, but it ended up being near the end of wave 5.
DigiNomad, I will paper trade
Posted by junkie on 15th of May 2023 at 05:00 pm
DigiNomad, I will paper trade your method a few times. I may post a few for a confirmation/feedback on this site log. Thanks a lot again!
Junkie, no problem. Keep in
Posted by DigiNomad on 15th of May 2023 at 05:09 pm
Junkie, no problem. Keep in mind that you have to establish a way to size your portfolio. There are many methods. Some people use theta but I have been successful by targeting a reasonable return per period and working backwards with the knowledge that I may have to defend a position, if touched. Which, if I want to keep my period return intact, involves rolling up or down....but not out...and adding contracts. In 2022 when the bottom was falling out, because I started positions at extremes, I never had to double down more than twice before we got a reversal...but that wouldn't have been the case if I was selling 30 deltas. My current target is 24% annualized. That means I have to start with 4% of Net Liq on the board for each months expiry if my intent is to take profits at 50%. Once you get into defense mode, that 4% can balloon quickly. During 2022, I was targeting 12% so I only started with 2% on the board in order to achieve 1% per month. Maybe I was lucky and now I'm taking too much risk...but I'm always willing to change as the markets change.
DigiNomad, assuming that you took
Posted by junkie on 15th of May 2023 at 05:13 pm
DigiNomad, assuming that you took 4370-4420 Bear CS last at 4160 on SPX cash index, and the market moves to touch 4230. How would you defend your position by doubling up?
If the market moves 5 waves down from 4160, you could close your position for a profit, I assume in order to buy higher again. I could replace the 5 waves with a measured move from a pattern (wedge, etc.).
It's hard but when the
Posted by DigiNomad on 15th of May 2023 at 05:18 pm
It's hard but when the market moves against me hard I try and take the pain until I actually get touched (as long as it's not much above 200% of credit) then I roll up to the next 16 delta short strike and add spread contracts until I'm back to the same premium level (often a double). It's definitely not the textbook way of doing it. I would ONLY do it with large, stable index trades (SPX, but never something like IBB). If you used this same method with single stock options, you would eventually get your ass handed to you and break your account.
Yes, liquidity is the key
Posted by junkie on 15th of May 2023 at 05:21 pm
Yes, liquidity is the key here.
That and diffusion. Because SPX
Posted by DigiNomad on 15th of May 2023 at 05:25 pm
That and diffusion. Because SPX has 500 components, there's not much chance of it squeezing to the moon and crashes to the downside are also much less likely to maintain momentum past a standard deviation or 2...maybe 3, but only on very rare occasions. If you sell 16 delta on an index and wait to defend until that strike gets touched, you are rolling at an extreme, by definition. It's only supposed to reach that price 16% of the time.
Do you work on daily
Posted by junkie on 15th of May 2023 at 05:29 pm
Do you work on daily charts or weekly charts for 3 StandDiv's? I would work with 3ATR Keltner channels and a weekly chart for this method.
One standard deviation is equivalent
Posted by DigiNomad on 15th of May 2023 at 05:30 pm
One standard deviation is equivalent to a 16 delta option
ok.
Posted by junkie on 15th of May 2023 at 05:30 pm
ok.
I could try to paper
Posted by junkie on 15th of May 2023 at 05:25 pm
I could try to paper trade with all this information now. Thank you very much, DigiNomad!
And any particular delta that
Posted by junkie on 15th of May 2023 at 04:23 pm
And any particular delta that you prefer for the position? Or merely the most likely high plus 50 points added to it for a spread?