High Probability Credit Options

[graydrake]

I have working on an options trading concept for 3 years. The first year was development (mildly profitable), the 2nd year was honing the details on about 150 trrades and the last year the system was used for 204 trades. Results within the system are very good.

System Summary:
1 - the system mandates all the known variables that influence potential success on a trade are pointing in your favor, so the first step is to prepare a list of fundamentally sound (and unsound) companies - my current list is about 150 tickers. Unsound company example - NFLX recently - irrational euphoria which is good, PE 265, analyst projections of average growth over the next 5 years only 8% annually and chart peaking. Conditions which were very bearish, premiums that met my entry conditions, so an entry with a specific upside protection was/is a high probability trade.
2 - review the candidate list weekly for chart patterns with a couple specific characteristics that meet system entry requirements - good week produces 10, poor week none
3 - confirm the fundamental conditions are still present that orignially led to ticker being added to candidate watch list
4 - review credit option opportunity (max 6 weeks to exp) with a focus on two issues. A specific % downside (upside for bear trades) protection based on time to expiration and meeting the minimum annualized return based time to exp, margin req'd and max profit.
5 - Downside/upside protection is the key, so the maximum safety is utilized when minimum annual return criteria are satisfied.
6 - For long term success a trader must measure the p/l of trades that comply exactly with the rules, and also measure the performance of those that do not comply. A statistical omparison of these numbers will make you a believer.
7 - My results are outstanding for high volatility periods and acceptable for low volatility periods. Low volatility reduces the number of candidates meeting entry requirements. Since my system constrains the size of each trade, the level of account cash is high during low periods. Therefore, I do very well in high volatility periods. In low volatility periods my market exposure is down, my return on active trades is equivalent but my cash is always higher, so my net is down.

I spend considerable time on options trading - 10 - 20 hours per week. My net during periods of low volatiliity is only constrained by this time limit. I am looking for a couple of highly process oriented traders to collaborate with me on populating a watch list of 150 companies that most ideally meet potential entry constraints of my system.

I am interested in a closed collaboraton site. I do not know if this can be done on Trade2Win or not. Your requirement to remain part of the collaboration - learning the system and then delivering a stream of tickers which have the required characteristics to meet system entry requirements to a list of companies the collaboration would share. Failure to deliver candidates means expulsion, since I do not have the time to spending time teaching on an ongoing basis.

Anyone interested? If so, please eamil with your experience and your passion for process driven options trading.

Drake

Did not take the time to edit, so I apologize in advance for any typos

 

[Billy Gates]

Hi Gray,

I would be interested in working with you. I have time on my hands and write monthly options on Gold and silver ETF's. Have thought about weekly options but haven't dabbled in them yet.

Not familiar with fundamental analysis but am sure its not hard to learn.

What is your plan?

 

[graydrake]

I will comment on NFLX, which is mentioned in my original post as indicating the system delivered a bear trade on this ticker. The general feeling here at T2W may be that the trade must have failed with NFLX up 50 points in the last 2 days. The trade was a May 235/240 bear call spread, entered a couple weeks ago, in this case my upside protection was 42%, and the NFLX move has only been 30%.

The trade may still fail, but only if NFLX moves up another 19 points. The trading in NFLX still represents irratiional euphoria on the part of buyers, in my opinion, with the PE now driven up to over 700. If speculators were equally irrationally euphoric over AAPL it would be trading at over $31,000 a share - do the math APPL share price times NFLX pe divided by AAPL pe. Would you be interested in an AAPL bear trade if it was trading at $31k/share? I think so.

Drake

 

[graydrake]

I have working on an options trading concept for 3 years. The first year was development (mildly profitable), the 2nd year was honing the details on about 150 trrades and the last year the system was used for 204 trades. Results within the system are very good.

System Summary:
1 - the system mandates all the known variables that influence potential success on a trade are pointing in your favor, so the first step is to prepare a list of fundamentally sound (and unsound) companies - my current list is about 150 tickers. Unsound company example - NFLX recently - irrational euphoria which is good, PE 265, analyst projections of average growth over the next 5 years only 8% annually and chart peaking. Conditions which were very bearish, premiums that met my entry conditions, so an entry with a specific upside protection was/is a high probability trade.
2 - review the candidate list weekly for chart patterns with a couple specific characteristics that meet system entry requirements - good week produces 10, poor week none
3 - confirm the fundamental conditions are still present that orignially led to ticker being added to candidate watch list
4 - review credit option opportunity (max 6 weeks to exp) with a focus on two issues. A specific % downside (upside for bear trades) protection based on time to expiration and meeting the minimum annualized return based time to exp, margin req'd and max profit.
5 - Downside/upside protection is the key, so the maximum safety is utilized when minimum annual return criteria are satisfied.
6 - For long term success a trader must measure the p/l of trades that comply exactly with the rules, and also measure the performance of those that do not comply. A statistical omparison of these numbers will make you a believer.
7 - My results are outstanding for high volatility periods and acceptable for low volatility periods. Low volatility reduces the number of candidates meeting entry requirements. Since my system constrains the size of each trade, the level of account cash is high during low periods. Therefore, I do very well in high volatility periods. In low volatility periods my market exposure is down, my return on active trades is equivalent but my cash is always higher, so my net is down.

I spend considerable time on options trading - 10 - 20 hours per week. My net during periods of low volatiliity is only constrained by this time limit. I am looking for a couple of highly process oriented traders to collaborate with me on populating a watch list of 150 companies that most ideally meet potential entry constraints of my system.

I am interested in a closed collaboraton site. I do not know if this can be done on Trade2Win or not. Your requirement to remain part of the collaboration - learning the system and then delivering a stream of tickers which have the required characteristics to meet system entry requirements to a list of companies the collaboration would share. Failure to deliver candidates means expulsion, since I do not have the time to spending time teaching on an ongoing basis.

Anyone interested? If so, please eamil with your experience and your passion for process driven options trading.

Drake

Did not take the time to edit, so I apologize in advance for any typos

I have not been a regular user of Trade2Win, however, I like the format. I posted this summary to draw some interest in forming a team to trade this strategy. A term is desired for the reasons expressed above.

Having seen little in interest I am close to fishing esle where. is there anyone interested in learning how to get 30 to 75% annual return from a portfolio via some time and strict adherence to a strategy. The summary above is just a summary, I will take the team thru the details if there is sufficient interest.

Drake

 

[graydrake]

Hi Gray,

I would be interested in working with you. I have time on my hands and write monthly options on Gold and silver ETF's. Have thought about weekly options but haven't dabbled in them yet.

Not familiar with fundamental analysis but am sure its not hard to learn.

What is your plan?

Billy

The reason for my silence on this thread is that there have been very few responses. I was hoping to get a few more, prior to going over the details. Is there a process here to get a little more activity on a specific thrread?

If I could get 4 or 5 with interest I would get started.

Drake

 

[NVP]

sounds interesting but not my own particular bag.........

good luck guys
N

 

[fatowl]

Drake, I do full-mechanical systems only, but I can see you have thought this out thoroughly and have live trading experience with it. That's awesome. Do you have an equity curve or some statistics to share? Things like W/L percentage, drawdown, annualized return, etc...

 

[graydrake]

I am leaving town for a few days and only have a minute to respond. I am looking for 4 or 5 passioinate traders to persue this system, not to develop it, but to trade it. This is a selfish pursuit on my part, only because I need more candidates that meet the rules. 905 of the time, I have more cash than candidates - and the system limits the size of the trades, so bigger trades will not satisfy my need.

This is not a mechanical system, but it has rigid rules for entry - so in some respects it approaches a mechanical system.

I enter and track all trades on a annualized return on investment - the formula being profit/margin req'd*365/days in trade. For entry the formula becomes max profit/margin*365/days to exp. My entries must make money even if the ticker moves against me - the degree of this downside protection (upside in the case of bearish entries) is based on the time to expiration, and whether it is a stock or an etf.

Last year I did 204 trades. 89% winners with an annual return of 39.7% on the max imvestment for the year - i have no numbers on average annualized margin dollars but t his % will be much larger. This total includes trades outside the system, which were substantially less successful - using only system trades the annualized return expectation is much higher. Why do I trade out side a successful system - I am working on the development of a strategy that works with low volatility periods.

I have no draw down figures, but I have never gone negative.

Gotta run, if you are interested, follow the thead and see if you are interested in becoming part of the group.

Drake

 

[rsh01]

so, in this central bank ctrl + p propped up equity market ramp - which goes against most
'fundamentals' you use:
fundamental analysis inc....
analyst projections

how about just buy the dips?

g/l.

 

[graydrake]

Drake, I do full-mechanical systems only, but I can see you have thought this out thoroughly and have live trading experience with it. That's awesome. Do you have an equity curve or some statistics to share? Things like W/L percentage, drawdown, annualized return, etc...

For some reason an earlier response does not show up here. So bare with a repeat if you have already gotten it.

I do not use a mechacal system, but the rules are rigid, particularly for entry.

I do not have draw down data, but on an annual basis, I have never gone negative. Since the strategy calls for 20 active trades (2 to 8 wk duration), and the win rate is very high the draw down will be very minimal.

Last in in 204 trades my performance on dollars risked was up 39.7%. This was all trades, including those outside the system, which delivered a net loss. I did not pull out actuals for the system, but it will be above 50%. This year I am 79% annualized. My win/loss ration typically exceeds 90% over time

You may ask why trade outside a successful system. The reason is that I can not find sufficient tickers meeting entry requirements within the system. This means that 95% of the time, I have more money on the sidelines. The stratety constrains per trade size, so increasing trade size is not a solution.

My selfish pursuit here is to find 4 or 5 passionate traders to trade this system -more eyes will identify more opportunities and will increase the number of active trades from under 10 to 20. The system does not require development, so I am not going to be patient with suggestions on change.

The system works in all markets. It alligns all measurements in the traders favor and makes money when the ticker moves against the trader to a predetermined degree. The factors inclued - market posture, fundamentals, analyt opinion, tech analysis of chart and premium available on the options. The downside protection on bullish trades (upside on bearish) depends on the time to expiration. A trade 2 wks to expiration does not require the same downside as one that is 6 wks to expiration. All trades pursure 200% annual return - max profit/margin*365/days to expiration.

Out of time, gotta run.

Drake

Sorry for any typos, did not have time to review.

 

[graydrake]

so, in this central bank ctrl + p propped up equity market ramp - which goes against most
'fundamentals' you use:
fundamental analysis inc....
analyst projections

how about just buy the dips?

g/l.

The basis of the strategy is to allign all the indicators in your direction. This produces a higher probability of success than entering when only some of the indicators are pointing in your direction.

The market whether propped or authentic is an indicator. Fundamentals regardless of the source is an indicator. Technicals are an indicator. Brokerage house projections are an indicator. When these along with others are suggesting a bull entry, that delivers a max profit even if they are wrong (and the ticker takes a 15% pull back), provides an incentive that I find too rich to ignore.

If you are passionate and are willing to follow the rules, keep this site on your watch list. I am looking for 4 or 5 to build a team for success using this already developed strategy.

See notes on the possible returns. Details on entry to follow, if team developes.

Drake

 

[Hakuna Matata]

so, in this central bank ctrl + p propped up equity market ramp - which goes against most
'fundamentals' you use:
Fundamental analysis inc....
Analyst projections

how about just buy the dips?

G/l.

jbtfd

 

[Hakuna Matata]

Howard is a plonker
(Short Gamma)
Doesn't know his exposure
(Short Gamma)
No View on Volatility
(Short Gamma)
Still trades the same strat!

 

[graydrake]

Howard is a plonker
(Short Gamma)
Doesn't know his exposure
(Short Gamma)
No View on Volatility
(Short Gamma)
Still trades the same strat!

"Huh?"

 

[Hakuna Matata]

http://www.trade2win.com/boards/gen...s-month-month-return-march-7.html#post1500406

 

[fatowl]

Drake, thanks for the explanations. It sounds like you have a great system so far. To me, it sounds like you're doing vertical call (or put) spreads on stocks that you're bullish or bearish on. That is certainly a strategy that can be very lucrative. I've seen traders be very successful with it but none with consistency.

I hope you stay consistent and stay profitable.

A 90% win rate is fantastic! Very reassuring. It would be interesting to know what your average win and average loss is in percentage terms. For example, when you enter a position on a stock and you win, what was the average price movement in percentage terms? Not giving you ****. It's just that win rate is only half the story.

 

[graydrake]

Owl

By the way I had a screech owl nesting in one of my wood duck houses last year. These are wild wood ducks, I live on a river in Western Michigan, USA.

I do not keep track of the numbers you referenced. I do, however, track every trade based on the annualized return and the annualized return of my options account (formula in my journal - profit/margin*365/days in trade). My 2012 annualized return of 39.7% included trades in the system (profitable) and experimental trades out of the system (unprofitable). Currently, I am tracking at just over 79% on an annualized basis for 2013 on trades within the system - (total profit/max account value year to date*365/total days in 2013).

You are right win loss ratio is far less important than annualized portfolio return. I have created a new column in my TOS option data that auto calculates annual return based on max profit and days to exp. My rule is that I must get a 200% annual return for a trade to be considered (max profit/margin*365/days to exp.) This rule applies to trades 1 week out or 8 weeks out ( I rarely go over 8 wks). This rule also dominates the decision to roll. If I like the chart for the next month, and I am geting 50% annualize for the balance of this month, but rulling gives me over 200% until the following months expiration - easy decision, I roll.

Incidently, the most important data is my annualized return results for trades inside the system and outside the system. This data always concludes - you are stupid for trading outside the system. MY PROBLEM - FINDING TICKERS THAT COMPLY WITH THE RULES. This is the entire reason for starting the High Probability Credit Options thread. I am always under invested and need addtional eyes looking for opportunities - but only opportunities that meet the rules.

Interested? Perhaps an owl and a drake can get along.

Drake

 

[fatowl]

By the way I had a screech owl nesting in one of my wood duck houses last year. These are wild wood ducks, I live on a river in Western Michigan, USA.

Sweet! Those guys look like cute little ninjas to me. Must be gorgeous out there in Western Michigan.

You are right win loss ratio is far less important than annualized portfolio return. I have created a new column in my TOS option data that auto calculates annual return based on max profit and days to exp. My rule is that I must get a 200% annual return for a trade to be considered (max profit/margin*365/days to exp.) This rule applies to trades 1 week out or 8 weeks out ( I rarely go over 8 wks). This rule also dominates the decision to roll. If I like the chart for the next month, and I am geting 50% annualize for the balance of this month, but rulling gives me over 200% until the following months expiration - easy decision, I roll.

This makes me happy. You are forcing yourself to be disciplined through using hard rules backed by numbers. It's not just "buy if you have a strong feeling" or "buy when price moves too much" or some other nebulous definition.

Interested? Perhaps an owl and a drake can get along.

Fatowl is tempted but simply cannot right now. Birds of a feather cannot flock together right now... If I had 10 hours a week to devote to it, I would. You sound like you have your stuff together and have a great system. Maybe you can hire a virtual assistant to do a lot of the grunt work...? They cost $3 an hour or something.