Trading Vehicle: options for SPX, RUT, NDX
- short puts and calls, combination short strangles.
- Better profits than Iron Condors but has unlimited risk in theory.
- Calls: 90% probability of success (10% ITM prob.) and above major resistance level
- Puts: 95% probability of success (5% ITM prob.), corresponds to about up to 12% SPX drop
- Usually sell more put contracts than call contracts
- Around 2 standard deviation Bollinger bands
Option cycle selection
- Start with 56 days (8 weeks) before expiration to get wider profit zone and open with 50%+ positions
- Also may adjust with options of same cycle as the starting position for average market conditions
Entry (Legged in)
- Sell calls when market rises
- Sell puts when market falls
Exit (It was not really clear to me at this point)
- Usually exit in a month
- Profit target is around 15% of positions
- Will let further OTM (1% ITM probability) options expire worthless
Adjustments: Use additional capital to keep profits and TOS analyzer tool
- Start adjustments when ITM probability reaches a certain number, like 30%.
- Normally, keep identical profits by rolling up/down/out and selling new contracts.
- Under extreme market sell-off conditions (1000 point drop in DOW JONES average), give up profits of a few month to roll out a couple of months and wait for market to settle down.
- No stop losses, No delta neutralization via call/put purchases.
- Suggested usage of 50% of capital
- With adjustments on, use up to 70/80%
- Large use of capital justified by wide break-even points
- Watch net liquidation values (I'm not clear about it)
Psychology and Mindset
- Trading is a number's game
- Focus on the probability, not P&L.
- Manage trading process
- Losses are acceptable (No fear)
- Lower returns caused by lower market volatility are OK
- Keep rules simple and anything else are noises
Trading Time: Monitor markets during all trading days and hours
Trading Team: 5 traders of similar mind and 1 accountant