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Monday, January 6, 2020

Options Trading Results - 2019

This is about my Credit Spreads/Iron Condors/Elephants trading activity. I also do Covered Call writing and Cash Secured Puts but that's separate, and I call it Enhanced Investing.

Here's the summary for 2019


Twenty positions were closed during 2019, 17 of them were winners and only 3 losers. The losing trades were well under control.

I've got to say it was an easy year to navigate. IF (big IF), if you know how to deal with delta-"neutralish" index options trading during low volatility environments and a persistent bull market rally.

If you traded the typical Iron Condor, with the same risk on both ends, yeah, you got killed. Trading this type of environment requires the following, in my experience at least:

- Trading Unnbalanced Iron Condors, with much less weight on the Call side.

- Trading Elephants, where when the Call side loses, we close it and the credit collected on the Put side is more than enough to make it an overall profitable trade.

- Forgetting about "adjustments" when the Call side is threatened. Just taking the loss and moving on, since there is no good/efficient defense on the Call side.

All three aspects were crucial to be profitable as an Index neutral(ish) trader in 2019.

Now, whether +2K is worth it or not for you. It depends on the way you see it.
I do this trading in an account where I do a lot more than this. But if I had to declare a "size" to this Credit Spreads trading portfolio, let's say it was 10K. Well, it is a %22.07% return. But what I liked most about it is that I barely had to sweat it. No headaches and very low maintenance. I barely had to do anything with most positions. So, it was low stress all year. Most days not even having to look at the positions at all.

When I started active trading options back in 2010 (Credit spreads and Condors)  I thought that was all I needed. It took a while to realize it was a very tough game. It didn't help that we've been in a persistent bull market for a decade. With incredible, persistent rallies, and volatility just crushed for good chunks of time. When "normality" will return, is anyone's guess. By normality I mean the long term average value of the VIX around 20. We've been so far from that for so many years.

The game of trading Credit spreads and Iron Condors is much more effective at VIX 17 - 20. It's like day and night: nice juicy premiums, far far away from the money. And those VIX values, if sustained for months, mean that the market is neither rallying nor crashing, but most likely trading within a range. That's when Iron Condors and Elephants will kill it. But when will that happen again? Well, with such an accommodating Federal Reserved, and a President that is so influential on the markets, and on Fed policies too apparently, it seems unlikely at the moment.

So, in the mean time (now), we have to be extremely careful with the Call sides.
Low volatility. Premiums suck. Call side too close to At the MONEY. Adjustments on the Call side, when necessary, are less than ideal ,just super close to ATM and without offering nice credits.

Therefore, my 2020 approach when it comes to Credit Spreads trading will be the same. Laid back, no Call side adjustments, less exposure. It is an election year, so, we may have some nice volatility along the way, but that remains to be seen.

Cheers,
LT

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