Thesis

None of the content anywhere on this site constitutes financial advice. Read my Hello! to know what you're in for. This site is purely for entertainment. With that, here is my thesis.

I think markets generally go up over time. I have a bullish bias. I need to find actions that satisfy this bias.

I think I can find trades that capture a slice of the market as it is going up, in a shortened time window.

I think I can find such trades frequently enough to tilt the odds in my favor.

I think I can execute such trades mechanically.

I think all of the above can be true and yet I may find myself in red, so I think I will need two things to help protect me:

• Management of specific positions to reduce or eliminate risk to capital, including trailing stop losses, and
• Hedge for my entire portfolio to get some explosive payout when the market moves against me.

Inspiration

I am looking to execute on two possibly different trading philosophies.

The first one, which I really love the premise of, but have struggled to adopt, is the Safe Haven philosophy outlined in the book by the same name, by Mark Spitznagel (see on Amazon, here). My loose, perhaps poorly understood actionable insight from the book is that for every $100 I own, I need to use a portion of it for insurance.

The second, which I have recently started to like is the research shared by the Tasty Live team, Enter at 45 DTE (Days to Expiration), Exit at 21 DTE. For me, the actionable insight is - before entering a trade, have a plan to exit the trade at 21 DTE (Days to Expire), or exit if I have made 50% of the original premium. Watch about the strategy here on Tasty Live's site. Having said this, I may still open trades closer to expiry than 45 DTE, or take trades to expiry without managing at 21 DTE even after I have made 50% profit, especially when I want to own the stock.

What Strategies would I limit myself to?

Generally, I would prefer to Sell Options and collect Premium. And considering that I want directional exposure, I may limit myself to following strategies.

• Cash Secured Puts (CSP)
  • Look for 15-30 ∆ (Delta) Options
  • Option expires between 1-7 weeks
• Covered Calls (Hedge)
  • Look for 20-30 ∆ Options
  • Option expires in a week
• Credit Spreads
  • A PUT Credit Spread for times I feel market is bullish enough to not crash far enough down within certain window, a CALL credit spread for the opposite direction.
  • For Put Spreads, look for 10-20 ∆ options. For Call Spreads, look for 15-25 ∆ options.
  • Option expires between 1-2 weeks.
• LEAPS
  • Look for 70 Delta Calls, > 8 or 9 months out.
• Buy Out of the Money Puts (Hedge)
  • Look for 5 to 10 ∆ Puts, monthly or quarterly, such that the annual cost is ~3% across all portfolios

What Stocks would I target?

I need to find stocks that are highly liquid and pretty volatile. I will look for all of the following attributes:

• Not Small Cap, i.e., Market Cap should be > $2B
• Average Option Volume (daily average of option contracts traded over the last 30 days) should be > 300K

What Market Indicators would I consider?

My favorite indicators to bet on:

• Intrinsic Volatility (IV)
• Relative Strength Index (RSI)

I am planning to rank stocks by their IV, look at them being overbought or oversold using RSI, and then decide whether to enter new positions, add to existing positions, or reduce exposure.