2017 Strategies
The Oversold Buy Strategy
Once we back-tested the Chaikin Oversold Buy trading signal last Spring to positive expectancy, we added some of our own rules to optimize performance and then live-traded our newly evolved OSB strategy from July - November 2016 (see results). We made 17 option trades with real money at risk, resulting in 13 winners averaging returns of 27.9% and 4 losers averaging a loss of 22.9%. ( We are trading that strategy permanently now. You can track 2017's performance here. I'll update every time I open or close a trade in 2017. None of what I trade is a recommendation to buy or sell. Your results might not be the same as mine. Please make sure you fully understand option risks before trading.
My Results So Far In 2017
July - December 2016
Trading Rules
Stock Underlying Selection Criteria
Money and Risk Management
- Millions of shares of the underlying traded every day to assure options liquidity. Bid-Ask spreads on options should be pennies wide--at most a 10% difference. We import Thinkorswim's Pennywide Options stock watch list into our Chaikin Application.
- Bullish or (preferably) Very Bullish Power Gauge rating.
- Stock is oversold.
- Stock in an uptrend, trading above a rising orange Chaikin trendline. Avoid choppy charts.
- Strong and persistent money flow, preferably over the past 3 - 6 months
- The stock showing positive relative strength against the SPY (hence the market agrees with the Power Gauge). This is the dyamic duo scenario you often hear about on Marc Chaikin hosted webinars.
- Stock in a strong sector and industry group
- No earnings announcement in the next 30 days
- Enter on an Oversold Buy Signal. (Find all trading signals in the User Guide)
- Buy the stock or purchase a long-dated, deep-in-the-money call option. (The holding period for this strategy is short - a month or less.) I prefer to buy twice as much time as a I need for the trade to play out to minimize Theta decay and to buy a call deep enough in the money to maximize extrinsic value and mimic the price action of the underlying stock. For me, that's an expiration from 60 days to 6 months in the future and an option delta of .70.
- The first trading day after 1 calendar month has passed since entering. Or...
- A touch of the upper volatility band
- Power Gauge turns bearish or very bearish.
Money and Risk Management
- We prefer the market conditions to be bullish when implementing this strategy. We use Chaikin indicators to make a daily assement.
- When market conditions are bullish, we'll put up to 1% of our total portfolio net liquidating value at risk in any one trade
- When market conditions are neutral or neutral w/ positive potential we'll take .5% of our portfolio value as trade risk.
- For options, we position size for max loss, even though we exit after 30 days. For example, with a $100,000 portfolio, we'll take a risk of no greater than $1,000. If the contract is trading at $250, then we buy 4 contracts when taking max allowable risk.
- No mor than 2% risk in any one sector, 1% from any one industry group.
- Max 10% risk Portfolio Heat in this directional stragegy. That means no more than 10 trades with 1% risk each to be fully invested.
Spider-Man Strategy ETFs
My Trading Rules
Stock Underlying Selection Criteria
- SPDR ETF's: XLY, XLF, XLP, XLB, XLP, XLE, XLV, XLI,, XLRE
- Subsector ETF's in Chaikin Sector/ETF Tool
- Powerbar ratio greater than SPY
- Stock in an uptrend, trading above a rising orange Chaikin trendline. Avoid choppy charts.
- Outperforming SPY on BOTH a 3 and 6 month basis.
- Make purchases every 2 weeks
- Buy ETF's that meet the above criteria in 5% tranches (ie: purchase qualified ETF using no more than 5% of the portfolio net liquidating balance in any one trading week).
- Max allocation for each sector ETF is no greater than twice the SPY Sector Allocation. For example, as of February 2017, Industrials (XLI) makes up 10.2% of the SPY. Therefore, the max allocation for XLI is around 20%, or four 5% tranches.
- Once about half of the 5% tranches allocated to each market sector are filled with Sector ETF purchases, fill remaining tranches with corresponding sub-sector ETF's
- Example - Financials represent about 15% of the S&P 500.
- Therefore trading rules allow for up to 30% of the portfolio to be allocated to the Financial Sectors
- So I'll fill the first three 5% tranches with XLF and then fill the final 3 tranches the best performing Financial subsector ETF, such as KBE -- which tracks the banking sector..
- The entry rules are exactly the same as for the parent ETF. The parent ETF must have a superior Powerbar ratio than SPY and outpeform on a 3 and 6 month basis in the Relative Strength Analysis.
- Example - Financials represent about 15% of the S&P 500.
- Exit only on designated trading days (every 2 weeks). I don't react to big market moves. This is dollar cost averaging IN and OUT of positions over an intermediate to longer term.
- If any ETF underperforms the SPY on a 3 month month basis, sell 1/3 to 1/2 the shares (or tranches)
- If any ETF underperforms the SPY on a 3 month month basis and Powerbars turn negative, sell 1/2 the shares for sure.
- If any ETF underperforms the SPY on a 6 month month basis, sell 2/3 to all of the the shares (the latter with negative Powerbars)
- We're scaling out at signs of weakness.
- Consider exiting half to all of the position on a Relative Strength Sell Signal. If price falls below a falling Chaikin trendline, Powerbars become negative or Money Flow weakens (turns red), then Relative Strength Sell signal is more significant and all shares should be sold.
I'm going on an Alaska Cruise this summer, and I'd like to trade my way to a cabin upgrade using a classic income strategy. I'll be looking for Bullish to Very Bullish "Classic Bulls" in gradual uptrend. I'll be buying long dated, deep in the money call options on highly liquid stocks, while selling near dated out of the money call options to produce income. This strategy is very similar to buying covered call, but without having to tie up huge amounts of capital on expensive stock. I'll replace the stock with a much less capital intensive call option, and should the market suddenly reverse, my losses will be limited to value of the long call option in a worst case scenario. And instead of 3% to 6% Covered Call returns, this strategy can produce 10% to 20% returns, and with less risk.
I'll be trading my own real money with this strategy. I have about $10,000 to put at risk, and my goal will be to make about 20% between now and July. The market needs to cooperate, or I'll be sleeping in steerage. This strategy only works in up markets, especially because of the one big weakness I face any time I trade long options - Time Decay. In slow moving markets, the value of my call, even though it's long-dated and in the money to minimize Theta Burn, I need the underlying to keep moving up. That's why Chaikin Analytics is CRITICAL to my success.
I'll be trading my own real money with this strategy. I have about $10,000 to put at risk, and my goal will be to make about 20% between now and July. The market needs to cooperate, or I'll be sleeping in steerage. This strategy only works in up markets, especially because of the one big weakness I face any time I trade long options - Time Decay. In slow moving markets, the value of my call, even though it's long-dated and in the money to minimize Theta Burn, I need the underlying to keep moving up. That's why Chaikin Analytics is CRITICAL to my success.
2017 Results So Far
Part 1 - Using Chaikin Analytics to Find the Right Stock |
Part 2 -Executing "Buy-Write" and "Legging In" Trades |
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Rules Coming Soon