Transcription
[music] [music] >> NIKKI, NIKKI, WE ARE BACK, SON, on the Nvidia watch. It's down $3. Even the S&P's are up 31. Don't worry, Goldman Sachs is up $10. Uh Apple's up $3.70. MICROSOFT UP 20 CENTS. OOH. Coming for them. Coming for them. They want it, can't have them. Sandisk down 63. Blue Energy up four. It's this in a There are some huge moves. I mean, we were looking at Dow. I just looked at Qualcomm. I mean, there are some huge moves. Yeah, they they they they don't um they don't mess they don't mess around um to the upside here.
No, I I just took I had a diagonal spread in Qualcomm. I was long the 220, uh short the 250 in June. Mhm. I mean, we put this on a week ago at 12 bucks and change, and I just closed at 19. Yeah. I mean, these are just the the moves are just unbelievable. Yeah, the moves are are are violent and and they don't take no for an answer. Yeah. Yeah.
All right. You ready to go on? Let's move on here. We've got ourselves a market measure lizards in the SPX. >> Yeah. I want to tell like like when they're doing short-term Well, let's let's go on with it cuz Jade lizards can be can be interesting with their delta. Usually, before we get to the segment, usually you're putting them on with long delta, right? You're selling a call spread, you're selling a fatter put, maybe you're buying a put below to minimize how much capital you put on, but into the trade as we move higher, they can flip from long delta, maybe a five or 10 long delta, to actually being short delta at some point during the trade, especially if you get a big up move like we had as of late in a short period of time. Yes, for sure. For sure.
So, they they have a dynamic to them that, you know, just because you put them on long and you you're up a couple of dollars on them, $10 wide Jade Lizard, you're up, you know, two, two and a half, three bucks. At that [clears throat] point, if we continue to go higher, not staying sideways, going nowhere, if we continue to go higher, you flip your deltas to negative. You got to do something. You got to either decide to buy back that call spread, buy the whole spread back, or You're talking if you're doing like not not collecting the full width of the call spread. No, I mean, you you can collect the the full width of the call strike. There'll there'll come a time when that call strike. Here, like here, I'll do Oh, if you get like a huge move, you're talking. Like like >> Like what we've HAD LIKE WHAT WE'VE HAD RIGHT NOW. YEAH, YEAH, YEAH. YEAH. YEAH. Go ahead.
All right, short-term management. So, over the past couple weeks, we found the Jade Lizard Lizards have been a natural fit for short-term SPX trading. That's a nice way of saying the market's gone up really significantly and these trades have worked really, really well. Um And I think just generally speaking, people have an easier time being long. And so, when you're, you know, selling a Jade Lizard, you're long delta. Uh you want the the markets go up. It's a pretty easy thing to do. So, the next question is what do you what do we do once the trade is on? How much profit to hold out for? You know, what are we cutting the losses at? Um or or simply to do nothing. Those are the the kind of spots that we're going to look at here. Profit targets are are kind of a familiar tool for increasing win win rates, but taking profits too early and you leave money on the table. We've talked about kind of 25% being uh the sweet spot for most of these zero-day trades. Take off winners, you take off risk as well. Uh you don't want to take off winners too early for too little because then you're you're not you're not getting them enough out of it. Stop Stop losses are more um of a question really for us because they they obviously you can have uh if you have too tight of a stop, you're going to be death by papercuts. You know, sometimes those those trades can come back in your favor. So, stop losses, you know, are kind of a tough question here, especially on zero-day trades. We have leaned towards um you know, being more um >> [clears throat] >> uh putting lesser risk on versus stop losses. You know, just put less risk. It allows you to hold it and and be able to withstand some of the whippiness, especially in the markets uh that we've been trading here in the you know, the the recent time here.
That's right. And so, uh let's get into it. We're looking at short-term jade lizards and just the mechanics behind them. Let's do it. So, the study that we're going to look at, obviously the last 3 years of data in short-term SPX options. That is the data set for zero-day. We did have the um uh Monday Fridays that were the first or the Mondays were the first, then they did the um the Wednesdays, and then they added the Tuesday Thursdays to complete the whole thing. So, we only have 3 years of zero DT data. We're going to look at four sets of parameters on selling seven DT jade lizards. So, we're doing these So, this is a weekly jade lizard. Um we're we actually have an interesting segment coming up for the PDT day on June 4th uh that Kai put together for me. We're going to compare um doing zero DT trades versus, you know, having to do one a week because you you can only get you didn't want to hit the three-day trade limit. So, you can only do one or two a week. And we're going to show just how how much different that is. But here, we're looking at one-week J lizards. We're going to do $30 wide put spread and a $10 wide call spread shorts at the expected move. We're also going to do a 20-point wide put spread, $5 wide call spread shorts at the expected move. And then we're going to do these again the $20 wide put spread with a $5 wide call spread at one and a half times the expected move. And then we're going to do $20 wide with $10 wide call spread with the shorts at half the expected move. So, inside the expected move there. So, we're going to look at one at the expected move, inside and out of the expected move and compare those results. Of course, the data is every 10 minutes. We're going to examine the profitability and the time spent in the trade. I think this is another angle that has been interesting to look at the time in the trade as kind of a factor. And so, we're going to have that there as well. Beautiful. So, the first one >> I mean, I think Liz and Jenny like to look at this and actually do these kinds of trades in SPX. Yeah, they've been crushing it. I mean market goes up, baby. Right. Right.
So, here are the first one, 30 $30 wide put spreads, $10 wide call spreads. This is at the expected move. So, this is probably the more traditional setup, I would say. You have a wider put spread. You know, this is getting more in line with your uh uh risk from like a $20 wide iron condor, right? So, you're going to you're probably selling this at you know, $10-ish, something around there because you're doing a $10 wide call spread. So, you have $2,000 of risk on the downside of this trade. You can see the win rate off the charts here. When you have your profit targets, we have 10, 25, 50, and 75 uh, percent on these profit targets. You can see obviously with the shorter uh, with the lower profit target, you're going to be in the trade for a shorter duration, about 3 days. As you get further down, uh, when you get to like 50%, you're holding this a lot longer. You're you you can see in the the tail off in terms of your duration, right? 3 and 1/2 or 3 days to to basically 4 or 5 days to get to 25%, and then the rest of them you kind of got to hold till expiration. 7 days to get your 75%. If you want that 50%, it's going to take you close to 6 or 7 days. So, you got to basically hold the entire duration to get to that 50 or 75%, and your P&L also kind of kind of tops out, right? Yeah. >> From $97, you go from 80 to 97 to 90 to to 120. It tells you that you kind of get bailed out on Friday. We've had a lot of up Fridays here recently, and I'm sure if we look back at the data just because of the way that P&L kind of goes down at 50% average P&L and then goes up at 75%, it's telling you that, you know, a lot of times you're getting bailed out on stuff that otherwise would have been losing on the Thursday. Um, that's just kind of intuitively baked into those numbers, but it really tells you that your P&L average P&L tails off once you get past 25%. I don't know if the risk is worth the reward at that point there. Yeah. >> Especially when you factor in time. Right. That's that's the problem. Yes. Yeah.
And so, the next slide here we're getting back into the um, $30 wide uh, 10 or the 30-dollar wide put spread, 10-point wide call spread at the expected move. We're talking about stop losses here. So, the stop loss of 100% we're still looking at a 20% profit targets at 25% and a stop loss. So, the one we just looked at had no stop losses and then this is just no management overall and you can see that adding in a stop loss is going to take is going to hinder a lot of your, um, uh, P&L. And that's because your your not a lot with a 7-day trade, you're not allowing that time to really play out, right? So, it took 3 days to get your 25% here with the stop losses, uh, you're you're getting stopped out of a lot of those trades and you can see your average P&L just not that great. Yeah. Yeah. Yeah. Yeah, it's not that great. >> With any of this with any of the stop losses, even if you're doing profit target at 25% and a stop loss at 100%, you know, you're lowering your P&L and increasing the amount of time that you're holding the trade. Yeah, so, it doesn't seem like this would make a lot of, uh, sense, right? No. Yeah. And then no management as well. I mean, you got to do something. The no management it opens you up to a lot of the tail risk. Yeah, well, it opens you up to the numbers, right? I mean, you know, it's it's here everybody always asks, you know, is it a is it a zero-sum game? And I'll always say it's not a zero-sum game, but if you're going to put something on with no management all the time and just let it run and see where it lays, the numbers are going to pay out. You might get 10 in a row that work out for you and, you know, you make full profit on them or a decent size profit on them and then you'll get one or two that'll wipe out all of those returns you just did. You have to manage these at some point. That's the difference [clears throat] about trading and just trying to look at something like where is the edge here? There is no edge. The edge is in managing the trade. Yeah, and this also, you know, cuz we have 3 years of data and it's it's not there is no emotions in the data, right? Um and so these numbers going from, you know, a $100 profit to uh 70 or or $50 profit, you might look at that and say, "Oh, well, it's not that much. I'm taking a I'm putting a stop loss on here. It's going to let me sleep at night." It's hard to do that, you know, moving forward, you might get stopped Uh oh, that was my SPX. I bought in the risk on my S So, I have a butterf- a free butterfly on the upside. Free upside butterfly, right, right. Cuz you did a call broken wing butterfly, which has a synthetic short call spread in it. You just bought that synthetic call spread in as even the S&P's are up only 18, volatility up 10 cents. Volatility has gone nowhere. It is so bizarre that there is no there is no bid in volatility. Yeah, I would have thought it would have stayed bid today. It's only up 5 cents now and now you got the market going lower, volatility going lower. Uh Unbelievable. No idea what that means. >> I I don't Yeah, I don't know what to tell you. This is this is the a weird one. It has been weird. It has been you and you've got oil, I mean, only only up a $1.35. I say only up a $1.35, it's lower than where it was. Bonds are still weak, uh but they're up 10 ticks, one tick. An hour ago, oil was down 50 cents. I mean, oil's That's true. Oil's moving, too. That's true.
Okay, so let's get to the next one here. So, we're looking at now we're getting into the $20 wide. So, the $20 wide put spread, $5 wide call spread. This one is looking at the expected move. We're looking at various profit targets. Again, the same story here. So, if you're putting these on 7 days, you probably want to target that 25% of the max profit. Somewhere between, [clears throat] you know, 10 and 25% is probably your spot because your P&L tails off, your average P&L tails off, and also the duration that you're in the trade, and that's money that, you know, like this isn't a vacuum. This is just one trade. Yes. >> That $2,000 or whatever that you're putting up to put this position on could be used somewhere else. And so, when you're talking about, you know, this is every, you know, doing this on a weekly basis, a couple days you could allocate that towards something else, uh whether it be another zero-day trade or an equity trade or whatever, oil, whatever, some other opportunities. So, that is another in another thing that's not factored into the value of these of these trades. So, you'll see here average P&L tails off as you get um higher profit targets. Also, your days until expiration increases pretty significantly when you go from that 25 to 50% profit target. It doesn't make sense to get the extra $7 and hold the trade for an extra two days. Like, hold the trade 50% longer to get $7, not in not in my book. Not a good one in my book. I I agree with you, son. Not a good one in my book, either. Even the S&P is up 17 and a half, Nasdaq up 74, Russell up 12, and the Dow up 250. They've basically uh taken away about 2/3 off of the highs. Weird. Weird. Totally up 10 cents, bonds are up 10 ticks, they were just up nine ticks a moment ago, and oil up a dollar 30. Here we're looking at stop losses. So, you got a uh various uh stop loss target here. Again, uh they start to, you know, be a problem for your trades here. Uh profit target 25% and the stop loss, again, not great here. No management at all. Um also not as good as just managing the trade. So, again, you want to manage trades. You want to manage trades, that's what it comes down to. Everybody always asks, "What's the key?" Sure, entry is definitely the key, high implied volatility. When you're doing this on a 7-day time frame, volatility is kind of what it is at that point. It's very hard to do it on an intraday basis looking at high implied volatility. So, the only thing you can do here is management. Management becomes key to everything. And we've talked about this at other, um, segments that we've done on zero day. If you don't manage these trades, they they can turn out to be a horrific trade. If you manage them, they could turn out to be quite profitable in a short period of time. Yep. Especially this cyclical market that we've had. You know, you put something on, you know, two days ago with a defined risk trade, you needed today sell off a little bit. We're only up 20 now, but I mean the sell off a little bit to get back into the chips. You have to manage these trades. Yep, for sure. Yep.
So, here we're looking at $20 wide, $5 wide call spread, uh, 1 and 1/2 times the expected move. Um, same story here. I mean, even I I think even more so with the further out of the money options, where you're selling a further out of the money put spread here, targeting a lower profit is going to make even more sense than if you're doing the closer at-the-money like at the expected move or inside the expected move, uh, because the the P&L doesn't change all that much. Here, you see again, you know, your win rates still very, very high. It's been great. The P&L, average P&L, tails off really at 10% any anything higher than that. There you're not getting paid enough in the average P&L to justify holding for a higher profit target. You take your money and run if you're doing these further out of the money uh, positions. Yep. And you can see it in the duration, too. I mean, you're talking about, you know, a couple dollars versus three or four more days of of time to hold that position. Definitely doesn't make sense on these ones. Managing them early, that 20% number. I know they've got 10 and 25 here, but you know, let's let's split it here. I mean, I I would make the argument you can manage them pretty early, earlier than we've been managing them on the daily basis that we've that we've been doing. That 10 to 20% Now, that might mean you need to to trade more than one contract. If you're a one contract trader in SPY and you're doing this in SPX, which is 10 times the size of SPY, and here I am telling you you might have to trade these a little bit bigger, well, managing them makes it a smaller trade. Defining the risk obviously is going to make it a smaller trade, too. But one naked option in SPY is, you know, $7,000, 5 to $7,000 depending on, you know, where you are in there. If you're putting on two of these, you're right around the same amount of buying power. The math works. Yeah. Well said. Thank you. Thank you.
So, the next one here, we're looking at the stop losses. Again, I I I don't see really a reason to put in the stop losses. I think if you're managing these trades for winning trades, you're going to inherently take a lot of the risk off the table, especially if you're doing them in a couple days. It just makes more sense to to not put the stop loss in here for any of these. Yeah. I mean, it's 50/50 one way or the other, right? I mean, a profit They do put on a profit target here of 25 cents or 25% and a stop loss of 100%. And actually It's still good. It's a good one. >> Yeah. Yeah, yeah. It takes about $10 off of your P&L from from memory there. Uh >> Yeah. And it's amazing these trades, you know, have around an 80% pop when you put them on and and that's what the the management win percentage comes out to be. Yeah. I I, you know, the stop what this data is telling you is that you get bailed out on a lot of trades. Yes. The the you know, like in that maybe that changes at that time. >> bailed out from full losses. You may still have a loss, but it won't be a full loss and that's why you're able to have a positive P&L at some point. But your stop loss, you're out you're out before that. That's true. >> like that's that's the the thing here. So like you're you're stopping out, the market's gone down and then over, you know, the the period of time through the rest of the duration, market comes back and that stop loss is on is already been you've eaten that. Yeah. Whereas, you know, if you you didn't have the stop loss, now you're in a profit. It's a huge swing. Th- that said, that has been the market. And so that's not you can't, you know, like looking at these numbers, they're they're awesome. It is what it is though. It's not, you know, you you're not looking at a huge data set here. You're not looking at a huge data set here. You're right. And then the market obviously at all-time highs or close enough to all-time highs, your your your big risk is to the downside with the $30 wide Yeah. put spread versus the $10 wide call spread. So your max loss really is forget about the credit you receive. Let's just call it well, we had the credit of $2,500 for argument's sake. You're never getting that because you're really your max loss has been all to the upside which has been $1,000. Yes. Next slide, please.
All right. So now we're looking at the $20 wide, $10 wide or $20 wide put spread, $10 wide call spread at half the expected move. So this is inside the expected move. Again, this one you know, when you compare this to doing at the expected move, it's it's not better. Like you might as well just do the expected move. Yeah. And from a duration standpoint, you're out of it quicker. I would just do the the expected move. They're all kind of good, but I would do the expected move. I think that's the one that makes the most sense when you look at all the data points from duration to average P&L. Yeah, totally agree with you. Good job. Good job out of you. Good job out of the team. So here with stop losses, again, same story. They're they lower average P&L, increase the amount of time you're in the trade. No brainer. I love it. Takeaways. So you know, these have been successful in general is the is the main take takeaway here. We tried to kind of do a new spin on this one. All these Jade Lizards have been good. You know, the the larger profit targets tend to deliver better P&L for sure. Price placed near the expected move, while the other placements saw similar but faster results by taking 25 to 50%. So you've got to weigh that kind of do I want more profit versus do I want to be out of the trade quicker? And I think overall when you look at the difference between the P&L, it makes sense to take them off a little bit quicker rather than holding them until expiration. Um So this study actually found a way to kind of dull some of the P&L of Jade Lizards into a raging bull market that we've had, and that is to put in stop losses. Because a lot of these trades, they'll go they've they at some point they go against you in those 7 days, your stop loss hits, and you're out of that trade. And by the time, you know, the end of that 7-day cycle would have materialized, that trade probably would have been a winning trade or at least a good portion of them would have been winning trades. That's what the data is telling you here. Um overall, I mean Jade Lizards have just been unbelievable. Who knows if they will continue to be that way, but um if you've been doing them, congrats on your wealth.