Our ETF Extremes strategy once again proved that patience pays. The strategy has only been exposed to the market for 36 out of 218 trading days so far this year or 16.5%. This is an amazing statistic considering most people think that they constantly need to trade or be exposed to the market on a daily basis to be successful. We can’t tell you how many times impatient subscribers have written in to complain about the lack of trading in this strategy. To their credit, we did have a three month spell where the strategy did not have any trades and many of our subscribers left during this period. We stated that patience was the key to this strategy, however, in options trading most individuals, sadly enough, are looking for the quick profit. We were not too enthused by the lack of trading ourselves during this period, but our diligence and determination to stick with our proprietary indicators proved to be the right and responsible choice.
A signal was issued in our ETF Extremes strategy on Wednesday. Several of our proprietary indicators were in “extreme” territory, so as a result we sent out the following trade alert to our participating subscribers: Buy to Open SPY Jan06 140 puts (SFBMJ) for $2.85.
Much like our last trade in the ETF Extremes, we were anticipating a sharp move lower shortly after the alert was sent. The market traded sideways for remainder of the trading day so obviously we decided to hold onto our position. The market finally moved sharply lower Thursday and slightly lower Friday and as a result of the move lower, we were able to close the position for $3.30 or a15.8% profit on the trade. By staying diligent and sticking with our guidelines we have had a 100% win ratio (9 out of 9 winning trades)YTDfor a total YTD return of 44.1%.
Of course, we do not expect to keep the 100% win ratio going forward, that would be unrealistic, but we do know that with our money management and capital preservation techniques this strategy will be extremely profitable over the long-term. Our stop loss is usually set at $.35 per trade so it would take quite a few losing trades to move this strategy into negative territory. With a total YTD return of 44.1% we continue to be extremely enthused about the strategy. The combination of our two strategies, Gap Fade and ETF Extremes, has led to total YTD return of 23.9%.
Our returns are based on the baseline model (fixed number of contracts) because we believe reporting on cash basis is a more straight-forward and transparent method of reporting returns. Performance will vary depending on what % per trade you choose with your particular brokerage.
Please do not hesitate to email us with any questions or comments and keep abreast of my thoughts on the market by checking out my daily commentary on the
Blog
.
Kindest regards,
Andrew Crowder
Chief Options Strategist
Crowder Investment Research, LLC www.crowderinvestments.com