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Posted by Martin June 01, 2019
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May 2019 financial freedom report


May 2019 is over. For many this month was very difficult and a lot of people lost money, that was at least, what I have read in Facebook Groups. Of course, there were savvy traders and investors who made money in this volatile market. I made money too.

In this month I met the goal as planned. I was very careful to follow the plan and trade as described in my goal plan. Following the rules strictly helped a lot to no lose. Although, the end of the month was very shaky and I was very afraid of what the outcome may have been, I started even panicking at some point and started adjusting my last week trade too much. I noticed that and stopped doing it. Sometimes, it pays to really do nothing but it is easy said than done.

 
May 2019 results:
 

In May I stuck to the rules to the tee! No rules broken, no violations! I started also trading increased number of contracts. My first month going with 10 contracts and going up to 16. It was scary at first. I was well aware that increasing the contracts would bring more premium but also wipe out more of the previous gains should the trade go bad. But that was a risk I was OK to take to grow my account into independence.

I learned another thing which at first I considered negligible – fees. Once I started trading larger amount of contracts, I realized that with the fees (even though low fees compared to others) I will not be able to meet my goal as planned. I had to adjust my minimum premium to account for the fees if I wanted to stay on track. So I decided to increase the minimum premium collected to 0.35 from 0.30 a contract.

 
Monthly long term trading strategy
 

Another adjustment to the trading was adding a long term Iron Condors. I decided to split the buying power allowed to trade between the short term trades (3 – 4 DTE) and long term trades (50 – 60 DTE). But the traded buying power of both combined trades shall never exceed the total allowed buying power.

Here is how I will be trading those long term trades:

1) DTE shall be 50 or more.
2) The IC width shall be 25.
3) The collected premium shall be $3 or more, the more the better (12% of margin)
4) The short delta 10 or less as long as collected premium is $3 or more. If a premium at delta 10 is less than $3, increase DTE.
5) Adjust the trade up or down if any short strike reaches delta 30.
6) Close the trade to collect minimum of $1.25 or more (5% of margin).

Here is an example of a first trade I opened in this manner. My goal is to hold this trade no longer than a month. That means, I want to be opening this kind of trade every month. If it cannot be done, I will probably stop trading these long term trades. I do not know yet.

The adjustments for these kind of trades will be only rolling the tested side (delta 30) down or up and moving the untested side closer to offset any debit needed to roll. But, as soon as the trade reaches the minimum credit, I will be out and immediately opening a new trade.

 

Here are the results:

 

In May 2019 I met all goals as planned:

1) Starting value was as per the plan
2) Number of traded contracts was as per the plan
3) Monthly premium collected exceeded the plan (the plan was $1,680.00, collected premium was $2,690.00)
4) Monhtly deposits slightly exceeded the plan (the plan was $2,600.00, deposits were $2690.00)
5) The ending value was slightly below the plan (the plan was $14,342.00, final value ended at $14,337.00)

The shortage was caused by fees and due to the plan adjustments in the middle of the month. But overall, I consider May as accomplished per the plan.
 

report
 

 
May 2019 trades:
 

Trade #17
Trade #16
Trade #15
Trade #14
Trade #13

 

Here is a link to my live 5 year plan spreadsheet.
 

Weekly short term trading strategy
 

Here is a reminder of my strategy and way how to trade (simplified):
 

1) open a new trade on Tuesday morning only
2) open with the same week Friday expiration (3 DTE)
3) collect min. 0.30 credit
4) no wider than $5 per trade
5) multiple contracts based on BP
6) let it expire
7) wings at 5 delta or near as long as credit is 0.30
8 ) close one half of the position if the loss reaches $1.00
9) close everything if the loss reaches $1.50
10) if the market swoons through $1.00 and reaches $1.50 or even swings further, close everything.

with 5 delta, (2 SD) the swings still may happen (you never know what crazy people would do on Wall Street) but the breach is very rare. It still may happen, everything may happen, but it should happen occasionally, when panic hits…

 
Previous posts related to this plan:
 

My 5-year Plan to Freedom Update – May 22, 2019
April 2019 financial freedom report – May 05, 2019
Fed up with my own lack of discipline, putting down a plan to reach FI – April 17, 2019
 
 




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Posted by Martin May 22, 2019
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My 5-year Plan to Freedom Update


At first I didn’t want to post the entire plan to my freedom because I was afraid. The numbers in the plan look so ridiculous that I was afraid that after posting the whole plan it would be ridiculed. So I decided to post it only a year by year. I would post a year 1, then two years, three years, and so forth.

But I also take this plan as a challenge. I am aware that the numbers in the plan look unrealistic and maybe they are. But if they are not, I want to see for myself whether they are achievable or not. And if they are achievable, I wanted to have a record of this plan from day one. I wanted to show to all people who follow my blog and my trading that this is what I said in 2019 and this is what I have achieved in 2024. And posting my plan in 2024 could be seen as cheating. Like I have posted this only when I was sure I could meet the plan but avoid posting it if I fail. This doesn’t go with my strive to be transparent.

Therefore, I am posting here the full plan to freedom I set in April.
 

5-year Plan
 

Lately, I was playing with the numbers how to adjust the plan to achieve the goal faster. The reason for that was some personal life issues which made me to think that I need to achieve the freedom earlier than as planned above. I will post about the reasons later, not now.

I am still aware of all the risks. I am aware of possibilities of losing trades which would delay the plan. But I have a plan and trade management in place and thus I am aware of potential risks.

To speed up my path to freedom, I decided to further consolidate my accounts and liquidate my Motif account and transfer the funds to my trading account. This would bring in additional $2,600 dollars to this account.

I also decided to raise my traded contract from current 50% to 70% of available buying power. With these adjustments, the new plan would look like this (and it would also shorten the entire time to freedom by one entire year – given, there will be no stupid loses…):
 

5-year Plan
 

Here is a link to my live 5 year plan spreadsheet.
 

I have tools, I have determination, and I have a money management to achieve the goal. All I need is a discipline to follow the rules and mitigate potential losses to minimum. If so, I should be able to achieve this goal. Let’s see…
 

 
Previous posts related to this plan:
 

May 2019 financial freedom report – June 1, 2019
April 2019 financial freedom report – May 05, 2019
Fed up with my own lack of discipline, putting down a plan to reach FI – April 17, 2019
 
 




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Posted by Martin May 05, 2019
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April 2019 financial freedom report


April 2019 is in the books. In this month I met the goal as planned. There were a few changes I made which modified the entire plan:
 

1) I decided to combine my trading accounts into one. I closed my TD Ameritrade account (TD) and transferred funds to my Tasty Works account (TW).
2) This transfer increased money in my TW account and adjust the goal (see below).

 
The Original Plan:
 

report
 

Adjusted Plan:
 

report
 

April 2019 results:
 

How did I do in April 2019?

I did well:

  • The starting value of the account was as planned.
  • However, I violated number of contracts. There were occasions were I traded more contracts than what the plan allowed. I “approved” this to myself saying that I traded more contracts to catch up with short trading weeks available to me. The plan was to trade all four weeks in April but I only could trade three weeks. Although this didn’t backfire (unlike the breaking of the rules at the beginning of May 2019) I made money, not lost money.
  • We exceeded the premium collected over the plan.
  • The deposits were made as planned and actually exceeded the plan.
  • The ending value exceeded the plan.
     

Here are the results:

 

report
 

Here is a reminder of my strategy and way how to trade (simplified):
 

1) open a new trade on Tuesday morning only
2) open with the same week Friday expiration (3 DTE)
3) collect min. 0.30 credit
4) no wider than $5 per trade
5) multiple contracts based on BP
6) let it expire
7) wings at 5 delta or near as long as credit is 0.30
8 ) close one half of the position if the loss reaches $1.00
9) close everything if the loss reaches $1.50
10) if the market swoons through $1.00 and reaches $1.50 or even swings further, close everything.

with 5 delta, (2 SD) the swings still may happen (you never know what crazy people would do on Wall Street) but the breach is very rare. It still may happen, everything may happen, but it should happen occasionally, when panic hits…

 
Previous posts related to this plan:
 

May 2019 financial freedom report – June 1, 2019
My 5-year Plan to Freedom Update – May 22, 2019
Fed up with my own lack of discipline, putting down a plan to reach FI – April 17, 2019
 
 




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Posted by Martin April 17, 2019
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Fed up with my own lack of discipline, putting down a plan to reach FI


I started trading and learning trading options in 2010… I think it was 2010. I made money, lost money, made money, lost them again.
 

In 2012 I thought I knew everything. I didn’t.
 

In 2014 I started my own trading business. I though I knew everything. I didn’t.
 

Then I made money again. And almost lost them. This time actually I didn’t lose them. But, I locked my accounts in a deadlock of bad trades and they tie almost all money. Instead of trading for a living, I am dragging a few big, bad trades around.
 

And you know why?

 

Because I was constantly breaking my own rules!

 

I was constantly over trading and usually excused it with “it will expire and if not I will roll it and deal with it later.”
 

And this time, I got fed up of myself! This is not what I was taught, was I learned! This is not a strategy I wanted to do! I always told myself that even small amount of money could compound into big returns. Yes, if you f**king follow the rules!
 

dream
 

I laid out a 5 year plan to raise my account to a level which will allow me to retire early, in 4 years. The 5th year should be a retirement year. The cumulative numbers I will be trading in retirement are very scary as of now. It seems like I will never be able to trade such a big account and be comfortable. But, I planned it so I can start teaching my mind to it.

In January 2023 I should be on my own if my plan works.

 
All it needs is discipline and do, what I said I would do. A hard thing if you are undisciplined like I am/was! How I am planning restraining myself? I lay down how much money I will start to trade at the beginning of a month, how much money I can risk per trade, how many contracts to trade, how much money I want to make every month, and how much the account should end up with at the end of each month.
 

So, here is my year 1:
 

plan 1
 

Granted, the plan may not be accomplished if something goes wrong, but all it can take is that it may take longer to achieve my goal. But, I hope not!

But, I learned that it was not enough for me to just say what I would do next. I learned I needed a check mechanism, something what will make me self-aware of what i said I wanted to do and that I am really doing it.
 

And thus I decided to put this plan down which will state:
 

1) My account monthly starting point.
2) Number of contracts I am allowing myself to trade.
3) Monthly premiums I plan on making for each particular month.
4) Monthly deposits I plan on adding to my account to grow it.
5) And… end value for each particular month.
 

And, every month, or every week, or as often as possible, I will write down a report on fulfilling and following the plan. For example, if the plan says, that I will take 1 contract per week, then I will be required myself to trade only 1 contract! I need to act like a proprietary firm. Here are the rules and if you break them, you are out!

I once made a decision that I would limit amount of money to be made (in other words how much I can trade and how much it will make per month) and once I reach that goal I would stop trading. And then another member of the FB group told me why to limit my ability to make more money if I could make more money. So I broke my rule. And now I am in deep (well not that bad) shit. Don’t listen to others who have no idea and one day will learn the lesson the hard way.

So, below, I am posting my monthly reports. I will also be posting the plan for the upcoming years and monthly reports on my Facebook page.
 

April 2019 report (continued)
04/17/2019
 

1) We started trading with the beginning value as projected. ✅

2) We exceeded the number of contracts traded, but we did that to catch up with “mo premiums” plan as the plan expected all 4 weeks in April to be traded and we could trade 2 weeks only; thus this temporary exception was approved. However, if the “mo premiums” will be reached (for example this week) then we will go back to trading only the number of contracts allowed for the month. Also, the number of allowed contracts is determined by the available buying power. ✅

3) The ending value is projected to meet and exceed the plan, unless something unpredictable happens by EOM; ❌

4) We deposited cash as per plan and slightly exceeded the plan. ✅

5) Premiums, so far; are projected to exceed the plan. ❌
 

report

 
Previous posts related to this plan:
 

My 5-year Plan to Freedom Update – May 22, 2019
April 2019 financial freedom report – May 05, 2019
 
 




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Posted by Martin April 15, 2019
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Lending Club’s spike in defaults is a dead investment


When I started with Lending Club many years ago (pretty much when LC started) I was excited. I saw it as a great addition to my investment portfolio. I had a control over the notes I was invested in and I liked it.

Then came some changes and investing in Lending Club’s notes changed to gambling. With little information available about the borrowers, their ability to pay, any means of assessing their credibility, ability to ask them questions and see if they are worth lending them my hard earned money, good quality notes gone snapped away by institutional lenders who go priority to invest, I decided to stop investing with Lending Club.

The whole idea of a investor was gone, cannibalized by big banks. Now, Lending Club is yet another big bank. And, if you are lucky, you may buy a few notes which may survive til maturity.

Two years ago I decided to revive my investing in Lending Club notes. I changed my selection rules and decided to invest only in low risk, good quality notes (how would you actually determine that is still a mystery to me). My new screener was set to select notes where borrowers had no previous records in their credit report, good score, long employment, owned a house, and the amount of money asked was less than $10,000 dollars, ideally $5,000 only. Also, I was looking at the ratio of overall payments, salary, and all possible data I could digest from LC platform. And let me be clear, the data provided are poor, so it is still like a chimpanzee throwing darts at notes to pick rather than analyzing them.

I deposited $500 dollars to begin with and though, I might build up a portfolio and if I saw a progress, I might add more money.

But, after all the screening possible, about five months after I started my first so called good quality note went into a grace period, then late, then default, and charge off. That was a cold water to my heated up stove. But I said to myself, “well, this may happen, there is some ratio of defaults even with notes of “A” grade.

But few months later a second note went into a grace period, then late, then default, and charge off. I didn’t like it.

At that point I knew, Lending Club was not for me anymore. You have absolutely no control over the notes. Unlike other investments, mainly options I trade, there is no way to adjust your portfolio or defend it. You just hopelessly watch your money disappear.

And collection? Has anyone seen Lending Club to successfully collect on any borrower and recover the loan? I have seen none!

But I still decided to hold on. I just knew I wouldn’t add new money. I was only willing to let run what was in the account and see if this could overcome the defaults and be actually profitable. It was growing up, slowly, nothing exciting, but it was.

Then I noticed another thing – my screener stopped returning any notes available to invest which would meet my criteria. For at least two or three months I had nothing to invest. My cash started piling up nowhere to be invested.

And then, a third note went into a grace period. That was the last nail into my Lending Club investing coffin. I decided to cash out the account, collect what’s left, and move my money to may options trading account. I sold all notes, fortunately, on the secondary platform and move my cash out. Only two late notes are still left hanging in there, and I expect them to default and be charged off.

But today, I checked the platform and saw another note (already sold) went to a grace period. The borrower made only two payments, and got late after that.
 

Lending Club Defaults

 
All I can say now, I am glad, I cashed it all out. And I am done with Lending Club.

Another thing you may notice, is that, Lending Club and Folio both charge you exorbitant fees for pretty much nothing. Not anymore.
 

What is your experience?




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Posted by Martin March 27, 2019
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You will never please everyone… not at Wall Street


I borrowed this from Chris’s twitter:

You often hear “when the Fed is raising rates, it is bad for stocks”, [it is bearish].

Now with the possibility of future rate cuts, we hear “you do not want to be long stocks when the Fed starts cutting rates,” [it is bearish].
 




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Posted by Martin March 27, 2019
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Topping pattern?


The market was doing well in the morning but at about 10 am MT it went into a spiraling selloff. After the fact, the media told us why. Great to know, now I can sleep better. But later on the market started recovering the loss. The market lost -1.34% intraday. It recovered a bit and ended losing 0.46% for the day. The good thing is, we closed above 2800. That is promising. But don’t be too optimistic.

The more I look at the chart, the more it resembles a topping pattern:
 

S&P 500




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Posted by Martin March 27, 2019
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Global growth worries are back, OMG, everybody panic!


Market now down 30 points (-0.95%). Same old song. Media tell us that it was because of global growth worries. But that has been known issue for about a year now. What we are seeing in my opinion is a simple consolidation process. We rallied hard from December 2018 lows. Impressive rally!

But there was no pullback whatsoever. That is not sustainable rally if we do not consolidate. And nothing goes up forever in a straight line.

So we may be seeing some bouncing here. From a short time frame perspective, this may look like a big move, but a drop of 1% in a day, in fact, means nothing.
 

S&P 500




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Posted by Martin March 25, 2019
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Options trading and investing strategy for 2019


I know, it is end of March almost and you may say that it is late to set a strategy and goal now. But I reviewed my 2018 strategy and realized that my trading changed. No too much though. Many principles still apply.

But there is one significant change some of my readers and followers are blaming me of – I am eliminating trading options against stocks and shift to index S&P 500 (SPX).

Why?

As the market became volatile again during 2018 and mainly at the end of 2018 I faced early assignments of my positions and thus losing money. I had no defense against calls or puts assignment to the stocks.

On the other hand, I can hold SPX until the very end of a trading day. I can hold until 5 minutes before the end of expiration day and then decide what to do next – roll, close the trade, or add a defensive position, or any sort of adjustment. And I do not have to fear to get assigned early.

That was a reason for me to start shifting to SPX for trading. I still plan on using naked puts or calls as before and as a mean of getting into or out of a stock.

Therefore, SPX options will be for active trading and generating income, stock options for investing.

Our accounts are not yet large enough to allow buying 100 shares in a single trade. That would exceed our investing amount rules. Currently, we have a limit to use 50% of all options proceeds to buy shares of our interest (dividend growth stocks) and that amount is still too small to buy 100 shares of a stock such as Johnson & Johnson (JNJ). I simply do not make $26,000 in a single month which would allow me to invest $13,600 to buy 100 shares of JNJ. To do so, I would have to wait months and months before I could buy 100 shares of JNJ. And that is not what I want.

So, I have a limit of $600 per purchase. If I make $1,200 or more, I can buy a few shares and spend $600 limit (or more). And as our income growths, we will be buying more and more shares and increase our amount.

 

 · Trading options using SPX

 

As mentioned above, we will be trading options using SPX to generate income during 2019 (or until situation in the market changes). We will be trading put spreads, call spreads, or Iron Condors. Here are the rules and mechanics of our trading:
 

1) Based on the net-liq of the account, spread width, and allowed total net-liq usage based on the current market level (cash rules), we will have max number of trades (or contracts) per account which we can open. For example, if our net-liq is $50,000 and the market is near the all time high, we can use 25% of all net-liq to be invested, then we can open 25 contracts (50,000 * 0.25 / 500 = 25 contracts, [net-liq * allowed max amount of net-liq to be used / spread width]).

2) If in the future all 25 contracts are used and there will be a necessity to start adding more contracts, then we will start widening the spread rather than trading more contracts in a single expiration date. For example, in 45 DTE cycle, there are 9 weeks. SPX has expiration 3 times a week. So, theoretically, we can open 27 contracts to fill all expirations for the next 45 days. If we can open more contracts, we will not have enough “space” and we would have to start selling either multiple contracts within the same expiration cycle, longer expirations than 45 DTE, or start widening the wings of spreads or Condors.

3) Then, as long as we have an “empty slot” in our options calendar (scheme) we can open a new trade.

4) We primarily select 45 DTE or around that time (the range is 30 – 60 DTE with 45 DTE as ideal DTE). We also trade short term trades (zeroes or up to 7 days) but these are different trading rules and different situation.

5) Then we select 1 SD strikes (16 delta) but we can adjust them so to collect at least 1/3 of the spread width of the premium. I am OK to go and adjusting deltas as high as delta-30 but we try to avoid these high deltas. If I can get close to 1/3 with smaller delta I do so (although studies show that delta 30 actually perform better and has better POP and ROC).

6) We can sometimes skew the trade of an Iron Condor to be more bullish or bearish, meaning that if I feel bullish I choose higher delta on puts and delta 16 on calls. If I feel bearish, I do the opposite and select higher delta on calls and delta 16 on puts. My feelings are based on the chart and identifying trends and supports. But I suck in chart reading, so it is still in a realm of feelings rather than chart reading science.

 

 · Managing winners

 

After opening a new trade we will watch the following metrics and close a trade if any of these happen:
 

1) Current profit (CP) / day > Max profit (MP) / DTE

For example, when we open a trade, Iron Condor, and collect 1.90 or $190 premium, then that is our “max profit” (MP) which we divide by the total DTE. If the current profit (CP) divided by days in trade (DIT) becomes larger than CP/DTE, we close the trade.
 

2) CP = MP * 0.5 and days in trade (DIT) < = 21 days

If for any reason the CP/DIT will not exceed MP/DTE but reaches 1/2 of the collected credit in the first 21 days, we close the trade.
 

3) CP = MP * 0.25 and DIT >= 21 days

If none of the above gets met for any reason, but a trade makes 25% of collected credit anytime after 21 days in trade, we will close the trade.
 

If none above is met, then we will continue holding the trade until expiration and do nothing, but that means that a trade is most likely a loser and one side or the other is possibly breached.

 

 · Managing losers

 

1) When the trade doesn’t meet the criteria above, meaning that after 21 DTE I still see no profit, I sit on it and do nothing.
 

2) If one side gets touched or breached and I still have more than 10 DTE in the trade, I start rolling down the untested side to re-establish the original delta.
 

3) If the market keeps moving and the tested side gets deep in the money, I attempt to roll the entire Condor down and closer to the money. I do this if there is only about 5 – 10 DTE left. If longer than 10 DTE then I only do #2 but try not to invert the Condor. If I would have to invert the Condor, I rather lower the entire structure down to get it ATM. After that I have both – puts and calls ATM.
 

4) Then I hold until expiration. With this adjustment, one side gets closed for 0.10 or 0.05 debit and I roll the opposite side away (usually 45 DTE) and sell new opposite side against it, for example, if put side is tested and in the money or ATM, I roll it to next 45 DTE and sell new call side against it. To do so, I wait till the very last minute (usually 10 – 15 minutes before market close).
 

5) Once rolled, I keep adjusting as mentioned above – I keep track of collected credits/debits, and attempt to close the trade either for 50% or 25 % or roll it as needed to keep it near the money.
 




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Posted by Martin March 25, 2019
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Market performed well given the economic fears but what’s next?


I think, today’s market performance was somewhat promising. Of course, it may be all over tomorrow but given the Friday’s sudden economic growth worries causing the market dropping 1.8% would be propagating into today’s trading. Or are investors no longer worried? Or are the worries actually a BS? Of course, we do not know answers (and in fact I personally do not care).

But one thing is sure – the market which refuse to go down on all sorts of bad news is the market which would eventually go up. And today was the day in my opinion. Although, there was a weakness in the market today, it held the 2800 level fairly good and consolidated nicely.

However, we still may see some down pressure in coming days. We may go all the way down to 2750 level to test the 200 DMA (and the only reason for that would be, that we still didn’t hold 2800 and didn’t close above this important level). But market participants may be irrational and still push this market higher in the coming week.

On the other hand (and matter how much I dislike Trump) the Muller report may actually be bullish for the markets. We need to see the futures tonight and early in the morning (before market opens) to get an idea of what the next day would look like. As of now, I am a bit torn between the two outcomes, although lean towards moving down to 2750 level where we should bounce again.
 

S&P 500
 




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