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2022 SPX put credit spreads trading review – week 26

I was aggressively adjusting my SPX trades last week. I was using a “box” trade strategy to generate income and then used that income to roll the trades that were in the money. So far, this is the best way I could come up with to fix bad trades.

I hate taking losses so unlike other investors who use stop-loss I do not if I do not have to. But if I have to take a loss, I want an offsetting trade that will minimize that loss (or eliminate it). So right now, I am taking losses (as you will see below) but I have offsetting trades that brought in credits and I have tons of unrealized gains that will, at some point, kick in.

So how does the “box” work? First, the box is a trade where a short call is the same strike as a long put and a short put is the same strike as a long call. Here is a picture of the trade:
 

SPX PCS account value

 
The benefits of such trade are that I bring in a large credit and it uses very little buying power. The credit is usually large enough that I can use it to adjust multiple trades. With one box, I can adjust up to three or four bad trades, and when those trades expire out of the money (or I close them early) I will be out of the bad trade and release buying power.

You may ask why do such adjustments and not just close the trade? It depends on the bad trade position. Sometimes, closing the bad trade would mean closing it for a full loss of the entire spread, in our trading example that would be the entire $1,000 minus credits received. But rolling the trade down would be a loss of $500 – $600 minus received credits (and then expiring OTM). So, there will be a loss, but smaller.

On its own, the box is a horrible trade and I do not recommend using it as a trade on its own. But as means for repairs, I think it is a decent way to navigate out with lesser losses or even gains.
 

Last week, we were rolling and adjusting the trades which delivered $3,600.00 income. That brought our account up by +17.45% while SPX lost -2.21%.

However, note that the income is from the box trades, and in the near future, I will be using this income to offset and eliminate my old trades that are in bad shape.

Overall, the SPX account is up +573.11% since the beginning of this program, and we have $31,470 in unrealized gains. But there is no time to party over this result. We have plenty of “box” trades, which are difficult to manage. The box must be managed at some point as it is not a winning trade. It helps to buy time, but later, one or the other side must be adjusted. No matter where the market goes, the box will be a losing trade.

 

Initial trade set ups

 

For my SPX strategy, I dedicated a $3,600 initial amount that will be used to trade SPX PCS strategy per week. If this amount is depleted, I will evaluate the strategy to determine whether to continue or change it. If I grow this amount, I will scale up the trading.
 

WHAT WILL WE TRADE?    
DAY DTE TYPE
MONDAY 7 DTE & 40 delta 10 wide Put Credit Spread
TUESDAY 30 DTE & 40 delta 10 wide Put Credit Spread
WEDNESDAY 7 DTE & 40 delta 10 wide Put Credit Spread
FRIDAY 60 DTE & 14 delta 10 wide Put Credit Spread
EVERY MONTH 120 DTE Put Debit Spread – HEDGE

 

Our SPX strategy is designed as directional options trading. We are selling credit put spreads to collect premiums, and hopefully, these spreads expire worthlessly, or we repurchase them for a small debit.

We use a set of indicators (primarily based on moving averages) and market sentiment that generates bullish signals. The trading is based on a “trend following strategy.” If we have a bullish signal and bullish trend, we open the trade. If we do not have a signal, we stay away.

We set the set of rules and alerts and backtested them. The backtesting software proved that the strategy was viable and returned good gains. We also tried to automate the decision-making as much as possible to have the trading as mechanical as possible. This helps eliminate our emotions. The decision-making was reduced to: “bullish signal present” – open a trade, “not present” – stay away. it worked well.

Then 2022 came and put this strategy to a stiff test. The signals worked well, but we had old trades that got busted and didn’t have time to perform. So I had to evaluate the strategy. The original strategy was to let the trade expire in the money and take a loss. But I didn’t like it. I tested an option of rolling the trade rather than letting it be, and I feel much more comfortable with that.

Rolling a trade is still a losing trade because we close the old trade for a loss and open a new trade for a credit that partially offsets the loss. We also add a credit call spread or widen the put spread to get more credit. I believe that managing these trades and offsetting them with an opposite, adjusted, or new trade will result in fewer losses and more considerable gains. And so far, this strategy works.

Here you can see all our trades:

 
SPX PCS account value
Click on the picture above to see the entire list.
 

We do not trade 0 DTE trades. This strategy is designed to be as passive as possible. You open a trade and let it run. You do not need to be glued to the computer all the time. The strategy takes advantage of the market’s historical behavior of mainly going up. Yes, there will be selloffs and corrections, even bear markets, but over time, it goes up. And therefore, our strategy is designed for this direction. The premise is that if we have a bullish trend, we open a bullish spread and let it run. 80% or 90% of the time, it will be a winning trade. And if the trend is strong, we open more aggressive trades (which is not the case today due to the market’s correction).

How much money can you trade?

As you can see in the table below, the highest amount of cash to trade this strategy is $19,995.00. That will allow adjustments, rolls, and comfortable trading without blowing your account. Can you trade less? Well, yes, I started with a $3,600 initial amount. But you need to be selective. You won’t trade all trades. You just trade the safest trades only (which is the Friday trade), especially in this market, and when the market gets out of this mess, you can start adding trades. And you do not compound. You must wait for the actual trade to end before opening a new trade. This way, the growth will be a lot slower, and you collect less credit, but you do not blow your account, mainly when you need to roll. You do not have money to do that (as the old busted trade will need more buying power which can be reduced by adding an offsetting trade that neutralizes the old trade, but you still will need that initial buying power).

 

Last week trading

 

Overall, the strategy resulted in a +573.11% gain last week.
 

Initial account value (since inception: 12/07/2021): $3,600.00
Last week beginning value: $20,631.95
Last week ending value: $24,231.95 (+17.45%; total: +573.11%)
The highest capital requirements to trade this strategy: $19,995
Current capital at risk: $530
Unrealized Gain: $31,470 (+5,937.74%)
Realized Gain: -$7,478 (-1,410.94%)
Total Gain: $23,992 (+4,526.79%)
Win Ratio: 58%
Average Winner: $279
Average Loser: $508

 

SPX PCS account value
SPX PCS account value
 
Our SPX Net-Liq increased last week. The market is volatile and selling too much, and because of that, I am reducing our trading activity to just adjusting our existing trades.
 

SPX PCS account vs SPX
SPX PCS account vs SPX index net liq
 
Our account is growing while the entire market was struggling, even though last week SPX grew faster than our account. I am looking forward to this selling to end and the market resuming its bullish uptrend. We will be able to get into the more aggressive trades and boost our income significantly.

 

SPX PCS account vs SPX
SPX PCS account vs SPX index
 

If you want to receive trade alerts whenever we open a new SPX put credit spread or a hedge trade, you can subscribe to our service:

 

SUBSCRIBE HERE

 

Note, if you wish to subscribe to multiple levels, you can do so by subscribing to one level only and then send us an email that you want to be added to other levels too.

Also, if you like this report, hit the like button so I know there is enough audience wanting to see this type of report. If you have any questions or want to see anything else about my SPX trading, do not hesitate to contact me or write a comment in the comments section. Thank you!

 
 





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