Weekly Newsletter   Challenge account   Weekly Newsletter   

Did I finally find a working SPX strategy?

Another day and another winning trade, selling Iron Condors against SPX. This morning, I opened a 0 DTE SPX Iron Condor, and it finished OTM expiring worthless, delivering a decent credit (100% annualized return). This looks like I finally found a winning SPX strategy!

If you browse other traders on the Internet, Facebook, or Twitter, you will find many of them trading 30 delta, 0 DTE, 30 DTE, 10 delta, or many different spins to the trading. Many will post how to calculate Greeks, looking for stop loss that can be placed on options, and many other hurdles. I have been there. And I have done it all, too. And I kept losing money.

Any strategy I found, modified, twisted, upgraded, changed, or invented worked for a while but failed. I tried directional trades, I tried non-directional trades, I tried everything. And after some time, the market took it all away from me.

It went so far that I abandoned trading options against the index and traded puts and calls against stocks I wanted to own (a wheel strategy). My trading improved significantly. But that desire to trade SPX was still there.

I started thinking, why was I wiped out even from safe trades? I traded directional trades, carefully observing the market and hoping that once I detected a change in the market’s direction, I would close the trade and be out with a small loss, and other winning trades would offset that loss. Yeah, sure! It didn’t work. But there was one thing I noticed.

I was greedy! Extremely greedy. I wanted to collect a $100, $200, or $300 premium on a $10 wide spread. Well, that’s not going to work! Being greedy is a sure way to lose money! Even with a stop loss, the volatile market will wipe you out, the same way as with stocks. It doesn’t matter what you trade. Whether you trade options or shares, volatility can be a great tool and enemy. Once you enter into a trade, if it goes against you, you are doomed, and you can’t do anything about it. That’s why I keep saying, forget Greeks. They will not help you. They can indicate what you may expect from a trade before opening it, but once you enter a trade, it’s all over. Greeks are worthless. And definitely, they won’t predict anything that may happen with the trade during its duration.

So, I decided to trade options to get a new dividend from the market. Think about it as a dividend. And what yield can you expect from the market? Stocks can bring anything between 2% and 5% yield, so why would anyone expect more from the market?

That’s when I started my “Crumbs” SPX strategy. I collect a few cents per trade, representing a 1.5% to 2.5% premium on risked capital only. So my SPX (market) is paying me a dividend yielding 1.5% to 3.5% (as of today, my average yield is 3.28%), but the best part is that I collect this “yield” not every three months but every two days! That makes it over 100% annualized return!

And I no longer have to worry about those trades. They seem to be so safe that they expire worthless almost every time. I started the crumbs strategy in September 2023 and have opened 56 trades since then. I have only had three losing trades so far. You can look at all trades in this spreadsheet.

Of course, you may argue that nothing is safe in the stock market. There is no free lunch. And that is correct. This SPX strategy is not super-safe or bulletproof. It still may lose. But for any trade to become a loser, the market would have to lose over 2% in a day or two. Can it happen? Of course, it can happen, and it will happen. During the 2020 and 2022 bear markets, we had 3% or even 4% losing days! So, it still can happen. But how often can it happen during regular market trading? Not very often. And once we enter a bear market again, I might stop trading this strategy or trade call side only. We will see when we get there.


Leave a Reply

Your email address will not be published. Required fields are marked *