thomas wood | microquant identifying key support …...support/resistance (s/r) from 8 or 50 day...

Identifying Key Support and

Resistance Levels

presented by

Thomas Wood | MicroQuantSM

11-Hour Options™ 2.0

The Next Evolution of Success

Risk Disclaimer

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CFTC Rule 4.41 (Hypothetical Disclaimer)

U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN.

• Evolution of 11-Hour Options™

• Trade Selection – making the trade Easier

• Trade Management – adaptability & flexibility to

the moving price

• Risk Control – Progressive Delta Neutral

Strategy

Evolution of 11-Hour Options™

Evolution of 11- Hour Options™

Over the past 20 months, 11-Hour Options has produced an overall win rate over 95% & a weekly return over 5%/week.

Opportunities for improvement are in :

• Trade Selection

• Trade Management

• Risk Control

Trade Selection : Making the trade EASIER

• Use a Trade checklist : Trade Hierarchy

– Take into account the most important success factors

• Develop an awareness of Intra-Day price movement.

• Expand Entry Trade Timing from 12 Noon

Trade Management : ACTIVE Role IntraDay

• Flexible Stop Loss levels 2xgain – 3xgain

• How to actively “Fix” counter trade price moves

• When “right” – look for Bonus Directional Trade

• Adapting Current Spread Position (Defensive)

• Rolling-Out and Rolling-Up/Down Spreads

Risk Control : Progressive Delta Neutral Strategy

• Progressive – take action only when price moves against you, small action in parts.

• Defensive position – designed to slow rate of losses, and if necessary nullify Delta moves against current position

• Used to prevent Large “Blow up” moves, and manage overall Position risk.

Trade Selection

Making the Trade Easier

Trade Selection – Making the Trade Easier

Over the past 20 months, 11-Hour Options has produced an overall win rate over 95%.

• It will would require tremendous time and effort to optimize that even higher.

• We want to focus on being more selective in the trades we take, and picking trades that are easier to manage for their duration.

11-Hour Options : Trade Hierarchy Checklist

• 8 Factors - In order of importance

Momentum direction & strength - 60 min chart

Price Action setups on 60 min: reversals/breakouts

Support/Resistance (S/R) from 8 or 50 Day EMAs

On reversals : Fibonacci Retracement levels

S/R based on Weekly lows & highs

Momentum on Daily chart

Price levels from previous day - High & Low

*S/R from Monthly lows & highs (rare/important)

Develop an awareness of Intra-Day price movement.

• Range-Bound

– When range bound and using the Opening Range criteria, Sell Bear Call CS (bearish) when price is in the “Upper” half of the daily range

– Sell Bullish Put CS (bullish) when price is in the “Lower” half of the daily range.

Extra Tools that can help…

• Range-Bound

– EveryDay Profits workshop

– Fibonacci Trading workshop

– Fibonacci Price Retracement levels (std. in TS & TOS)

– MQ Pivot Trend

– Want more info & buy : support@microquant.com

Develop an awareness of Intra-Day price movement.

• Break-out

– When price is breaking higher (from a consolidation, or UP through a resistance level),

– Sell Bullish Put CS (bullish), just below consolidation

– When price is breaking lower (from a consolidation, or DOWN through a support level)

– Sell Bearish Call CS (bearish), just above consolidation

Extra Tools that can help…

• Breakout

– EveryDay Profits workshop

– MQ VBT Indicator

– Fibonacci Price Extension levels (std. in TS & TOS)

– MQ Pivot Trend (helps you stay in)

– Want more info & buy : support@microquant.com

Expand out the Entry Trade Timing from 12 Noon

• Origin of 12 Noon

– The “12 Noon” timing was created so that Credit Spreads were sold “after the Morning Session”

– If we waited too late, we’d run into the afternoon session, and it would be likely we would lose some potential premium we could be selling.

Expand out the Entry Trade Timing from 12 Noon

• Expanded Trade Entry +/- 60-90 minutes

– This expansion would cover 10:30AM – 1:30PM eastern

– Also, you would not have to do all your Credit Spreads at the same time. You can time the entry for each Index/Stock that would be most beneficial to each position.

– Usually, bearish trades & bullish trades would be about the same time, because of Index movement

Questions?

Trade Selection

Making the Trade Easier

Trade Management

Trade Management – Adapting & being Flexible to the moving price

Trade Management

How to actively “Fix” counter trade price moves

• Friday AM Gap:

– *** DO NOT *** have Active Stop Loss trade set on online order system. Crazy initial Option Pricing can produce very wide spread pricing, triggering Market purchase order.

– Gauge if Gap is due to low pre-market volume, or an overall moderate index gap

– Look for 50% and 100% gap fill trades

Trade Management

Original recommended stoploss:

- Old Stop loss rule = 2x max profit

- New : flexible so that loss = 2x – 3x max profit

• Example:

– $100 target profit = limit risk = -$200 to -$300

– If your premium is $0.30

– 2x “mark” is $0.90 : $0.90-$0.30 = $0.60

– 3x “mark” is $1.20 : $1.20-$0.30 = $0.90

Trade Management

When… to use 2xMax, and when to use 3xMax

• Use the 3x Max stoploss : Give more wiggle room

– Intraday Moves are in a Range-Bound day

– When the current adverse price move is about to hit a protective Support/Resistance level

– When the adverse price move is about to hit a 50% or 61.8% “protective” Retracement level

– When the current move is the “last gasp” move of a clear divergence, about to turn and move favorably

Trade Management

When… to use 2xMax, and when to use 3xMax

• Use the 2x Max stoploss : Tighter stop

– When Intraday Move, is starting to move against you, and the price action setup is changing on the 60 min, and starting to “not look so good”

– Current Breakout trade, has faked out, and is starting to move against you

– The 60 min momentum is changing direction

– The Daily chart momentum is starting to “go flat”

Trade Management

• Friday Mid-Morning Reversal:

– Look for intraday trading opportunities to bring in more revenue, buying more directional options

– If Opening Range move is against you, watch for the AM reversal.

• Trade the Reversal for more $ Revenue

• Look to see if the Reversal has strength – if it’s weak or non-existant, look for more price movement against you.

Trade Management

• After Lunch:

1. Watch for continuation of the Morning Move

• If it was Range-Bound : (1) Look for continuation of back/forth price movement (2) Watch for breakouts as price approaches the Support/Resistance levels

• If it was Breakout : (1) Look for strength of continuation of the move in original direction, (2) Look for a pull-back into the Opening Range, (3) Possible late-day Snapback

Trade Management

Directional Trade Bonus

• Usually Friday AM

– Some of the Time, we are so “correct” in our trade selection, not only does price move in the direction we called for, it really starts to accelerate, building into a big profit.

– Credit Spread, will usually hit 100% Profits Fri Open

Trade Management

Directional Trade Bonus

• Usually Friday AM

– Need to look for entry for additional Directional Options or Debit spread, for extra Profits

– Look for “Last Kiss” move (Entry) then momentum acceleration in expected direction

– Look for Continuation pattern on 2-3min charts, opportunity to “Jump On” developing move

– Watch for multiple opportunities to add more Contracts (snowball growth)

Trade Management

Adapting Current Spread Position (Defensive)

• Situation :

– Stock price is moving against you

– Overall Market is moving against you. Individual stock price is moving against you.

– Not looking to “recover” spread.

– Looking to generate more Profit than Loss

Trade Management

• Buy back Short Options / Let Long Options run

– Use in daily BREAKOUT situation

– Both Index and Stock are Gapping against you

– Likely that Short strike will be touched

– Larger timeframe shows large potential run

– Buy back Short Options first pullback (stop the loss)

– Leave Long Option, watch for lunchtime or afternoon pullback, take some profits

Trade Management

• Keep Original Spread / Buy more Long Options

– Use on Opening Gap, but neither Index/Stock extreme

– Not likely that Short strike will be touched

– Larger timeframe shows consolidation

– Slowly buy more Long Options, 2 or 3 additions

– Leave CS alone, looks like it will still expire worthless

Trade Management

• Rolling-Out (expiration date further away)

– When a Credit Spread just needs more TIME

– Larger time frame still shows potential of move, and it just needs more time to develop

– Buy back current Spread, and sell same Spread (same strike prices) 1 or 2 weeks out

– Moderate risk

Trade Management

• Rolling-Up/Down (expiration date further away, selling option with a strike price further away) – When a Credit Spread needs more TIME & Distance

– Larger time frame still shows potential of move, and it just needs more time to develop, and slight adjustment of strike prices further away

– Buy back current Spread, and sell new Spread at more distant strike prices, 1 or 2 weeks out

– High risk : Don’t be fooled when stock has really changed direction. Use sparingly – better to take loss

Questions? Trade Management

Trade Management – Adapting & being Flexible to the moving price

- Risk Control -

Progressive Delta Neutral Strategy

Risk Control – Progressive Delta Neutral Strategy

• Risk Management #1 Job: – Easily 75% of 11-Hour Option Trades are profitable by

Friday AM – Friday noon

– For the 20%-25% of Trades that have price volatility, it may be suitable to start some type of defensive action

• Option Greeks => Monitor and Manage Risk: – By monitoring overall Position Greeks (Theta, Delta), we

can manage and adjust the overall risk of the spread

• Limit Risk within reasonable bounds

Risk Control - Progressive Delta Neutral Strategy

Time Decay (Theta) : Your Profit Machine

• Theta :

– Is always moving forward

– Selling Credit Premium : Theta is (+) Positive

– Therefore, holding a CS creates profits from (+)Theta

• Option Greeks => Monitor and Manage Risk:

– By monitoring overall Position Greeks (Theta, Delta), we can manage and adjust the overall risk of the spread

Bullish Put Credit Spread

Price Movement (Delta) : Active Greek in weekly CS

= For 11-Hour Options, Delta is the only other major factor that dictates P&L

• Delta Greek effect:

– Bullish Put Credit Spread

• Delta is Positive Number, As prices increase (+ number) x (+Delta) = Positive Profit Gain

• Example : Price goes up $2

• $2.00 x $11.05 = $22.10 Profit

When things start to go wrong…

– Bullish Put Credit Spread (want prices UP)

– Problem : Prices start falling

• Delta is growing Positive Number,

• As prices fall (- number) x (+Delta) = Position loses value

• Example : Price goes down -$1.50

• -$1.50 x $11.05 = -$16.58 LOSS

– SOLUTION :

• Buy (- Negative, Deltas)

• Buy “Puts”

• Bullish Put Credit Spread (want prices UP)

• Problem : Prices start falling • Delta is growing Positive Number,

– SOLUTION :

• Buy more (- Negative, Deltas)

• Buy “Puts” : -Negative Delta50 – Delta70

• Usually it’s around a [5 spreads : 1 put] Ratio

• Buy Longer Dated Puts : 2-3 weeks until expiration

– Buy more (- Negative, Deltas) : Buy PUTS

– Action Guidelines :

• WHEN : P/L Loss = 2x Max gain #

• Buy 1 or 2 PUTS, this reduces overall Position Delta by 50%

– Guidelines :

• WHEN : P/L Loss = 3x Max gain # or more

• Buy 1 or 2 additional PUTS, this reduces Delta to near 0.

Questions?

- Fixing Bullish Put Credit Spread -

Bearish Call Credit Spread

Price Movement (Delta) : Active Greek in weekly CS

= For 11-Hour Options, Delta is the only other major factor that dictates P&L

• Delta Greek effect:

– Bearish Call Credit Spread

• Delta is Negative Number, As prices decrease (- number) x (-Delta) = Positive Profit Gain

• Example : Price goes down $3

• -$3.00 x (-$15.15) = $45.45 Profit

When things start to go wrong…

– Bearish Call Credit Spread (want prices DOWN)

– Problem : Prices start climbing

• Delta is growing Negative Number,

• As prices increase (+ number) x (-Delta) = Position loses

• Example : Price goes up $2.50

• $2.50 x (-$15.15) = -$37.88 LOSS

– SOLUTION :

• Buy (+ Positive, Deltas)

• Buy “Calls”

– Problem : Prices start climbing

• Delta is growing Negative Number,

– SOLUTION :

• Buy (+ Positive, Deltas)

• Buy “Calls” : + Positive Delta50 up to Delta70

• Usually it’s around a [5 spread : 1 Call] Ratio

• Buy Longer Dated Calls : 2-3 weeks until expiration

– Buy (+ Positive, Deltas) : Buy CALLS

• WHEN : P/L Loss = 2x Max gain #

• Buy 1 or 2 CALLS, this reduces overall Position Delta by 50%

• WHEN: P/L Loss = 3x Max gain # or more

• Buy 1 or 2 additonal CALLS, this reduces Delta to near 0.

Questions?

- Fixing Bearish Call Credit Spread -

• For the 20%-25% of Trades that have price volatility, it may be suitable to start some type of defensive action

• Monitor your Position Delta & Theta

– As you approach -2xgain stoploss, and -3xgain stoploss

– Look to add the appropriate, 2-3 week out Put/Call

– This added directional option will reduce destructive Delta factor, and dampen the position loss from Delta.

– Many instances will still have a Positive Theta! Profits from Time!

• Overall Portfolio with “Full” Delta Neutral Trades

• Limit Risk within reasonable bounds

– A Delta Neutral Strategy is designed to reduce/remove losses due to Price Movement (Delta)

– If we can limit the effect of Losses, keep them small, then over the long term, much higher Win% rate, will power Long-Term Trading Success

Questions?

Success Moving Forward

Over the past 20 months, 11-Hour Options has produced an overall win rate over 95% & a weekly return over 5%/week.

11-Hour Options™ WINNERS will take care of themselves, usually without much attention from traders.

• Focus on Improved Trade Selection to make the trades easier.

• Utilize intraday Trade Management to manage current spread positions.

• Additional Risk Control can be attained by utilizing a Progressive Delta Neutral Strategy when price starts to move against you. toward position’s short strikes.

TSLA, GOOGL, NFLX, AMZN, PCLN,

CMG, AAPL, SPX, SPY, QQQ, FB,

LNKD, BIDU, NDX, RUT

thomas wood | microquant identifying key support …...support/resistance (s/r) from 8 or 50 day...

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