Long  Term  Parking  Trades  

Tim Pierson Sheridan student since 2009 Full-time trader since 2012

A safe, reliable, & profitable trading strategy

•  LT parking trades: features and YTD results •  Comparing LT vs. ST parking trades •  Why LT parking trades work •  Example trading plan •  Varying your LTPT plan •  LTPT’s: cautions •  Key takeaways

Agenda  

LT parking trades: features & YTD results

ü  Safe, deep OTM credit spread

ü  High probability of success, minimal risk

ü  ROI 3% per month, 40+% per annum

LT  Parking  Trades:  Key  Features  

26……………Trades (5 RUT, 25 SPX) 100%….…….Winners 3.4%…………Average monthly return 44.5%..………Annualized return 29…………… Average DIT (range: 15-44 days) 61…….………Average DTE on open 210……...……Average points OTM

2015  YTD  Results  

Comparing LT vs. ST parking trades

LTPT’s  are  Based  on  STPT’s  

•  Enter at 30 DTE weekly, using SPX

•  Short 1.8 or more standard deviation OTM

•  Credit for 25-point spread near $1.00

•  Close for .20 •  Adjust if necessary: roll down,

out, increasing lot size

But  There  are  Differences…  

•  Parking-type trade using only monthly expirations

•  Uses only 25-point strikes •  Safer by being further OTM •  As ‘no-touch’ as possible; no

adjustment plan •  Entering on down day makes less

difference than STPT •  Try for 1.20 or so (offset longer DIT)

Where  to  find  Std.  Dev.  In  TOS  

LT  vs.  ST  Parking  Trades:  Metrics  Metric Parking Long-Term parking

Sample Size, trades completed

279 29

Traded Since 10/8/2013 1/15/2015

Average DIT 17 29

Average DTE on open 30 40 - 70

Average Premium $1.01 $1.07

Average p/l per lot $75.77 $76.15

Average % return 3.53 3.41

Average Annualized % Return 94 44

Average points OTM 101 210

ST  vs  LT:  Which  is  Safer?  

5-year PriceChange indicator 30 days, 80 points (ST parking)

5-year PriceChange indicator 60 days, 180 points (LT parking)

Why LT parking trades work:

1. Theta decay curves for far-OTM options more linear than ‘closer to the money’ options

2. Long-term parking further OTM than ‘regular’ parking trades, while realizing same profit or better

Compare days to lose 50% of price at high DTE vs low DTE

Two  Key  Reasons  

ATM  Theta  Decay  

Source: Analysis by Dave Robinson http://dtr-trading.blogspot.com/

OTM  Theta  Decay  

Source: Analysis by Dave Robinson http://dtr-trading.blogspot.com/

LT parking trades: example trading plan

•  Sell far OTM monthly premium in liquid strikes

•  Capture linear theta decay •  One trade per week, entry most any

day •  Use same monthly expiration for 4

weeks’ trades •  Use 4 different strikes during month •  25-pt strikes for volume, execution

Example  Trading  Plan  

25-­‐Point  Strikes  Have  the  Volume  

•  Profit Target: ü  .80 – 1.00 per lot ü  3.3 – 4.1% in 30-40 days ü  27-37% annually

•  Max Loss: 3x credit

Example  Trading  Plan  (cont.)  

Example  Trading  Plan:  Milestones  

   

Entry   Adjustments   Exit  

1   2   3  

•  Down day preferred but not critical •  Shorts 2 or more standard dev OTM •  Shorts in 6-8 delta range •  Use 25 point strikes, 25 point wide wings •  Don’t cave from mid too easily •  $1.00 - $1.20 premium •  GTC order for .20 immediately after open •  Staggered strikes—a key attribute

1)  Entry   Entry   Adjusts   Exit  

•  No adjustments planned •  Could adjust as in regular parking trade

(Under testing)

2)  Adjusts   Entry   Adjusts   Exit  

•  3x credit received •  GTC order for .20

3)  Exit   Entry   Adjusts   Exit  

LT parking trades: varying the plan

•  HPPT – High Price Parking Trade •  Enter with credit in $1.50 range •  Exit when .80 realized •  Concept: realize same profit potential, but

exit earlier since not waiting for .20 quote

Varying  the  Plan:  Example  

LT Parking Trades: Cautions

•  First trade: JUL 63 DTE 1750/1725 •  Second trade: JUL 56 DTE 1775/1750 •  Third trade: JUL 49 DTE 1800/1775 •  Fourth trade: JUL 42 DTE 1825/1800 •  Next trade would move on to AUG

•  Stepping on strikes results in a 75-point wide spread. What to do?

Cau[ons:  Example  

Nearly impossible to avoid “stepping” on strikes from prior weeks. Strategy: •  Use different accounts •  Trade spread as a 75 point wide spread •  Adjust GTC order

Cau[ons:  Example  (cont.)  

LTPT  Key  Takeaways  

•  Safe, deep OTM credit spread

•  High probability of success, minimal risk

•  Returns 3% / month •  40+% / year

Questions?

Thank you!

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