Tuesday, April 19, 2016

Trade Stats for Bearish Set Up in SPY 4-19-16

 Click on Stats to Enlarge

So based upon the trade set up posted earlier for SPY, the maximum expected value for the equity side of this set-up based upon my simple trade method, would be to enter short SPY and set a limit order of 2.5% gain on the short position and a corresponding 2.5% stop loss on the position.  Then IF the orders are not filled in 1 month, the trade is exited at the market (after 21 full trading days).  The expected value of the trade is 1.48% on SPY, so this suggests a ~4% expected value over the next 1 month using the 3x leveraged bear ETF.

Seeing as the past stats on that system are so positive, the stats justify use of 3x leveraged funds with 100% allocation of the account.  That would still be well below 1/2 Kelly Bet on the risk.

Now SPXU is a 3x inverse fund to SPY, but understand that it won't trade perfectly in sync.  So I always suggest using SPY as instrument to track and slightly tweak the orders on the leveraged ETF to create the suggested risk reward profile.

Click on Stats to Enlarge

The MAX reward play on the options is as suggested in the last post.  Buy the May standard expiration at the money put option (209 strike) and set a limit order of 100% to exit.

The Kelly Bet % on the 15 historical instances is 33%.  So a 1/2 Kelly Bet of about 16% would be sensible for the money set aside for options trading.

Let me know if there are specific questions of how to apply this analysis to your situation.


1 comment:

  1. I republished this post because there was a mistake. This did not influence the trade action, only the expected value is lower. I copied formulas on the spreadsheet with some cells hidden, and so I did not drag the formulas into the hidden area to copy them correctly. It is now fixed. Even though the average winner is negative, that's because it is a short position. I will change that on the spreadsheet display for the future as well.