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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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