High-Probability, Options Strategy Portfolio Up 47.9% Since Inception

by: Andrew Crowder

Last week I entered into some iShares Russell 2000 Index (NYSEARCA:IWM) puts. Of course, the market raced higher and my trade was quickly underwater, but I knew that the probability of a short-term decline was extremely high so I placed another trade and the following day the market declined. I stuck with the trade over the weekend because the short-term overbought reading had not worked itself out so the probability of a move lower remained high.

Today, the market pushed significantly lower at the open so I was able to get out of my combined position for a nice profit that pushed my the High-Probability, Mean-Reversion options strategy to new high of 47.9% since its inception back in November.

New Credit Spread Options Strategy – Beta

The surge last week pushed the underlying IWM to a high of $85.97, only a few cents from touching the $86 strike. This is where asset allocation/ position-sizing comes in. I could go over various adjustments that I could make including opening new positions, exit the trade early, roll the trade up or forward and a few others. But, I prefer to let the statistics play out. I know that if I stay disciplined and allow the statistics to work for me I will succeed over the long-term.

Never allow a position take to have a dramatic impact on your options portfolio. This frees you of the inevitable psychological constraints and allows you to focus on letting the probabilities work themselves out.

Basically, when probability is on your side, it only makes sense to allow the probabilities to work for you. Entering expensive or risky hedges or artificial stop losses acts only as a detriment because they do not allow the probability of the trade to work itself out.

The Strategy

Again, I like my new strategy because now both of my options strategies are working in unison. I am able to collect premium in the Credit Spread strategy while patiently allowing time decay to work its magic. And, while I allow the time decay to eat away at my credit spread I am able to play short-term extremes in the ETFs I follow in the High-Probability, Mean-Reversion strategy. Intermediate and short-term options strategies at work.

Just like diversifying a portfolio of stocks, you should do the same when investing with options – diversify your options strategies.

Here it is: the first trade in my new Credit Spread Options Strategy, officially named Crowder’s Credit Spreads.

Market Mumbo Jumbo


SPY remains range-bound!

Same message: Not much has changed over the past few weeks - range-bound trading persists. I appears we could see the markets move sideways for a few more months. Are the summer doldrums already upon us? How long can SPY stay in this range of roughly $126 to $137? The question is, while I continue trading extremes in the HPMR strategy , how can I take advantage of the range bound movement at the same time. You guessed it – a credit spread!

Options Strategy Indicator – Overbought / Oversold Extremes

(Click chart to expand)

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EWZ over the next 72 hours.