Markets I Trade: May 14, 2019

I'm testing a concept where I am including momentum factors in my weekly updates. The momentum factor number is based on a multi-model trend system I developed which can be applied effectively to a range of markets. Most equities will be on a scale of 0 to +10. Certain markets like volatility and currency pairs will be on a scale of -10 to +10.

I will also be shifting my position size in response to the momentum factor. If the factor increases, my position will increase; if the factor decreases, my position will shrink.

Feel free to ask questions or leave comments.

In my non-registered account I am developing my trend following strategy continuously. I don’t pretend to have all the answers. I am sharing this ongoing learning journey with you in this series.

I am always exploring new methods of trading, new markets to access, and better control of risk and opportunities. My main goal is to avoid large losses while achieving reasonable returns over time. I try to focus on trades which I believe have good reward-to-risk ratios.

You will see me trade index products, currencies, and commodities primarily with futures contracts and LEAPS options for maximum capital efficiency. I try risk small amounts of capital with each trade targeting high return multiples on that risk.

One thing that is easy to notice is most weeks have no action and trading is quite boring. The equity based positions move in relative tandem. Volatility positions are the only place where exciting things seem to happen more frequently.

*Information on this post is dated at market close, Friday, May 10, 2019.

IWM: LEAPS Options

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Momentum Factor: +9

I purchased IWM $160 call options on January 15, 2019 when IWM was trading at approximately $143 per unit. An indication of the real lack of severity of the turmoil last week, IWM still remained above the $154 range and the momentum factor remains unchanged. I'm still patiently holding onto this position waiting for this sideways direction to change.

EEM: LEAPS Options

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Momentum Factor: +4

I purchased EEM $45 call options on January 15, 2019 when EEM was trading at approximately $40.50 per unit. EEM has been sliding the past couple weeks now and the momentum factor took notice. It is time to cut the position size roughly in half and I did exactly that today. If things change to the upside, we can always add to our position.

KWEB: LEAPS Options

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Momentum Factor: +4

I purchased KWEB $50 call options on February 20, 2019 when KWEB was trading at approximately $45.10 per unit. As with EEM, KWEB saw a reduction in upside momentum. I'm also cutting back on the size of this position (taking a small loss).

EFA: LEAPS Options

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Momentum Factor: +9

I purchased EFA $60 call options on April 9, 2019 when EFA was trading at approximately $66 per unit. Although my trade is slightly negative right now, EFA was not very much affected by last week's market moves. The momentum factor is intact and strong at +9 for the time being.

VXX: Options

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Momentum Factor: +8

On April 29, I purchased in-the-money VXX $30 put options, continuing a holding from when VXX was trading at approximately $31.25 per unit. I sold this position on May 7.

On May 7, I purchased a call ratio backspread for a small account credit when VXX was trading at approximately $29 per unit. This is a hedged position betting on significant upside in VXX. If VXX falls below $29 I will earn a small profit, but if the VXX rises above $44 before the expiry I will begin to earn an exponential profit.

I'm watching VXX closely to see if I get another entry point to begin a downside momentum trade as these tend to be the longest holding periods.

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