Markets I Trade: June 11, 2019

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 leveraged ETFS, futures contracts, and LEAPS options for maximum capital efficiency. I try to 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.

Currently my exposure to stocks in the trading account is around 20 percent. Most of my cash is in BSV and I have added to this position with some position sales. I have chosen leveraged ETFs for my new entries since volatility costs were too high at the time of my entries. Also, I may need to trade with leveraged ETFs for tax reasons going forward with some big news coming in my Friday post this week.

*Information on this post is dated at market close, Monday, June 10, 2019.

IWM: LEAPS Options

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Momentum Factor: 0

I purchased IWM $160 call options on January 15, 2019 when IWM was trading at approximately $143 per unit. After trimming this position in the middle of May, I closed this trade on May 31 for a moderate loss on time decay.

EFA: LEAPS Options

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Momentum Factor: +8

I purchased EFA $60 call options on April 9 when EFA was trading at approximately $66 per unit. EFA remained effectively unchanged finishing the past week, but momentum is continuing to drop. I closed this position on May 31 for a half of max loss when my momentum factor dropped to +1. Momentum turned up again strongly (common at inflection points), so I'm back into a portion of this trade as seen below.

VXX: Options

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Momentum Factor: -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. VXX is still hovering on that line of upside/downside shorter-term momentum with swings happening daily. This trade is moving into profit based on the account credit on setting up the trade with downside protection.

QQQ: LEAPS Options

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Momentum Factor: +8

I opened a position in QQQ on May 17 with a purchase of $160 call options when QQQ was at $184 per unit. My trade is virtually flat right now with momentum turning back up this past week.

Gold: UGLD ETF

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Momentum Factor: +10

I opened a half position in gold on May 29 with a purchase of the 3x leveraged ETF UGLD at a price of $91.15 per unit. With continued upside momentum I moved to a full position on June 3 when UGLD was at around $99.40 with an average position price of $93.20. My entry was based off a signal in GLD. We'll see if gold can finally break through the $1,350 price ceiling we've seen over the past few years.

Brazil: BRZU ETF

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Momentum Factor: +9

I opened a full position in Brazilian stocks on June 7 with a purchase of the 3x leveraged ETF BRZU at a price of $30.25 per unit. My entry was based off a signal in EWZ.

Europe: EURL ETF

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Momentum Factor: +8

I opened a nearly full position in European stocks on June 7 with a purchase of the 3x leveraged ETF EURL at price around $27.30 per unit. My entry was based off a signal in VGK. Europe is looking stronger than Japan on my model, so I chose this trade instead of getting back into EFA.

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2 Replies to “Markets I Trade: June 11, 2019”

  1. What do you mean by a full of half position? Is that based on you putting ~1% of your portfolio in each position, so full is 1% and half is 0.5%?

    1. Daren (Editor) says:

      I’ve settled on a maximum risk per trade at 2 percent of account equity (or, in other words, my maximum loss). For in-the-money options or leveraged ETFs, this works out to a max position of around 4-5 percent of equity based on my loss calculation before exit signals. For out-of-the-money options it would be a maximum of 2 percent of equity since I can realistically lose nearly all of my premium.
      Based on this, a half position would be around 2 percent of my account value.

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