Design a trading plan for a $25,000 account
Goal: Grow account to $75,000 to pay off forever-home to get ready for retirement. Grow by 10% to meet the target retirement time frame of 11.5 years.
Trading Plan: Earnings in S&P 500 companies to achieve 4% annualized profit (need to test to get a more realistic goal). Trade Covered Strangle and Ratio Diagonals to achieve 6% profit, utilize Box Spreads to capture risk free rate and cover any downsides in options strategies.
Risk Mgmt: Exit uncapped risk positions at 15% drawdowns, flatten capped risk positions at 50% loss.
Tracking: Spreadsheet, track overall portfolio utilization, positional risk, ROIC (measure efficiency), CAGR (measure on portfolio track). With a small account need to stay efficient with collecting premium, Target 20% APR, higher APR target to increase efficiency and counter cap lock up in underlying.
Trading Earnings:
Entry Criteria: S&P 500 companies with high probability of actual move less than implied move. Test short strangle strategies. Test weekly short call and short put spreads at 20 delta short, 5 delta long for both wings.
Exit Criteria: Exit based on time duration or max loss is reached, can use stop losses
Risk Management: Max loss of 200%, need to test to get a more realistic drawdown target
Position Sizing: $5,000, allocate cap for one short call and one short put per position
Strategy Testing: test on past 12 earnings per stock earnings for both short duration and weekly
Record Keeping: spreadsheet, track options delta premium prices and max loss and max gain, implied move and actual move
Adjustment Rules: These are time specific trades, They either get flattened at a specific time or if max drawdown was reached. No adjustment is needed.
Review Process: track win/loss, max drawdown, max P/L, win/loss rate
Trading Covered Strangle:
Entry Criteria: S&P 500 companies that have options. Identify support and resistance levels. Use 100 Linear Regression Channels to determine upward direction. Identify stock price targets and downside price targets. Flatten if unrealized and/or realized loss is $5,000.
Exit Criteria: stock price falls below identified support level, max loss has been reached.
Risk Management: Flatten if underlying falls before floor level of support. Or max unrealized loss has been reached.
Position Sizing: $20,000 allocation, half for stock (layer into the trade once direction has been confirmed) and half for cash secured puts (layer into the trade)
Strategy Testing: Backtest over various time frames in different market conditions on ETFs and individual stocks to develop skills in picking direction and length of move and profit targets.
Record Keeping: track, price of long shares, unrealized P/L of stock. Unrealized P/L of open options. P/L of closed shares and closed options. Track APR of selling premiums to verify efficiency use of capital.
Adjustment Rules: Use different DTE options expirations to diversity risk and capitalize on high volatility. Stay within 100% utilization.
Review Process: Verify selling options APR are in alignment with the profit target of 8%. Verify that the initial direction of the trade was correct.
Trading Ratio Diagonal:
Entry Criteria**: S&P 500 companies that have options. Identify support and resistance levels. Use 100 Linear Regression Channels to determine direction. Identify underlying downside and upside price targets. Flatten if unrealized and/or realized loss is $3,000.
Exit Criteria**: When price target of underlying has been reached or max loss has been reached.
Risk Management: Flatten if price goes above ceiling or below floor level of support or max loss has been reached.
Position Sizing: $20,000 allocation, 75% for long option (layer into the trade once direction has been confirmed)
Strategy Testing: backtest using ETF and individual stocks over many weeks and months to practice keeping track of metrics and managing the position.
Record Keeping: track Unrealized P/L of open options. P/L of closed options. Track APR of selling premiums to verify efficiency use of capital. Track long option is not losing value faster than short options premium collected.
Adjustment Rules: Use different DTE options expirations to diversity risk and capitalize on high volatility. Stay within 100% utilization.
Review Process: Verify direction correctness and APR of short options are in alignment with expected returns on capital, 8% at a minimum.
Trading Box Spread:
Entry Criteria: Find profitable position for a duration that does not lock up capital needed for other strategies.
Exit Criteria: Let expire, too expensive to manually flatten
Risk Management: Need cap before expiration
Position Sizing: Only amount of available cash for the time period
Strategy Testing: back test using onDemand
Record Keeping: Calc max loss and max gain
Adjustment Rules: Not able to adjust, too expensive
Review Process: Verify the return is current risk free rate