2016 Year End Performance Review & Strategy Update
Many Ways To Trade’s Time Bandit Trader and Option Scalper newsletters ended 2016 with mixed results. After leading the industry for 7 straight years, 2016 became the first Time Bandit Trader posted less than double digit returns and Option Scalper posted a loss.
Time Bandit Trader: +2.9% in 2016
After experiencing 2 losing months in Q1, Time Bandit Trader successfully clawed back into positive territory by May. From there it was off to the races. From May to November Time Bandit Trader posted a 47% return; a 62% rise of the low point of 2016 in March.
Unfortunately, December’s Trump induced rally exceeded Time Bandit Trader’s expectations. The sharp unrelenting market rise led to losses on short December call spreads. Ultimately, after a December loss, Time Bandit Trader ended the year with a modest 2.9% gain.
The December loss was very disappointing after posting such stellar returns after a rough start to 2016. The lessons learned from 2016 losing trades is that the market is behaving much differently than the last 5 years. Powerful directional moves are becoming more common and much longer in duration.
As a result of lessons learned in 2016, Time Bandit Trader’s adjustment thresholds have been further tightened to 2% OTM on RUT and 1.5% on SPX. Meaning, if the underlying reaches with 2% or 1.5%, respectively, the spreads will be adjusted despite how overbought/sold etc the market may be. In full disclosure, Time Bandit Trader is currently nursing an SPX trade originating in January that has been adjusted twice now out to March expiration. The adjusted trade is close to the money but still carries a healthy credit and almost 40 days until expiration. This gives Time Bandit Trader confidence in an acceptable outcome for the trade.
Additionally, by examining 2016’s trades TIme Bandit Trader has diagnosed lost opportunities to iron condor past trades. Going forward, iron condors will be utilized more commonly to balance risk in the portfolio. By doing so, impacts of future losing trades can be reduced by profits generated on the non-threatened side of the iron condor trade.
Option Scalper: -38% in 2016
After a 5 year run of consistent returns between 64% to 161%, ranking Option Scalper among the top performing newsletters available, our wings were clipped in 2016.
Option Scalper started the year nicely realizing a 20% portfolio return by March. However, in March, a short call spread was chased higher ultimately placing the trade in a no-win situation heading into quarter end and being exposed to dividend risk. The losing trade took a toll on the portfolio but thanks to our capital allocation strategy, we still had capital to trade and dig out of the hole.
Option Scalper did a great job of rebuilding the account almost making back into positive territory. However, a losing trade in December (like Time Bandit Trader and many other credit spread sellers) impacted the portfolio placing it squarely in negative territory for the year.
Like Time Bandit Trader, Option Scalper also gleaned learnings in 2016 spurring actions to be implemented to protect and minimize future trading losses. Specifically, generating larger entry credits, adjusting trades sooner via imposing Delta adjustment thresholds of 0.30, and iron condoring more trades to provide a more balanced portfolio.
Additionally, analysis of 2016 trading yielded Option Scalper became a victim of its own success. Trades were so easy for so many years that more aggressive entries could be made. However, with the new rising-further-for-longer-market of today, forcing aggressive entries cannot continue. More simply put, Option Scalper may not trade every week and will be more judicious in not only entering new trades but also closing threatened trades to protect capital.
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