IMPORTANT NOTE: TrendExhaustion.com and its representatives are NOT a registered or licensed investment advisor, and do NOT provide individual investment advice.
Jump to TrendExhaustion Credit Spread Option Strategy questions
Jump to TrendExhaustion Market Neutral Stock Strategy questions
- Is your “free trial” really free?
Yes. We want you to have the first month on us to get a good feel for the strategy before you spend any money. You can use this time to start trading alongside us, or just to watch and evaluate. Just cancel before the end of the trial period, and you won’t be billed. - You’re not tracking a stock I watch, can you add it?
We’re happy to add any stock you’d like, as long as it’s an actively traded company, just let us know! View our full stock coverage. - I’m not getting any trade alert emails — what gives?
First, try checking your spam folder. Due to the content of the email (e.g. “stock market,” “profit,” and dollar signs), some email providers flag it as junk. To get around this, just add tradealerts@trendexhaustion.com to your safe senders list, and they should route directly to your inbox. If it’s not in your spam folder, double check the email address you used when you registered. Since many of us have more than one email address, it might just be sitting in your other inbox. If it still is not working, please let us know and we’ll figure out a solution. - Do you provide an AutoTrade service with any brokers?
Currently, no, but we are working to establish these relationships as soon as possible. - Can I lose money by implementing this strategy?
Yes, as with any investment that isn’t federally insured. Never invest money you can’t afford to lose. Although we expect the strategy to remain profitable, past performance does not guarantee similar future returns. - How do I cancel my subscription?
You can cancel your subscription at any time by logging into your TrendExhaustion account, choosing “Edit My Profile,” then clicking “Cancel my Membership.” Your billing cancellation will be effective immediately, but your subscription will remain active for the remainder of the time that you have pre-paid.
TrendExhaustionPRO Credit Spread Option Trade Alerts
- How often will I get a Credit Spread Option Trade Alert?
Typically we see 1-3 alerts in the opening minutes of the market, and a few more throughout the day. With multiple trade opportunities throughout the day, you have the flexibility to pick and choose the opportunities that work best for you. As a PRO+CS Trade Alerts subscriber, you have the option to receive an email for each trade alert. They’ll also be available here on TrendExhaustion.com for your reference. - How do you choose which options expiry to use?
We write options that are 2-6 weeks from expiry. Under 2 weeks, the risk typically becomes too high for the return we would see; there is a smaller margin for error, and the likelihood of a single day’s movement resulting in a stop-loss drastically increases. However, the shorter the time-to-expiry, the more our out-of-the-money credit spreads benefit from the passage of time, so we want to be as short-term as possible. This is also known as being “negative theta,” where, holding price and volatility constant, the more time that elapses, the more profitable they become. - What is “Chance of Profit”?
We use standard deviation (based on a normal distribution of possible outcomes) to estimate the likelihood of the trade being profitable. This takes into account any declared dividends, as well as the premium collected for the trade. Take this scenario for example:- Stock price = $100, no dividend
- Standard deviation = $13 (based on the stock’s volatility, the standard deviation of movement between now and the expiry date)
- Writing the 115/120 call spread for a premium of $0.50
The breakeven stock price for this credit spread is (115 [short strike] + .5 [premium]) = $115.5. The number of standard deviations to the breakeven price is ((115.5 [breakeven] – 100 [current price]) / 13 [standard deviation]) = 1.19. The probability of a 1.19 standard deviation movement is 11.7% (using the z-score look-up table).This means there is a 11.7% chance of a negative return, or 88.3% chance of profit.
- What is “Max Return on Risk”?
This is the maximum amount we can profit on the trade. It’s calculated by dividing the premium by the result of subtracting the premium from the total risk (since we get to keep the premium no matter what). So, using the hypothetical trade above, the total risk would be the difference between the two strikes (120 – 115) minus the premium (.5) = 4.5.The max return on this risk would be .5 [premium] / 4.5 [risk] = 0.11 or 11%. The annualized version of the number assumes we are able to invest at this rate for an entire year, which helps us compare trades of different duration.
- What is “Expected Return”?
Expected Return is calculated using a modified Black-Scholes methodology. We take a series of potential unprofitable price outcomes for the spread, with stock movements ranging from breakeven to extremely unfavorable. We calculate a Black-Scholes option price for both the short and long legs at each scenario, and multiply the loss by the probability of its occurrence.We subtract the value of these 10 potential negative outcomes and half of the bid-ask spread (to assume we have to fill a stop-loss order at the market price) – from our initial premium to arrive at an expected return. This ensures we account for the probability and impact of potential negative outcomes – a very important tool for assessing the viability of a trade.
TrendExhaustionPRO Market Neutral Stock Trade Alerts
- How often do you trade with the Market Neutral strategy?
Typically we trade daily, towards the end of the trading day, and, as a Trade Alerts subscriber, you would receive an email with these trades as they are placed. They’ll also be available here on TrendExhaustion.com for your reference. - Is there a minimum account size to implement the TrendExhaustion Market Neutral strategy?
Most brokers require a minimum $2,000 equity account to execute short sales of equities, which this strategy uses. If you’re planning to follow the strategy exactly, ensure that you have enough capital to allocate to all 20 positions. Although TrendExhaustion does not set any minimum requirement for subscribers, an account size of less than $50,000 may result in impaired performance due to broker commission costs. - How much should I allocate per Market Neutral trade?
This is something you need to figure out for yourself or discuss with your broker or financial advisor, depending on your situation. We use 10% of our account size for each of the 20 positions, for a total of 200% allocation (100% long + 100% short). - Is the Market Neutral strategy 100% invested at all times?
Yes, actually, 200%. If you have a “margin” account with your broker (which you need to have in order to short stocks), you should be able to mimic that, if you decide to go that route. Your funds will be put to full-time use if you follow this strategy. - How do you calculate your performance?
We calculate our performance based on the change in our investment account value after transaction costs ($3/stock trade, MKT orders). This also includes all winners, losers, splits, dividends, mergers, spin-offs, and margin expense. This provides a true portfolio ROI that you can trust as what you would have likely achieved over that time period, given a similar allocation.