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Surfing the waves

Surfing the waves

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The Macro/Micro Wave Strategy, from before the 2008 crash through the 1st quarter 2014, greatly out performed all mutual funds as measured by draw down and annualized rate of return. Even the Warren Buffett stocks [BRK.A] weren’t a challenge. Its draw down was over 3½ times worse and annualizd rate of return insignificant in comparison.

The Macro/Micro Wave Strategy, from before the 2008 crash through the 1st quarter 2014, greatly out performed all mutual funds as measured by draw down and annualized rate of return. Even the Warren Buffett stocks [BRK.A] weren’t a challenge. Its draw down was over 3½ times worse and annualizd rate of return insignificant in comparison.

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Surfing the waves

  1. 1. Macro/Micro Wave Strategy Jay A. Leavitt, PhD
  2. 2. Combine Successful Time Tested Concepts with Emerging Trading Ideas
  3. 3. SPY, SPDR S&P 500 Index ETF TLT, iShares 20+ Year Treasury Bond ETF
  4. 4. What to Trade Entry Criteria Exit Criteria
  5. 5. SPX Hull Timer
  6. 6. Bull Trade Stocks in Rising Markets [concept] SPY Active Bull Put Spread 2 Strikes Wide Short Strike 75% POS Bear Trade Bonds in Falling Markets [concept] TLT Active Bull Put Spread 2 Strikes Wide Short Strike 75% POS POS Probability of a Successful Trade
  7. 7. Bull Trade Stocks in Rising Markets [concept] SPY Active Bull Put Spread 2 Strikes Wide Short Strike 75% POS Bear Trade Bonds in Falling Markets [concept] TLT Active Bull Put Spread 2 Strikes Wide Short Strike 75% POS
  8. 8. Hull Micro Wave Hull Bull [Green] Hull Bear [Red]
  9. 9. Hull[25] Bull Profit Exit >= Credit/2 Loss Exit <= Risk/4 Bear Loss Exit <= Risk/8 Exit with any Profit Entry Not Allowed
  10. 10. Limit of 25% of Equity at Risk per Trade Bull Loss Exit = Equity/16 Bear Loss Exit = Equity/32
  11. 11. The SPX Hull Timer keeps trades on the right side of the market Bear Micro Waves keep you out of the market when it’s against you Stops When the SPX Hull Timer changes it is a Stop When the Micro Waves turn bearish it is NOT a Stop
  12. 12. The 75% POS of the short strike puts the odds in your favor The exit at 50% of credit improves these odds and raises the daily return/trade When the Micro Wave is bearish the per trade exit is only 3.125% of equity
  13. 13. 1st 14 days of Micro Wave Take advantage of trough when likelihood of winning trade highest Move spread 2 strike closer to ATM unless IV Rank >= 50 Waves 30 days or longer Reduce risk when likelihood higher for wave to crest Move spread 1 strike further from ATM Other refinements After a losing trade skip 1 bar During a Bear Wave close trade with any profit
  14. 14. Average Days in Trade 9.23 Average Days in Losing Trade 8.39 Percent of Winning Trades 82.31% Maximum Draw Down -14.46% Maximum Quarterly Draw Down -9.03% Compound Rate of Return 31.38% Percent of Equity Available for Other Trades 75.00%
  15. 15. Wave reversals lasting 3 or fewer days Two types Bull  Bear  Bull 3 occurrences These are of no consequence Bear  Bull  Bear 8 occurrences 3 were losses One resulted in the largest Draw Down
  16. 16. The Macro/Micro Wave Strategy, from before the 2008 crash through the 1st quarter 2014, greatly out performed all mutual funds as measured by draw down and annualized rate of return. Even the Warren Buffett stocks [BRK.A] weren’t a challenge. Its draw down was over 3½ times worse and annualizd rate of return insignificant in comparison. Risk associated with this type of option strategy, OTM Bull Put Spreads, is always smaller than trading the underlying equity. The Probability of Success for trading an underlying equity is always smaller than the option’s. The Macro/Micro Wave Strategy is highly intuitive: buy stocks in rising markets and bonds during falling, buy low and sell high, by placing only a portion of equity at risk keeps the balance available for opportunities. The Macro/Micro Wave Strategy is permitted in IRA accounts.
  17. 17. Jay A. Leavitt, PhD leavitt@buffalo.edu

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