Smb options tribe_4_2_2013

Andrew Falde | April 2013
DISCLAIMER: This material is being provided to you for educational purposes only. No information presented constitutes a
recommendation by LessThanRandom.com, Falde Capital Management, or its affiliates to buy, sell or hold any security,
financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is,
nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully
responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your
financial circumstances, investment objectives, risk tolerance and liquidity needs.
Andrew Falde | LessThanRandom.com | SMB Options

1. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and
training. SMB TRAINING offers a number of products and services, both electronical (over
the internet through smbtraining.com) and in person. SMB TRAINING also offers web-based,
interactive training courses on demand.
2. The seminars given by SMB TRAINING are for educational purposes only. This information
neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell
securities. You shall be fully responsible for any investment decision you make, and such
decisions will be based solely on your evaluation of your financial circumstances,
investment objectives, risk tolerance, and liquidity needs.
3. This material is being provided to you for educational purposes only. No information
presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or
hold any security, financial product or instrument discussed therein or to engage in any
specific investment strategy. The content neither is, nor should be construed as, an offer,
or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for
any investment decisions you make. Such decisions should be based solely on your
evaluation of your financial circumstances. Such decisions should be based solely on your
evaluation of your financial circumstances, investment objectives, risk tolerance and
liquidity needs.
4. SMB Training and SMB Capital Management, LLC are separate but affiliated companies.
5. No relevant positions
6. Please note: Hypothetical computer simulated performance results are believed to be
accurately presented. However, they are not guaranteed as to accuracy or completeness and
are subject to change without any notice. Hypothetical or simulated performance results
have certain inherent limitations. Unlike an actual performance record, simulated results do
not represent actual trading. Since, also, the trades have not actually been executed; the
results may have been under or over compensated for the impact, if any, of certain market
factors such as liquidity, slippage and commissions. Simulated trading programs in general
are also subject to the fact that they are designed with the benefit of hindsight. No
representation is being made that any portfolio will, or is likely to achieve profits or losses
similar to those shown. All investments and trades carry risks.”

 The LRC Channel is a statistical tool with 4
decades of results that have been
consistently effective during many different
market conditions.
 LRC Channel trading is a mathematical way to
buy relatively low and sell/short relatively
high while respecting the overall trend.


 Hundreds of thousands of algorithm back
tests on the four major indexes (SPX, NDX,
RUT, DJI) have revealed remarkably consistent
results using the buying and selling points of
1.5 ATR below and above the LRC with both
calculations looking back 20 bars.


 40 Years from 1973 - 2013
 702 Signals
 Average time in all signals: 21 Days
 Average time in winning signals: 16 Days
 Average time in losing signals: 28 Days
 Losing signals are caused by extended cycles
 63% winning, 37% losing signals
 Average signal P&L: 0.5% ((2.7% x 63%) – (-3.2 x 37%))

Andrew Falde | April 2013 All trades are hypothetical; simulated using past data.

400,000.00

350,000.00

300,000.00

250,000.00

200,000.00

150,000.00

100,000.00

50,000.00

-
M-73 M-79 M-85 M-91 M-97 M-03 M-09

(50,000.00)


 The underlying signals have 63% historical
probability of reaching a profitable exit at the
other side of the channel.
 Using positive theta credit spreads further
increases the probabilities of trade profitability
anywhere from 69% to 80% depending on the
Delta selected (ATM to .25 Delta).
 The majority of trades win, BUT many trades have
a draw down before exit
 A trader must fully understand the expectations
of the trade cycles to maintain positions,
especially during difficult intra-trade draw
downs.


 Trades require almost no management
between signals
 You do not have to watch the market intraday
 Very low commissions and spread costs
 No stop outs or overreactions to noisy
markets
 100% rules based criteria for entry, exit,
managing winners, and managing losers.


 136 cycles from January 2005 through
January 2013
 Includes
◦ Financial boom
◦ Financial crisis
◦ The Great Recession
◦ 2009-2010 recovery
◦ Flash crash
◦ QE1, 2, 3
◦ Etc.


- ATM
- .25 Delta
- SPX

Jan 2005 Jan 2013


 2 Big losing signals that lose a lot (fat tails)
 2 Difficult trades that win (patience and theta)
 1 Medium size win (a little heat)
 1 Big win (with no heat)


 Underlying signal: -6.61%
 Entry/Exit: 12/17/2007 to 1/25/2008
 Time in trade: 39 Days
Options Trade P&L: -$13,130


 Entry/Exit: 9/01/2010 to 9/23/2010
 Options Trade P&L: -$6,340


 9/4/08 - Long
 6/6/2012 - Short


 Entry/Exit: 9/04/2008 to 9/19/2008
 Signal draw down before exit: -9.1%
 Options Trade P&L: +$970


 Underlying signal: 0.09% (Break even)
 Entry/Exit: 6/6/2012 to 6/25/2012
 Options Trade P&L: +$1820


 7/13/2006 – Long, Medium win, A little heat
 5/31/2011 – Short, Big win, No heat


 Underlying signal: 1.26%
 Entry/Exit: 7/13/2006 to 7/25/2006
 Options Trade P&L: +$4,020


 Underlying signal: 3.9%
 Entry/Exit: 5/31/2011 – 6/6/2011
 Signal draw down before exit: -0.01% !
 Options Trade P&L: +$8,545


 LRC Credit Spreads Course
◦ Entirely systematic
◦ Learn trade entry and exit rules
◦ No discretionary decisions required
◦ Define sustainable risk/reward
◦ Know when and how to manage winners and losers
◦ Review options profiles on 1+ year of signals
◦ Develop an understanding of market statistics that
will help overcome psychological pit falls


Smb options tribe_4_2_2013

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