The macro/micro wave strategy by Jay A. Leavitt combines established trading concepts with new ideas, focusing on trading stocks and bonds based on market conditions. Utilizing bull put spreads with a 75% probability of success, this strategy allows traders to manage risk effectively by limiting equity at risk and optimizing entry and exit points. Its historical performance significantly outpaced traditional mutual funds and the annualized return demonstrates a compelling advantage over conventional equity trading.

1. Macro/Micro Wave Strategy
Jay A. Leavitt, PhD

2. Combine Successful
Time Tested Concepts
with
Emerging Trading Ideas

3. SPY, SPDR S&P 500 Index
ETF
TLT, iShares 20+ Year
Treasury Bond ETF

4. What to Trade
Entry Criteria
Exit Criteria

5. SPX Hull Timer

8. 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

9. 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

10. Hull Micro Wave
Hull Bull [Green] Hull Bear [Red]

11. Hull[25]
Bull
Profit Exit >= Credit/2
Loss Exit <= Risk/4
Bear
Loss Exit <= Risk/8
Exit with any Profit
Entry Not Allowed

12. Limit of 25% of Equity at Risk per Trade
Bull Loss Exit = Equity/16
Bear Loss Exit = Equity/32

13. 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

14. 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

15. 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

16. 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%

18. 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

20. 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.

21. Jay A. Leavitt, PhD
leavitt@buffalo.edu