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March Readout And The Long, Slow Game

Happy April, everyone! It's been a banner year and it keeps coming. We aim for a 90% win rate, but this year we are churning at 99.2% YTD and 98.7% for trades closed in March.

March 2021 Readout

Currently, we show 95 open trades in 38 unique tickers. 83 of our trades (34 tickers) have a positive cushion, with only 12 trades (4 tickers) below breakeven.

We closed out 153 trades in March with only two losses. Below is a link to an Excel file showing the data on all 153 of our March exits.

NGT March 2021 Closed Trades
Download XLSX • 121KB

The numbers for March 2021:

- 151 wins, two losses

- average P/L: 2.41%

- average duration: 6.3 trading days

- average P/L per day: 0.55%

- P/L for the month: 12.7% (average P/L per day * 23 trading days in March)

- Annualized rate: 137.7% (average P/L per day * 250 trading days per year)

If you traded $6,500 in each trade closed in March, your profit curve would be below:

The Long, Slow Game

Options trading is fast-paced and fun most of the time. Indeed, we aim to win at least 90% of the time, and our average trade is only 6.4 trading days long. It's like a glorious run through the woods on a summer day. Despite this general feeling of rapid richness, we all must remember that options trading is like any other investment method: it is a long, slow game. That run through the woods? It's a marathon, not a sprint.

There are two paths that we take in our trading. One is the obvious fast path, the one everyone focuses on. But, the other path is critically important. It is the long, slow one, and it is usually either forgotten or feared.

Let's back up a minute and remember that selling options means we become insurance providers for the stocks. Whoever buys our options pays us a premium for that insurance. In our NGT system, we insure two categories of companies: (i) those that are selling way above the strike price, meaning they have to fall very far before the policy kicks in; or (ii) solid companies for whom people are willing to pay a larger premium than is justified. If the stock does not fall below the strike, then we keep all the premium. If the stock does fall below the strike, then we have to pay out on the policy.

Or do we...?

Now imagine that our NGT options-selling insurance company has two agents: Agent Fast and Agent Slow. Agent Fast handles all the intake. She picks the companies and collects the premium and moves on. Picking, collecting, picking, collecting. This is the life of Agent Fast. Agent Slow sits around. She gets bored, doing nothing 90%+ of the time. Why is she even there? Who? Agent Slow. Oh yeah, we already forgot about her.

Then one day, one of the companies that we insure has tanked: the stock price fell below the strike price. Whoa, we almost forgot that this happens. But, it is normal. Now this insurance policy we sold has to pay out, and the agency needs to handle it.

Agent Slow to the rescue. That Fabulous Fixer. She is the Winston Wolf of our operation. (Coincidentally, both Wolf and Mrs. NGT like their coffee with "lots of cream, lots of sugar".)

Agent Slow is able to fix many, but not all, of the company's problems, because she has a decided advantage over her customers (the buyers of our options): She can renegotiate.

Think about that for a moment. You pay for car insurance that gives $10,000 in coverage. You get in a wreck and cause $20,000 in damage. Can you renegotiate with your insurance company for a $20,000 payout? No, you can not. Can your insurance company renegotiate with you and say "We'll pay you next month, but give us more premium in the meantime?" No, they can not.

But Agent Slow can do just that. When you sell options, you can renegotiate your deal. You can literally say, "We'll pay you next month, but give us more premium in the meantime."

And you can do this week after week and month after month for as long as you like.

Did you say month after month? But weren't we just talking about 6.5 days per trade? Yes, but that's Agent Fast's life. She works on 6.5 days per trade. Agent Slow, on the other hand, is aptly named. Re-negotiation takes time.

Agent Slow has a lot of tools at her disposal:

(1) Sometimes, she decides that it's best to cut and run; she'll pay out on the policy and move on because she will make more money in new trades than in fixing the broken one. She did this with FREQ and, for some of you, IDRA.

(2) More often, she will buy back the old policy and sell a new one that expires later using a "rollout." She is amazing because she can do this for a net credit, meaning she sells the later option for more than she pays to buy back the old one. The result? Money comes in the door, rather than goes out, and the trade stays open.

(3) Agent Slow can sometimes even get an even better deal than the original and still get paid for that. This is a "roll out and down," where you can get a lower strike price for a net credit.

(4) When Agent Slow really wants that lower strike, she will buy back the old option and sell twice as many (in dollars) of the new option, again for a net credit. This is a "roll out, down, and double." She gets paid again for a better deal, but has to reserve more money for those options.

(5) Agent Slow can also let in-the-money puts be assigned and then write calls on the stock to earn more premium. Note: assignment is a zero-sum event, and we do not fear it when we are in the money. Sometimes it can even be helpful.

The key point here isn't so much the tools that Agent Slow can use, which we have discussed before, but rather how long it takes her to do her magic. Trades can be repaired, but it can take months. And what's wrong with months if you're still bringing in 1% to 5% of premium in repair every month? The answer is: nothing. That's a 12% to 60% annual rate.

In March, with IDRA, Agent Slow did a roll out, down, and double (#4 above), moving our $3 puts down to three times as many $2 puts. (That's a double, not a triple, since 3 x $2 = $6, which is twice our original $3 position.) She was able to gain another $0.10 per contract. That's 5%. Her breakeven point is now between $1.70 and $1.80 now, with the stock at about $1.30. She will continue to try to get 0.10 per month (or more if she can). That's another 5% of premium. Who can complain about that?

Some of you were assigned your IDRA shares in April and were able to write May calls on them for even more premium. You can do that again in May (for June) and reduce that cost basis further.

The same is true of the DISCA and VIAC trades. We rolled out, down, and doubled to lower our strikes by $10 and also earned several more dollars of premium. Our DISCA $65 put breakeven went from $63.5 to $53.2. Our VIAC $80 put breakeven went from $78.4 to $66.28. We will continue to try to roll these for credits (without doubling any more) to further reduce the cost basis. If we are assigned, then we will write calls. If the stocks come up, great. If they don't maybe we cut and run. But that's for down the road. Agent Slow isn't done with these yet.

Thus, you see that Agent Slow doesn't work trades, she manages campaigns. Her job isn't a quick buck. Instead, she works on long, slow projects to reduce loss and, if the stock recovers, possibly even make some gains.

In the meantime, Agent Fast continues to do her work. Our average P/L in March (including FREQ and APPH of course) was still 2.4%. It won't take you long to recover from any loss at that rate, and in the meantime Agent Slow is doing her work to earn premium as well. Her monthly repairs are income for your insurance business.

We hope this puts some perspective on our options selling and if you have any questions, please feel free to email us at

Cheers and happy trading!

Marc and Laura


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