Just wanted to do a little update on the Premiere Level 5 trade. I call it the P5 for short. And today is the 17th of May. And the S&P is up about 56 points as we speak. And I put this particular P5 trade on yesterday and you can see it’s basically at break even. And you can see that my Deltas are very neutral, but here’s kind of the key here. The second order Greek here, the Gamma, look at that. I mean, that is just flat all the way across so you want to get flat Gamma. That’s one of the keys controlling the second order greeks.
Also, look at this headroom, what we call headroom here. So in 31 days my P&L will be up. You can see I have positive Theta which means that as time goes by the system will make money. And then if the stock market goes up or down, you can see that I have very flat Gamma. That’s the key.
If you were to look at something more traditional, let me kind of build a trade here. I’ll build a 45-day strangle real quick. And I’m looking at the /ES, the E-minis, not $SPX. Let’s do a 16 Delta short strangle, okay. So looking at the short strangle, yeah, your Gamma looks, you know, decent here. But look at the actual T+0 line, this is really your Gamma when you look at the curvature of this line. That’s your Gamma and that’s what you want it to be, straight.
You don’t want it to be, okay, well the market moved up and you lost money or the market moved down and you lost money. And so I’m looking at this number right here, okay. You can see the P&L number right here that I’m talking about. So you can see how if the market moves up or down you’re going to lose money right away if it happens in the short term. If it happens over a little more time, you know, you have a little more leeway, but this is a traditional structure.
Any kind of traditional structure that you might learn on Tastytrade, for example, you’re going to see this kind of Gamma. This kind of risk. Basically, when you have Gamma that is not flat or curving higher, curving up, you’ve got a lot of risk. And if you see Gamma that goes up like that, that means you’ve got a lot of negative Theta. In other words, you’re depreciating. That could be like a, you know the opposite of this, a long straddle. So you could get some good Gamma here.
Let’s see, if I’ll make this into a long straddle here. Yeah, look at that. Great Gamma, right? But the problem with that is you’re going to be sucked down into this loss area over time, because you have negative Theta. So your key is to have a structure that controls the second order greek. Let me go back to the other one. Okay, so you see you’ve got good flat Gamma; a lot of room to the upside, a lot of room to the downside. But yet over time, you make money. That’s one of the keys.
Now, I have my second position on here. I’m sure this is my second position. I put it on yesterday. I have my first position here. Okay, so on this particular trade you can see that it’s down; still keeping that Gamma flat; doing the best to keep that Delta flat; still have more–the more time that goes by the better off I’m going to be. And we want to make sure we’re flat out here. And this particular trade is down because when I put it on the volatility was lower and so when volatility expands you can see I have negative Vega. Sometimes these trades take more time to mature to get over some of this negative Vega. And that’s what happened with this trade. So because when I put it on the market was probably up 10% higher, right. So when you see a big move down this P5 structure it’ll get hurt for a little while until–it just takes more time for it to recover. And that’s what’s happening with this particular trade right here.
So this trade right here I see it potentially breaking even or coming out ahead over time. It just needs time to mature. So that’s kind of another key is when you have a good down market the P5 structure, the way that the trade plan works sometimes, your current structures might get hurt a little bit but your newer structures, like yesterday, I took profit on another structure that I had. It made like somewhere between $400 and $500 profit. So I’ve got structures taking profit. I’ve got structures that need maturity and I’ve got structures that are, you know, new that need some time to develop.
So that’s what’s good about the P5, you know, you just make about three adjustments a month, approximately. it doesn’t really take a lot of time but your drawdowns are very minimal. This is a $30,000 account right here and current account level is about at breakeven and I’ve been doing this for about a month now so, you know, the market’s been down, I don’t know 10% over that time period and we’re still at a break-even level. Which is not bad.
And of course, I’m talking about the total portfolio. I’m not talking about a couple trades here, and a winning trade over here, and a winning trade over there, and then I don’t talk about my losers. That’s not how this works. This is a total portfolio situation here.
If you’re interested in trading, you know, low-key low-risk with decent returns, my P5 system is a good way to go and I’ll put a link in the description below if you’re interested.
LINKS MENTIONED:
Link to Premier Level 5 Back Tests
