Note: Contact Paul for
current information about implementing this strategy due to the recent changes
in the Treasury Bond Market.
1. "Apex Trading"
The name I created for a particular strategy that sells and adjusts far out-of-the-money
deferred month options on US Bond futures. These options are relatively insensitive
to moves in US Bond futures.
The schedule for selling these options is dictated
by the return desired ("target return") either on the actual funds used
or on the amount of nominal funds. Adjustments keep the apex of the account's
performance curves centered over the current price of the US Bond futures contract.
Over time, this gives profits from time decay an opportunity to exceed losses
resulting from trends and from back-and-forth whipsaw action in US Bond futures.
"Apex Trading" doesn't attempt to forecast
where US Bonds will be tomorrow, next week or next month. Instead, it makes money
"following" the market. It builds positions over time and balances positions
as the market moves.
In other words, it responds to what the market is doing
right now. By contrast, other trading systems make a market forecast by using
some kind of logic that's external to the market. These other systems fail to
make money over the long run precisely because forecasting is an activity fraught
with pitfalls, especially when forecasting with factors external to the market.
"Apex Trading" builds positions incrementally
over time as US Bond futures move. There is safety in this "gradual"
technique because it produces performance curves having manageable slope.
In addition, "Apex Trading" facilitates generating
income separate and apart from time decay. How? Short option premium builds the
account's cash balance and a large portion of this cash can be used to purchase
T-bills for interest income.
The Concept - What "Apex
Trading" is about
"Apex Trading"
is NOT:
A. Technical or fundamental analysis of any kind
B. A directional forecasting technique
C. A cyclical model
D. A seasonal timing method
E. A "black box" system
"Apex Trading" IS:
A. A program for managing money by trading US Bond
options
B. A program for systematically buying and selling
US Bond options in accordance with specific entry and adjustment guidelines
C. A way to earn money from positive time decay regardless
of short term market direction
D. A method that doesn't care which way the US Bond
futures contract moves as long as it doesn't move "too much" in a short
period of time
E. A procedure for "staying balanced" in
relation to the price of the underlying US Bond futures contract
F. Procedures guided by risk management
G. A measured approach to trading that incrementally
builds positions over time (as opposed to initiating large positions all at once)
H. A trading technique for keeping the apex of your
position's performance curve centered over the current price of the US Bond futures
contract
I. A trading program that stays in sync with the market
because it doesn't try to guess the market's next move
Personal Observations
While waiting for profits, every trader must avoid
large drawdowns. Of course, most traders find this is difficult when they speculate
in highly leveraged instruments like options on futures. Avoiding significant
drawdowns takes specialized knowledge about how to use options and how to manage
risk by reacting to changes in the market.
I've learned that no one can consistently anticipate
what a market's going to do. Guessing market direction and risking money on "timing
a market" is a road to frustration (and losses) for most traders. So it's
important to let your market opinion "take a back seat" to an approach
that targets profits from factors besides market direction and that adjusts positions
when net deltas become unbalanced. The "Apex Trading" approach does
exactly that.
"Knowledge is power and all traders can benefit by continually
bolstering their knowledge base. I hope to contribute in that regard." Paul
Forchione
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