ROI Note Iron Condor Pinnacle Nov 2020

The year 2020 has been a challenging adventure.  The market started off 2020 with a melt-up in Jan and Feb where stocks got expensive and overextended trading at 19.5x forward earnings.  On Feb 27, 2020 when the market was at an all time high, COVID hit where we experienced one of the fastest, deepest and most violent crashes that we’ve seen in 25 years.  Most stocks and indexes were down -35% to -45% within three weeks.  Once the bottom was in place after about six weeks, the market started to rebound, led by the FAANG stocks where the S&P500 index (SPX) was back up to its pre-COVID high by Aug 2020.  At this point the market was still volatile because of COVID and because the US was heading into the presidential election. Trying to navigate and trade a market where volatility (VIX) is in the 30’s and 40’s can be challenging.  For a non-directional strategy such as Pinnacle, these huge moves are not helpful.  This strategy can navigate big moves, but it takes a lot of active trading and we will usually book some realized losses in the months where we’re making adjustment trades.  On the positive, we can usually keep the realized losses small as we are adjusting the trades.

As of early Nov 2020, we are finally through the election, the US has a new president that doesn’t have a twitter account, which is a positive as the market won’t whipsaw on a weekly basis from tweets, and volatility has been gradually coming down.  Because COVID is still front and center in the US, volatility (VIX) is still elevated, but it’s manageable.  Actually, because VIX remains elevated in the low 20’s, this is a positive for Pinnacle because we are able to shorten our trade duration down to one week and we’re able to bring in higher levels of premium.  When volatility is elevated, option selling strategies are highly optimum.

Because we are finally through the presidential election, we have light at the end of the tunnel on COVID, and volatility is still elevated but manageable, the Pinnacle strategy is now highly optimum.  This strategy should be able to book 7% to 10% monthly gains through March 2021.

This strategy is managed conservatively where the exposure level is held below 40% during steady state.  Thus, sufficient levels of cash are held in the accounts to manage through unexpected spikes in volatility.

All trades and returns can be verified as we send all trades to 3 separate brokers for autotrading.