Sh** Happens (on Tuesday and Thursday Nights)


This all started over the weekend, when I started wondering about a trade I had going. The trade hadn’t hit my profit target on Friday and so carried over through the weekend. I started wondering about day-of-week ‘seasonality’ and thought I’d bust out the old charts and see what’s up.

Let’s take a look at SPY from 2000 through the current date. If we buy on a given weekday at the open and sell at the close, what’s the tendency? Is one day of the week better than the others? Here are the averages for each day of the week, open-to-close:

Continue reading Sh** Happens (on Tuesday and Thursday Nights)

Mexico in December (Seasonal Trading Patterns)

"Flag of Mexico" by Alex Covarrubias, 9 April 2006Based on the arms by Juan Gabino. - This vector image was created with Inkscape.Mexican Government. Licensed under Public Domain via Wikimedia Commons -
“Flag of Mexico” by Alex Covarrubias, 9 April 2006 Based on the arms by Juan Gabino. – This vector image was created with Inkscape.Mexican Government. Licensed under Public Domain via Wikimedia Commons –


Fresh on the heels of my seasonal trading win with a Treasury Bond ETF (TLT), I thought I’d poke around with my own seasonal-trend research. Jay Kaeppel is in my mind the King of Seasonal Trends, and he’s even written a book on the subject. I thought I’d sniff around and see if I could come up with something too.

After browsing through the world index data I have, my thoughts settled on my nearest international neighbor: Mexico. Mexico’s economy is closely linked with the United States, but different factors drive it (commodity prices for example). So why not take a look?

I busted out AmiBroker and came up with a quick script that would allow me to enter and exit a trade based on the month of the year. After finding the best calendar month, I was able to fine tune the script so I could focus on particular days of the month for entry and exit.

The equity curve is compounded, starting with an account of $100,000. Since this was actual index data I was looking at, I needed a large position size otherwise it wouldn’t trade. I did include commissions, but they’re negligible for this test.

I first noticed that December was the best month of the year, followed by November. However November didn’t seem to have quite the success story as December. So with a little fine-tuning, I came up with the best seasonal plan:

• Buy on the 15th trading day of November.

• Sell on the first trading day of January.

It generates an exceedingly smooth and supple equity curve, as you see below.seasonal Mexico best

Compare that to the worst month of the year for the Mexican stock market, which is October:



seasonal Mexico worst

As you can see, the market had a devastating blow in October 1987 that the equity curve never recovered from. Even excluding that first year of data, it’s a pretty bumpy ride.

Check out these stats comparing “December Plus” vs October:

Screen Shot 2015-05-27 at 9.09.04 PM

Pretty sweet, yah?

Funnily enough, this is very much like the S&P 500 seasonal pattern. For the S&P the end of the year is usually best, especially December. Therefore a seasonal trading system based on the Mexican stock market might not give you the diversification you’re looking for (unless oil prices are up).

You can’t trade the index directly of course, but those smart folks over at the ETF factory have cobbled together something you can spend your money on. Several somethings in fact.

There’s EWW for starters, or UMX if you like a little more sizzle in your ETF steak. And if you’re feeling bearish, there’s the inverse and leveraged SMK. The last two seem a little slim in the volume department, so do your own research.

¡La negociación de valores puede ser riesgoso!


The Advice of Others

TLT-options-tradeFor those of you who are familiar with the iShares 20+ Year Treasury Bond ETF (TLT), you’re probably looking at that chart and thinking: “no friggin’ way did TLT jump 24% in a day.” And you’d be right. But none the less, I made 24%+ after commissions on a TLT trade that I exited this afternoon.

The secret behind this of course: options. And the reason I took this trade in the first place is because of a seasonal trend in bonds that often happens around the same time of every month.

There are a lot of finance blogs out there, and many bad ones (including this one? 🙂 ). There are a few people I really respect though, and one of them is Jay Kaeppel. His ‘hobby’ is discovering seasonal trends in the markets, and I’ve read his book on the subject, and enjoy his blog posts about seasonal and recurring patterns in trading. One pattern that sounded very interesting was a bump in bond prices at the end of many months (you can read about it here).

But how to play it? I’m not going to invest directly in bond futures, and in fact my brokerage doesn’t offer that. I can however buy an ETF that tracks bond futures. But TLT is a pretty low-volatility ETF. It actually has too little volatility to justify a swing trade with the position size I was envisioning. Even a winning trade might generate a loss after commissions. I could however trade options on stocks and ETFs with my brokerage. This allowed me to bring more risk/reward to the transaction. So that’s what I did.

I wanted to risk about $200 or so in hopes of making the same amount or more. I’ve learned (from Jay’s site and books I’ve read) that a good way to trade stock options on the long side is this:

• Pick an expiration date that is at least a month beyond what you think your exit date will be. This reduces the amount you lose in time premium as the expiration date gets closer.

• Pick a strike price that is firmly “in the money”. TLT opened on Friday around $120, so I bought a call with a strike price of $118. Ideally, I’d pick an option with a strike price that was close to where I’d place my stop loss. Sometimes that’s not practical.

Options with these attributes have a higher delta, and will track the underlying stock/etf price more accurately than would an out of the money option, or one with a nearer expiration date. If the price were to move the wrong way, the option will still have plenty of value and it will be easy to offload at a respectable price. No one wants an out-of-the-money option that expires in five days!

The downside is that these long-expiration, in-the-money options are more expensive. A single contract was priced at $410, and I bought two of them. If I lost $100 per contract, that was my sign to get out.

With options, the upside can be big, but so can the downside. If TLT had lost 2%, I would have lost several hundred dollars. Just because you need less money to enter a position does NOT mean you can ignore your downside risk. I’ve entered into some option trades being fully prepared to lose the entire thing. You must keep your position sizes polite and demure.

Fortunately, this trade went the other way, and I made $103 x 2 before commissions. Nice!

Now if you’ve actually read Jay’s post, you’ll see it says to hold for more than two days. I got out early, and I have no regrets. I made the money I’d hoped, and I have a sneaking suspicion that today’s bump won’t last. So I’ll take my profits while I can.

Bonus: this makes up for (and then some) the bad trade I had in gold, which stopped out this morning. Win some, lose some, and hopefully win more than ya lose!