Calvin Strategy 2.0: Updated Strategy For Macro Sentiment Indicators

This article was written by the Cindicator team based on posts from CalvinXTZ, the author of a strategy for Macro Sentiment indicators, in Calvin Strategy Discussion channel on subscribers-only Discord. The posts have been edited for clarity and CalvinXTZ has added new information as well. If you have questions, please ask them in Discord, which you can join as a trial member.

The Macro Sentiments from Cindicator and the Calvin Strategy (from Calvin) are new tools, and there aren't any users manuals. I (CalvinXTZ) developed an analytical tool that enables me to look at the weekly Macro Sentiments to determine if the markets are likely to go up or down in the coming week. That’s all the Calvin Strategy does: signal if and how the market will move in a week. I share that information in the channel. Then subscribers determine how they want to trade based on that signal. I post my own trade each week and let anyone copy my trade if they like it.

There are many helpful subscribers who offer good insights. The Cindicator Sentiments Discord chat has become a community where it's all about helping each other. It's not a forum for boasters and braggarts and complainers. Everybody is welcome and should always feel free to ask questions.

I’ll add that I am not an employee of Cindicator. I'm just a CND token owner who has been using their tools to make money since 2018. I share my approach to using the sentiments because I'm happy to help others make money. Also, I want the token’s value to reflect the utility of Cindicator’s products because I own a lot of CND (purchased at a much higher price than the current level).

Before we dive into details, it’s important to note that I am not giving financial advice or telling anyone what to do. I'm sharing my interpretation and my trades and people can copy my moves if they want to. While my approach has been tremendously profitable so far, there are no guarantees... about anything... at all. Anyone who copies the Calvin Strategy trades does so at their own risk. I will offer what I’m doing each week as an example but what you do is up to you.  

That being said, I hope you have great success with Macro Sentiment indicators.  

Here’s an Example

On Sunday, December 13, the Sentiments were published by Cindicator. I analyzed the numbers and informed the channel, on December 13, 2020, that the markets in the coming week were likely to go down by -1%… and also up by +1%. I published that my trades were to buy Puts AND Calls on the etf, SPY, at the market open on Monday, December 14, 2020. And to sell the Puts once they hit their price target and to buy more of the Calls at the time. The SPY fell by more than -1% on Monday, the puts were highly profitable... And then the SPY went up and reached +1% on Thursday... and the calls were highly profitable. Exactly as the Calvin Strategy 2.0 suggested would happen.

The Calvin Strategy 2.0

In May of 2019, when we first started working with the Sentiments that are published on Sundays, we were measuring S&P 500’s prior Friday close to next Friday close and judging the correlation of the Sentiments to the stock market using those two points. We used the exchange traded fund SPY for this purpose.  

Then I realized that the prior Friday close doesn’t matter because we can’t buy anything using that price. And the next Friday close does not matter because we never held an option to expiration... so there was no sense in measuring the correlation of Sentiments to markets according to the two Friday closing prices.

Instead, I started using the Monday open price of SPY and looked at weekly highs and lows.  And found that I could identify weeks with moves greater than 1% up or down with good accuracy.  

I also modified my analysis to consider more than just the levels of Sentiments and the amount of Sentiment changes from week to week. That is my ‘recipe’ for success and I will not share every detail of how it works. But I will share the trades that I will do as a result of my analysis.

Also, I refer throughout to using SPY for trading. I also examine the correlation of the Sentiments to the Russell 2000 Index and use the exchange-traded fund, IWM, for that purpose.  It has been effective to use both SPY and IWM for the Calvin Strategy. I use SPY in this article but you can replace SPY with IWM throughout.

This updated strategy is referred to as “CalStrat2.0”.

The CalStrat2.0 is straightforward:

1. Invest what you're willing to lose. Options are risky.
2. Wait for the CalStrat2.0 signal for whether or not the SPY is likely to go up or down 1% in the coming week.
3. On Monday morning, based on the CalStrat2.0 signal, buy a Call or a Put with a strike price that is at-the-money or a little out-of-the-money of the SPY opening price on Monday with the expiration of Friday of that same week OR the expiration of Friday of the following week.
4. Important: if you don’t know what at-the-money and out-of-the-money mean, then you shouldn’t be trading options.
5. That idea of using the second Friday for expiration came from a number of members. But it was member Balthius who convinced me, with data, that the next Friday expiration works better. So at this point (December 2020), I use the next Friday as the expiration. Other members use the near Friday expiration. It’s up to you.
6. After the purchase, set a limit order to sell the option at a price that is 100% gain if it's a Call and a 50% gain if it's a Put.
7. That is one approach; subscribers in the chat have recommendations for other approaches; do what you are comfortable doing.
8. Leave the computer and don’t look at prices.
9. Come back to the computer on Wednesday and check the price: if it hasn't reached your target, lower the target by half.
10. Past performance shows that the option will likely get closed out at your target.

There are many different tactics for entering the position and exiting the trade. A few Discord members have recommendations on what to do. Read those and make up your own mind about what you’re comfortable doing.

Additional analysis

Options can be as complex as you make them or as simple as you like.

The Calvin Strategy is straight forward: buy a Call or a Put. You don't need to be an expert in theta, beta, other greeks, spreads, strangles, condors, butterflies... You don't even have to know what those are.

The Calvin Strategy is signaling if the market will go up or down by 1% in the week and you're investing accordingly. Pretty simple.  

However, you must be familiar with options and options trading. Know what In the Money, At the Money, Out of the Money mean. Know how to set limit orders... and do NOT buy on margin. And never let the option expire, always sell it before the expiration date.

Tactics of Entering and Exiting the Trade

CalStrat success is based on entering the position at Monday open. Dancing around for the lowest price is not effective because the majority of plus or minus 1% moves occurred on Mondays and Tuesdays.  If you try to get the ‘best’ prices, you’ll likely miss the move.

Regardless of whether it’s a Put or a Call, if the CalStrat says to buy it, do so at the Monday open with a market order or limit order placed at the market price.  

Since just about every week of the CalStrat recommended trades (and backtested trades) did indeed move by plus or minus 1%, I've looked in greater detail at the move that occurs AFTER the 1% target is met. Fact is that almost every single time, the market continued to move much more. So, here's what I’m going to do in the future for exiting the position:

1. Enter a sell limit order to sell 3/4 of the position at a high profit;
2. That takes out all of your cost so you're now playing with house money.
3. And just ride the rest of the way.
4. If the last portion of the trade closes at zero (unlikely), the total return on capital is still positive.
5. if the last portion zooms, you benefit from a sweet multiple on a smaller trade.

If your broker provides trailing stop orders, use that. There is a lot of information available on that type of order. Otherwise, use a stop loss at a nice profit to get out if the market goes back down.

Either way, remember the mantra of an esteemed member of the chat, DrMChu: "shovel shovel shovel".

Do Monday gaps change the strategy?

Some members say that trading should not occur if the market gaps up or down on Monday.  I have looked at Monday gaps to see if there's anything significant there. The conclusion is: no, there is not.

Over the past 50 weeks, the Monday gap UP (the Monday open minus the Friday close) was more than 1% higher a total of eight times. And in six of those instances, the SPY continued to go up and added another +1% to its price. The same holds for bigger gaps of 2% and 3%. So one cannot say "oh a big gap open on Monday means we can't do a trade."

And this is true for gaps DOWN as well.

What’s next

Cindicator is doing a great job of creating this tool and maintaining it. Remember, it's a tool. How it is used is up to the mechanic. I changed my approach over time as I gained more data and experience with it. It was a new tool that no one had ever used before. Now we're figuring it out.

As I said to someone, I don't know why it works. I don't know why Sentiments from people around the world can be interpreted for moves of the US stock market. But I don't have to know 'why' there seems to be a correlation. I just need to know 'how' to use that correlation.  The Calvin Strategy 2.0 is very good at helping people make profits.

Most important: other members of the channel have different approaches to interpreting the Macro Sentiments. Check them all out and determine what you want to use. My way is not the only way.  

DISCLAIMER: This information is not intended to provide a personal recommendation or investment advice and it does not take into account the specific investment objectives, financial situation or particular needs of any specific person. We shall not be liable for any loss, including any consequential loss which may result from reliance on the information or be incurred in respect of any action taken. Past performance is not a guarantee of future performance. We cannot guarantee the accuracy of the indicators. We use reliable and comprehensive information, but make no representation that it is accurate or complete. We assume no responsibility for updating any of the contents or opinions contained herein and therefore accept no responsibility for any actions taken based on the receipt of this communication.