“Set and Forget”: 80% Win-Rate Options Trading With Macro Sentiments, Just 30 Minutes a Week
Options aren’t the most beginner-friendly trading instruments. First, you need to wade through your broker’s interface even to find options. Then for each stock, there are usually dozens of call and put options with different combinations of strike and expiration dates. And the so-called “options Greeks” might make it look like no less than rocket science. Even testing the waters with the first options trade might be too intimidating for novice traders.
Luckily, there is a community of subscribers to Macro Sentiment Indicators. While the indicators themselves are a complex data tool, the subscribers came up with probably one of the easiest option trading strategies. Even complete beginners can use it, spending just 30 minutes a week. In this post, we’ll review what Macro Sentiments are, explain the strategy, and will go over the results.
What are Macro Sentiment Indicators
Macro Sentiment Indicators track the sentiment of thousands of users registered on the Cindicator collective intelligence platforms. This is done through six weekly questions to users.
After that, Cindicator’s Machine Learning models assign different weights to each answer, taking into account the user’s previous track record and other factors.
The resulting six weekly sentiment indicators are numbers between 0% and 100%:
- Employment situation current (ESC)
- Employment situation future (ESF)
- Economic conditions current (ECC)
- Business environment future (BEF)
- Political situation current (PSC)
- Political environment future (PEF)
The weekly change in the indicators proved crucial for gaining insights into what’s coming in the week ahead. It was used to predict the bottom of the coronavirus sell-off in 2020. Then subscribers used to trade SPY options, futures, FX pairs, and more.
How Macro Sentiment options trading strategy works
The basic idea behind the strategy is as follows: if the weekly sentiment improves (i.e. the indicators increase compared to a previous week), then buy calls. If the sentiment worsens, buy puts.
Okadoke, one of the subscribers, has done a great job of backtesting different settings of the strategy, experimenting with weights for each indicator, take profit targets, and more.
He extensively backtested the indicators with actual options prices for the S&P 500 ETF (SPY), Invesco QQQ ETF that tracks Nasdaq-100 (QQQ), iShares Russell 2000 ETF (IWM), and SPDR Dow Jones Industrial Average ETF Trust (DIA).
And eventually, he came up with a set of weights to apply to each indicator. The resulting “Weighted Score” sum up the expectations for the week ahead.
The trading strategy then is as follows:
- Each week, use 20% of your initial options trading account for each weekly trade;
If Weighted Score >0:
- On Monday market open buy at-the-money SPY Call, expiring in on week;
- Set a take-profit order such that if the position is in +50% profit, you sell 80% of the position;
- Sell the remaining position at the end of the week;
- No stop-loss;
If Weighted Score <0:
- On Monday market open buy at-the-money SPY Put, expiring in on week;
- Set a take-profit order such that if the position is in +50% profit, you sell 80% of the position;
- Sell the remaining position at the end of the week;
- No stop-loss.
This is just a template that should not be followed blindly. Instead, play with the settings to fit your risk preferences or combine the weighted score with other data inputs.
Here is a short video guide to the spreadsheet, which is available in the Discord community (get a 2-week trial to join it).
The results
The data for this strategy stretches back to December 2019, providing 79 weeks of Macro Sentiment indicators.
With a take-profit order at 50% and no stop-loss, the strategy has the following performance:
- Risk/reward 2/1;
- Win-rate is 84% for Calls and 68% for Puts;
- Total profit for the period: +358%.
This performance is depicted on this chart from Okadoke’s spreadsheet:
The best part is that with this strategy, trading takes about 30 minutes a week. On Monday morning just check out the weekly indicators, plug them into the spreadsheet, buy the options and set the take-profit target. Then log in to your brokerage account on Friday and close the remaining trades.
No guessing shopping around for the best prices. No watching the charts. And no more fear of missing out on profits by closing the trades too early or too late.
It’s risky and some weeks the loss could be 100% of your position. But that’s the price to pay for the rewards on winning weeks.
Of course, this is just an example from some of the subscribers and not financial advice.
Try it yourself
Macro Sentiment Indicators come with a 2-week trial. During that period you’ll get two set of weekly indicators, meaning you can enter two trades. And in the subscribers-only Discord server, you can also ask any questions, check out others’ results, and view even more strategies.