New Trading Strategy

[cwelsh 1,549]

 

  Lorintine Capital has been working diligently to expand its services it can provide to members of this site.  After months of testing and now several months of live trading using our own dollars, we have developed a dividend arbitrage strategy that we absolutely love, as it can possibly return 75%-100%/year with a reasonable level of risk -- but we use a lot of margin which does increase risk.

 

  Unfortunately, you MUST have a portfolio margin account to utilize the trades.  (Well you can have a normal Reg-T account, but if you do, the returns drop to the 10%-15% range instead -- which is more than acceptable, particularly given the risk, but the returns are not completely outsized).

 

  At interactive brokers, to be on portfolio margin, you must have an account of at least $110,000 USD at open and the balance cannot drop below $100,000.  Most other platforms require $150,000.  Portfolio margin interest rates are also EXTREMELY important (which is why I use IB).  Prior to sharing the rules, trades, and methodology of the strategy, we wanted to poll our current, past, and potential future members on whether or not they would be able to trade the strategy.  

 

  We would greatly appreciate everyone answering the poll that is posted here - https://steadyoptions.com/forums/forum/topic/9018-new-lorintine-strategy/: 

 

  It inquires into whether or not you have access to a PM account, can and would open one, or if you'd still be interested at the lower returns (low risk 10% to 15% returns).

 

  Please feel free to post other questions as well.

 

[StacyB 32]

Hi Chris:  I do have access to a PM account & am interested in learning more about this strategy!

[Ringandpinion 1,657]

I would be interested.  Currently, Thinkorswim offers PM at $125K for those with TOS accounts.  I don't know what their interest rate is, but it's a good time to ask.

[zxcv64 771]

Chris, I'm interested and have had portfolio margin for over 10 years with IBKR, so no problems there. A couple of questions pls :

 

1) Is this strategy scalable?

2) You mentioned dividend arbitrage - does it involve owning stocks as well as trading options? Or it is purely an options based strategy like SO?

 

 

[MRB 27]

I'm interested.  

[Tizaf 14]

To good to say no? I am on Ibkr and having and trading on margin since years

[Srini M 1]

I'm interested. I have PM.

[VT3 26]

I have PM and interested

[ykotowitz 20]

Interested. Margin account on IB.

[Shianna 0]

Yes, I do have a portfolio margin account with IB and I am more interested in the higher returns.

 

[arcadianskies 8]

I would be interested.  I have PM at TD Ameritrade.  What is the average number of days in a trade?

Thank you.

[Kim 7,943]

Just posted a poll - https://steadyoptions.com/forums/forum/topic/9018-new-lorintine-strategy/

[baylisstic 0]

I'm in. This will be part of the Lorintine bundle? 

[cwelsh 1,549]

Well that's more feedback than we were expecting off the top.  I'm working on a new thread for it -- it'll probably be next week with all of the details.

 

You cannot run this strategy on TDA -- their interest rates are way to high.  Right now, a $150,000 account on IB would have an effective interest rate once fully invested of 6%.   At a rate of 12.5% (lowest rate on TDA), it would be a struggle to break even on the strategy.

 

The great thing about this strategy is finding the trades isn't difficult (but does take time), but management of the strategy is EASY.  Many trades require zero work for 9 months to a year after opening.  The only thing you have to monitor is profits.  If you have 90% of your profits in the first 3 months, you get out and enter another trade (doesn't make sense to pay margin interest for 6 more months for 10% of the profits when you could just get in a new trade).

[cwelsh 1,549]

2 minutes ago, baylisstic said:

I'm in. This will be part of the Lorintine bundle? 

Kim and I have to work that out still, but yes it'll be included in some form or fashion.

[Jarrrod88 3]

(Y)

[Suresh D Gehi 2]

I have an account with IB and the necessary funds. I am interested in learning more about this strategy.

Thank you.

[pnd4pnd 9]

@cwelsh my TD Account has a margin rate of just under 9%. Just had to ask but need to have significant assets to get that.

[abhi 0]

Don't Have a PM account but absolutely interested and have the necessary funding no issues. Would this be completely PMS or would it involve some hands on trading from my side? Not vary to either of it 

[diamond 2]

IB prob has the best rates - I have TD w/PM already - not sure of the rate..

[Matei 0]

is this a sort of 'box' strategy?

[Nanook019 0]

keen

[MrBean 1]

I have PM again thanks to TSLA ripping back up. I am interested in this strategy.

[jbesr1230 3]

I'm interested. I have PM.

[evogel 0]

I'm interested, i have PM.

[awwenzovs 0]

i am interested, wondering if i can use either individual or corporate margin account under IBKR for this also?

[tschotland 0]

Interested, have the capital and happy to open an IB PM account again.  Looking forward to more details on the strategy!

[jvo 9]

Does the strategy require quick order entry to get similar fill prices? What are the drawdown risks / expectations / worst case scenario to expect?

[Jerry F 7]

I have PM and would be interested in learning more.

[aircal 1]

I have 3 PM accounts: TDA,  IB LLC, and Tastytrade. I would sign up for a strategy that utilizes the advantages of PM. 

[mccoyb53 809]

Many Thanks. I am in IB and I would be interested and just filled in the poll.

Edited June 14, 2023 by mccoyb53

[chrisag 0]

Interested, look forward to hearing more details about risks and scalability.

[tbtf 45]

I'm interested and have IB and PM

 

[Kim 7,943]

Those who replied here, can you please also vote on the poll - https://steadyoptions.com/forums/forum/topic/9018-new-lorintine-strategy/

[SSP 6]

Hi Chris:

1.  If I start with say $125 K, is there a chance that the initial capital may dip below 100K sometimes necessitating addition of more capital?

2.  Is the 75% return contingent upon certain minimum capital (perhaps lot greater than 100K)? 

3.  At Fidelity I have a large margin account and they charge me 8% for amounts greater than 100K - would this be OK or should I consider IBKR account?

[SBatch 3,123]

I know absolutely nothing about the proposed trade, but I would strongly suggest no one use IB's PM for a leveraged strategy.  IB's liquidation algorithm is completely flawed and has been for quite some time.  Here is what happened to a hedge fund in 2015:

 

https://www.reuters.com/article/us-arbitration-interactive-auto-liquidat/interactive-brokers-must-pay-667000-for-portfolio-selloff-mishap-panel-idUSKBN0LM23620150218

 

IB did nothing after this ruling and there is currently a massive putative class action lawsuit against IB, whereby the class attorneys were recently awarded punitive damages as a result of IB's willful negligence.  This willful negligence has led to catastrophic losses for members of the putative class as a result of IB's algorithm creating a death spiral that blows out accounts.  Craig McCann does an excellent job explaining it here:

 

https://www.linkedin.com/pulse/more-impossible-trade-prices-caused-auto-liquidators-option-mccann/

Relevant examples:

 

Table 1: Bull Call Spread Trade at Theoretically Impossible Prices

 

 

Table 2: Put Bull Option Trade at Theoretically Impossible Prices.

 

 

I would strongly suggest paying a higher margin rate with another broker to run this trade.  Schwab, Fidelity and TDA will all negotiate on larger and more active accounts.

[Ringandpinion 1,657]

TDA says my interest rate is 9.6%.  I asked for where I can see the whole sliding scale, so maybe I'll have more info shortly.  That said, it is unlikely they will adjust it any, I'm not a big enough fish in their very big pond.

[cwelsh 1,549]

1 hour ago, SBatch said:

I know absolutely nothing about the proposed trade, but I would strongly suggest no one use IB's PM for a leveraged strategy.  IB's liquidation algorithm is completely flawed and has been for quite some time.  Here is what happened to a hedge fund in 2015:

 

https://www.reuters.com/article/us-arbitration-interactive-auto-liquidat/interactive-brokers-must-pay-667000-for-portfolio-selloff-mishap-panel-idUSKBN0LM23620150218

 

IB did nothing after this ruling and there is currently a massive putative class action lawsuit against IB, whereby the class attorneys were recently awarded punitive damages as a result of IB's willful negligence.  This willful negligence has led to catastrophic losses for members of the putative class as a result of IB's algorithm creating a death spiral that blows out accounts.  Craig McCann does an excellent job explaining it here:

 

https://www.linkedin.com/pulse/more-impossible-trade-prices-caused-auto-liquidators-option-mccann/

Relevant examples:

 

Table 1: Bull Call Spread Trade at Theoretically Impossible Prices

 

 

Table 2: Put Bull Option Trade at Theoretically Impossible Prices.

 

 

I would strongly suggest paying a higher margin rate with another broker to run this trade.  Schwab, Fidelity and TDA will all negotiate on larger and more active accounts.

I've been pretty on top of this.  They have changed their algos to comply with a whole host of adverse decisions between 2011 and 2015.

 

Everyone can make their own decisions on how to use it -- once the trade is up, everyone can see how interest rate sensitive and PM sensitive it is.

 

I also just re-ran my current portfolio, if the interest rate was 9% instead of 6%, I would not have traded 50% of the positions (as they become losers) and the yield on the rest drops from just over 100% to about 60%.

 

That's still a pretty amazing return and if you decide not to use IB, use whatever platform you want.  But be sure to always know what the interest rates are.

[SBatch 3,123]

3 minutes ago, cwelsh said:

I've been pretty on top of this.  They have changed their algos to comply with a whole host of adverse decisions between 2011 and 2015.

 

Everyone can make their own decisions on how to use it -- once the trade is up, everyone can see how interest rate sensitive and PM sensitive it is.

 

I also just re-ran my current portfolio, if the interest rate was 9% instead of 6%, I would not have traded 50% of the positions (as they become losers) and the yield on the rest drops from just over 100% to about 60%.

 

That's still a pretty amazing return and if you decide not to use IB, use whatever platform you want.  But be sure to always know what the interest rates are.

The complaints are still very common with today’s version of the algo, to include a hedge fund complaining of these types of losses 2 months ago.  

[baylisstic 0]

How about use leverage? Use 2/3 of the size instead? 

[SBatch 3,123]

2 minutes ago, baylisstic said:

How about use leverage? Use 2/3 of the size instead? 

IB’s algo could literally have a margin requirement of $100,000 one day and $150,000 the next in high volatility which could trigger the algo to blow the account to zero or negative and then have IB come after you for the negative balance.  This is well known common practice from IB who continues to claim their algo has never been flawed.

[Ringandpinion 1,657]

@cwelsh If the higher interest makes it that difficult to profit, I would have to wait and see as I don't have an IB account and already use Tradier as my secondary.

[gabbox 2]

Unfortunately PM is unavailable for EU customers. However the strategy could be interesting anyway...

[SlayTrader 4]

TDA portfolio margin does not charge any interest unless the buying power becomes negative.

[Pineapple 2]

Looks like Canada doesn't allow PM either

[Alan 107]

On 6/13/2023 at 12:14 PM, zxcv64 said:

Chris, I'm interested and have had portfolio margin for over 10 years with IBKR, so no problems there. A couple of questions pls :

 

1) Is this strategy scalable?

2) You mentioned dividend arbitrage - does it involve owning stocks as well as trading options? Or it is purely an options based strategy like SO?

 

 

I am also interested in knowing how scalable the strategy is.

[diamond 2]

Let us know an update when you guys have a chance - seems like plenty of interest.

PM not always easy to test/manage.

[Ringandpinion 1,657]

8 minutes ago, diamond said:

PM not always easy to test/manage.

Yeah, like when the trade goes against you and your broker begins raising the percentage, if you don't watch your margin when that happens, you get a big surprise when you see it.  That said, PM is certainly a big advantage, just remember to babysit the margin requirements if your underlying, or the market as a whole, begins to move.

[SSP 6]

Hi Chris & Kim:

When you expect to start this strategy and what would be subscription price and are there any bundles available?  I have already participated in your poll and have a margin account with Fidelity and have been using margin for the past several years.

 

[Kim 7,943]

All current members of any of our services will have free access to the new service for a month. Then we will start with a low introductory rates. The service will be included in the Lorintine bundle and all services bundle at no extra cost.