Frequently Asked Questions, Answers, and Instructions

 


Q. On the VXMT and VXV calculations, how should we keep up with the numbers?

A. There is a spreadsheet that contains all of the information that you need posted under your subscription to the  New Profit Power Seminar access link.

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Q. Don mentions that you need to be cautious and read the prospectus before investing in VXX. Aren’t the risks the same as trading an ETF?

A. There is no way to provide all of the disclosure information found in the prospectus here, so you’ll need to turn to that document for a full discussion of the risks. However, here are a few highlights of why Don says to be cautious: .

    The risks are far higher than a normal ETF. You need to be aware of that.
    The VXX does NOT track XIV. It tracks an index.
    The idex is based on VIX futures.
    The product is an ETN, not an ETF.
    That means you’re an unsecured creditor of the issuing bank.

And that’s just the beginning. For instance, no one knows if the ETN will accurately track the index if we get into another Crash of 1987 scenario. It should, but it might not.

As long as you’re aware of those things, and anything else in the prospectus that might make you uncomfortable, you’ll be fine.

Don is comfortable with it. Whether you are is something you’ll have to decide.

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Q. On the 4-day EMA spreadsheet, if I fill in all the data first, will column F and G fill in automatically?

A. It’s really easy. Just use the “Fill Down”. Here’s a quick video describing how to use the spreadsheet’s autofill function: How To Video

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Q. When the signal changes on the VXMT and VXV, do you advocate taking all funds into the next trade?

A. When the signal changes, take all the funds into the next trade.

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Q. On the 3 Easy Factors, when the signals all went bullish I bought SSO mutual funds and my brokerage said I may want to do an ETF instead that has lower fees. Did I buy the wrong thing?

A. We are unaware of an “ultra” fund that’s available to the public that performs like SSO that has lower fees.

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Q. What are the Hi-Profit Stats for the number of trades that win, lose, etc., after the FOV screening?

A. Here they are:

    Number of trades below 0.70 – 2,854
    Number of winners – 1,340
    Number of losers – 1,508
    Number of breakeven
    Average Win Size – 75.7%
    Average Loss Size – -51.9%>
    Average Return – 8.1%

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Q. Can you explain how to calculate the price/value ratio?

A. Let’s say you have a call and a put. The price of the call is 3 and the price of the put is 3. Add them together to get the sum of the prices, and you get 6. So the numerator in the ratio is 6. The value of the call is 5 and the value of the put is 5. Add them together to get the sum of the values, and you get 10. So, the denominator in the ratio is 10.

The ratio is 6/10, or 0.60. Simple as that.

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Q. How do I calculate the 4-day exponential moving average?

A. Here is the formula for calculating the exponential moving average:

Exponential_Moving_Average

If you are going to calculate the 4-day Moving Average, where it says days, input 4. 4 + 1=5. 2 divided by 5 is 0.4 or 40%. So the 4-day exponential moving average is aka as the 40% exponential moving average. So you take 40% times the current difference (current value) + the prior days exponential moving average, times 60%. That’s it. So its a 40%, 60% exponential moving average. So that’s how to calculate the exponential moving average.

If you were going to calculate the 4-day simple moving average, take the last 4 differences, add them up, and divide by 4. Simple as that. Exponential is a little more complicated, but not really. You can do that on your phone or a calculator. It’s very, very simple.

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Q. How do you get the moving average of the difference?

A. You can use either Metastock or Excel.

In Excel, you have to enter the formula which is provided in the Spreadsheet. The Excel Spreadsheet is included in your subscription, and all of the formulas are already there. For the VIX-SPYHV10-S5, Put in the SPY, the VIX, and then it calculates the difference in the 5-day moving average. Then it color codes it. (-1 equals VXX. / +1 equals XIV).

In Metastock, it’s the VIX minus the 10-day historical volatility. Then take the 5-day moving average of that difference.

Use the same methods in either Excel or Metastock for the other formulas: VIX-SPYH4-S8, VXMT-VXV-S5, and VXMT-VIX-E4.

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Q. What if you don’t have Excel?

A.Google has documents that is an online spreadsheet, so nothing we’re doing here is difficult for a spreadsheet to do. So, if you don’t have Excel, try Google docs.

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Q. Which worksheet do you use the most?

A. I use the VXMT – VIX the most. But those of you that know me know that I am always experimenting with new stuff. So, my personal results may diverge from those track records. Right now I’m testing a ladder approach. Example is that you get a signal on October 2, I’ll do a little buying on Oct. 2, and a little on the next day, and the next, and the next. I’m experimenting with it. The track record shows you how you would succeed doing it just with the straight signals. You can play around with it with zero commissions through RobinHood, an app that has no fees to trade. That’s what I do.

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Q. What unit is the volatility risk premium expressed?

A. All volatility is expressed in percentage points. So if VIX is 20, that means the expected volatility is 20%. Same thing with historical volatility. If VIX is 20, and Historical Volatility is 18, the difference is 2%.

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Q. What price do I use for the trade, and when do I place the trade?

A. You use the close price. Stock’s stop trading at 4:00 pm ET, and they usually take until 4:02 pm ET to unwind. These are SPX options, not SPY options. These are S&P 500 Cash Index options. They don’t stop trading until 4:15 pm ET. Because it’s based on those SPX options, it means the VIX final number is not until 4:15 pm ET. You would then place the trade the following market open after doing your analysis.

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Q. If you get a signal but don’t get in right away, is it too late to get in a few days later?

A. From our perspective, we would not wait. Past analysis shows that performance over an extended time after a switch is as strong as it is right after a switch, unless it is getting ready to change signals. The problem is, you don’t know when a switch is going to happen. None of us do. We’re basically in a trend following system where you have that clustering effect. We only know that early on in a signal, the performance is as good as if you caught it the very first day.

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Q. What’s the best worksheet for XIV/VXX?

A. Right at the bottom of the Spreadsheet provided in your subscription area, look for the VXMT-VIX-E4 tab. That’s the one you want to use for trading the XIV/VXX.

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Q. How many trades does the Academic Algorithms get, what’s the average move, and how often are they right?

A. A trade means how many signals are generated, which means you have all green up arrows or all green up arrows with one yellow diamond for bullish. The same is true for the bearish signals having all red down arrows, or all red down arrows and one yellow diamond. The results shown below are for moves over a one month period on the stocks performance, not the options performance: AA_Signals_UnderlyingWhat can you expect in the options performance, if the prior graph showed stocks performance only? AA_Prior_Signals

The general assumption if you have a bullish all green up arrows or all green up arrows and one yellow diamond is that you would buy a call. That’s fine, but that may or may not be the perfect strategy to use. The graph showing the distribution for how much the options move when the underlying asset moves is showing the moves based on buying a call for a bullish signal. However, you may want to do a covered call, a put credit spread, or sell a put to have a higher probability of winning. Realize that the percentages shown in the first chart for the underlying asset means if you use a high probability strategy you will not make as much money as you would if you just bought a call, but the odds of winning are much higher and more frequent.

How often are these Academic Algorithms signals right? It depends upon the options strategy you choose. If you choose the call purchase, you are going to be right much more infrequently than if you do the credit spread. But then you have the risk/reward. If you get a much better probability of profit, your risk/reward is going to be worse. Choose the strategy that fits your personality.

How far out do you set the expiration on these signals? These signals last a month, so it depends upon which strategy you choose as to how far out you should set your expiration. Here’s a snapshot of how some past signals worked showing the stock, whether the signal was for up or down, and how much the stock changed in a one month time frame: (Insert AA_Signals)

Which strategy is the right one? If like the chart above in LOCK or WWWW you purchase a call, you’re going to make huge money. If you do a credit spread, you’ll do good, but your probability is higher that you will win. So, for a call purchase, you want to go to the following month of expiration past 30 days to be sure you have enough time. With a credit spread, go as close as you can to one month.

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Q. What is the 3 Easy Factors Method?

A. Currently we trade the SSO, which is a leveraged ETF. Over 18 years ago I introduced the 6 Numbers System. 3 Easy Factors is the same thing, just with a lot more numbers. The 3 Factors that encompass this method are Depression Risk, Bank Lending, and Optimisn.

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Q. When is the data in OptionApps updated and how frequently?

A. It’s updated daily. And the entire update is completed by 10 p.m. ET.

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Q. In the Academic Algorithms, are there ever all green up arrows or all red down arrows?

A. Yes. It’s very rare to see all red down arrows. That doesn’t happen very often. But all green up arrows does happen, and much more often than all red down arrows.

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Q. Do you just buy calls and puts on the AA signals?

A. No. We would advocate that you look at spreads. In our examples, we show buying calls and puts, but we prefer spreads.

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Q. If using credit spreads for AA signals, what strikes do you prefer?

A. I always like to sell out-of-the-money credit spreads because that way I get the probabilities in my favor. I tend to go out one standard deviation, which means if I’m doing a put or a call credit spread I’m looking for a 15% probability of loss.

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Q. On the signals with up green arrows or all down red arrows does that mean the signal has a higher probability of winning?

A. It’s not probability you are concerned with. It’s about the total return. If you’re getting a 10% return on your trades and win 90% return on your trades, you’re going to be happy. However if you lose 90% of the time but the one time you win you win 2000%, you’re not going to care how many times you lost. It’s the higher average return, not the probability. Do the trades with 5 arrows have a higher probability, no, they have a higher average return.

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Q. What are Don’s favorite trading methods?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

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Q. On the compressed stocks, how many signals do you get?

A. Everyday there are about 0 – 15 signals for compressed stocks per day. So for an individual stock in general, how many signals will an individual stock get over a course of time. You’re looking for something that is setting a 4-year low/record. So for that volatility compression to his a 4-yr low is pretty rare. So, over a 15 year period, you may get 4 – 6 signals. So for an individual security it is quite rare, but since there are about 4,000 stocks, that’s how we get signals nearly every day.

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Q. Do you have to have Metastock to do the scans for the compressed stocks?

A. No, you can use something else. If you have software that can do the scans, and in the course we give you what those criteria are, which is 12-differentexponential moving averages, and if you have something that can calculate those, then can do the difference between the highest moving average and the lowest moverage average and then divide that by the stock price, you’ve got it. Then when the compression ratio is at it’s lowest low over 4 years, that’s your signal. Some of my friends use TradeStation, which it is easily programmable to do this. But I have partnerred with Metastock because I’ve personally used it myself for years, but you can use whatever you prefer. Metastock is one of the least expensive and easiest to use.

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Q. Do you use end-of-day or real-time data for the compression signals?

A. I only use end-of-day. There’s no reason to use real-time data unless there’s something else you want to do that we don’t teach. Nothing we teach uses real-time data, only end-of-day.

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Q. Why do you choose straddles with a holding period of 3 – 7 weeks?

A. We look for a move for anywhere from 21 – 49 days, or about a month. This is how we choose the expiration date. You need to look at the expirations that may or may not be available, and with the Weeklys you can find the one you want which needs to be between a 3 – 7 week period. Look in OptionApps at the Volume and Open Interest of the different expiration dates to determine the best one. You don’t want to choose one with no volume or open interest.

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Q. Can I get the volatility trading formulas for Metastock?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

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Q. What are Don’s favorite trading methods?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

Back To Top


Q. What are Don’s favorite trading methods?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

Back To Top


Q. What are Don’s favorite trading methods?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

Back To Top


Q. What are Don’s favorite trading methods?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

Back To Top


Q. What are Don’s favorite trading methods?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

Back To Top


Q. What are Don’s favorite trading methods?

A. He doesn’t have just one favorite method, but has favorite trading methods. He loves to trade volatility. He likes to buy straddles on individual stocks, and sell credit spreads on broad based indexes like ETF’s.

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Fishback Management and Research, Inc. (FMR), its principles and employees reserve the right to, and indeed do, trade stocks, mutual funds, options and futures for their own accounts. FMR, its principals and employees will not knowingly trade in advance of the general dissemination of trading ideas and recommendations. There is, however, a possibility that when trading for these proprietary accounts, orders may be entered, which are opposite or otherwise different from the trades and positions described herein. This may occur as a result of the use of different trading systems, trading with a different degree of leverage, or testing of new trading systems, among other reasons. The results of any such trading are confidential and are not available for inspection.

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