Twin Peaks Strategy – Overview - Non-directional, positive theta trade - Very tolerant of price movement - Diagonal structure (near & far expirations) benefits when implied volatility declines. - Entry signals come from declining IV after it has been high - Developed for TLT (long-term bonds), a good market for this strategy

Twin Peaks Strategy – Trade Structure Near 80 DTE: Calls and puts: buy 25-delta, sell 10-delta Near 110 DTE, at least 1 month after near-expiration: Calls and puts: sell same strikes as near-exp 25-deltas (go farther-OTM if those strikes aren't available) Equal number of contracts at each strike Size each trade for a constant initial margin requirement ($20k in the backtests)

Twin Peaks Strategy – Trade Structure

Twin Peaks Strategy – Trade Structure Double short calendars (blue) plus far-OTM shorts (green)

Twin Peaks Strategy – Trade Structure Far-expiration OTM short options (blue) hedged with near-expiration debit spreads (green)

Twin Peaks Strategy – Implied Volatility Signals Using ImpVolatility indicator in thinkorswim: Entry signal: The 7-EMA crosses below the 30-EMA, for the first time after the 7-EMA was above the 100-EMA. Exit signal: The 7-EMA crosses above the 30-EMA.

Twin Peaks Strategy – Implied Volatility Signals 7-EMA = colored dots. 30-EMA = dark blue line. 100-EMA = light blue line. Entries are on the first green dot after red dot(s). Exits are on the first red or yellow dot after an entry, if the trade is still open. Link to shared thinkorswim indicator: tos.mx/sWhPHr

Twin Peaks Strategy – Management Rules 1. When near-expiration shorts are still open and price moves 25c past a ravine, exit everything immediately. 2. Exit both sides of near-expiration shorts when the sum of their prices falls to 50% of their combined entry price (check at the close). 3. Exit one side of near-expiration shorts when they fall to 25% of their entry price. After that, exit the other side when it falls to 60% of its entry price (check at the close). 4. Close the leftover double calendars when the near expiration reaches 15 DTE.

Twin Peaks Strategy – Trade Videos 1. Big win – 26 Feb 2009 https://drive.google.com/open?id=1iA_yqgirsj7gLrPwIsitvHKYy2fdIibY 2. Big loss (GLD) – 8 Jan 2015 https://drive.google.com/open?id=18nR72H9l5AJyE_8sqHZhB34Gowa8WE8l 3. Win – 17 Sep 2010 https://drive.google.com/open?id=1RUzg49x8dkSTJxMkRlnn9u5UCq5ndfrv 4. Loss – 5 Nov 2010 https://drive.google.com/open?id=1F0R5VfGs4TWBQOECAlhf2tiYipD3fssx 5. Win – 10 Dec 2010 https://drive.google.com/open?id=1IopLl3t4zZ5FrDYi8VBH5S4BZuBTeCB8 6. Win – 7 Jan 2011 https://drive.google.com/open?id=1HjWHwhRxYAM8GUvIBmw-66n-rfdgCxnt

Twin Peaks Strategy – Room for Improvement 1. IV signaling – source of IV data, entry & exit signals

Twin Peaks Strategy – Room for Improvement 2. Trade management rules - near-expiration short exits – wait longer? - allow more directional moves when IV isn't rising? - profit target when IV falls hard? - keep holding far-OTM far-expiration shorts, add a new hedge? - use price action signals? 3. Adaptations for markets other than TLT - bullish bias when IV is falling - strong directional moves happen more often - IV is more choppy 4. Trade structure

Twin Peaks Strategy – Stats (TLT) total Return = 14,784.80 annual Return 1 = 1434.03 (all calendar time = 10.31 years) annual Return 2 = 4209.40 (time in trades = 1282 days = 3.51 years) MDD = -191.90 Win rate = 75% aRet_1 / MDD = 7.47 avgWin/avgLoss = 4.70 aRet_2 / MDD = 21.94 Performance ratio = 3.53

Twin Peaks Strategy – Stats (GLD) total Return = 7,794.40 annual Return 1 = 824.08 (all calendar time = 9.458 years) annual Return 2 = 2020.56 (time in trades = 1408 days = 3.858 years) MDD = -3570.50 Win rate = 48% aRet_1 / MDD = 0.23 avgWin/avgLoss = 1.98 aRet_2 / MDD = 0.57 Performance ratio = 0.95

Twin Peaks Strategy – Stats (USO) total Return = 12,108.32 annual Return 1 = 1513.54 (all calendar time = 8 years) annual Return 2 = 4894.28 (time in trades = 903 days = 2.47 years) MDD = -2065.90 Win rate = 56% aRet_1 / MDD = 0.73 avgWin/avgLoss = 1.96 aRet_2 / MDD = 2.37 Performance ratio = 1.10

Twin Peaks Strategy – Stats (SPY) total Return = 12,108.32 annual Return 1 = 631.38 (all calendar time = 8.45 years) annual Return 2 = 1773.97 (time in trades = 1098 days = 3.01 years) MDD = -2965.60 Win rate = 51% aRet_1 / MDD = 0.21 avgWin/avgLoss = 1.59 aRet_2 / MDD = 0.60 Performance ratio = 0.81

Twin Peaks Strategy – Stats (all 4 markets) total Return = 40,024.02 annual Return = 3,850.49 (all calendar time = 10.4 years) MDD = -4174.60 Win rate = 57% aRet / MDD = 0.92 avgWin/avgLoss = 1.88 Performance ratio = 1.07