written by reader So what is this “P3 Trade” Dent Research keeps hawking?

By glomerulus, March 20, 2018

Being a subscriber to Dent Research, I keep getting tons of emails from them. One type of email, written slightly differently each time, deals with Lance Gaitan’s ”P3 Trade”, that can make me all sorts of money taking advantage of the current market volatility. Other than speculative option plays on the VIX, what could they be talking about that is so good as to command a $1495 subscription price? They are selling their ’Treasury and Profits Accelerator” subscription, but, anyone knows that if you take advantage of all these subscriptions, you’ll spend tens of thousands of $$$ without any hope of making enough profit to pay off the subscriptions, let alone save for retirement.

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Fellow wonderer
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Fellow wonderer
March 22, 2018 8:50 pm

Buying puts and calls on TLT, the long term treasury etf. $1500 for a year. $3,000 for life. haven’t subscribed but considering it.

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Fellow wonderer
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Fellow wonderer
March 28, 2018 8:14 pm

So I paid to join Lance Gaitan’s “Treasury Profits Accelerator” service. If you have the stomach for taking several big losses while waiting for a gain, this could be an wining service.

You’re buying (never writing) puts and calls on long-term Treasury ETFs. You can lose no more than you invest, but you can lose every penny of it of it. There is significant upside.

Accessing their archives, I see 50 closed trades since (apparently) inception in July 2014. Average trade profit is 14% of capital invested. The trades vary from days in duration, to a few weeks to months. So if you earn 14% on average, a couple of times a month, you’re making sone good coin. Also, if you’re betting $10,000 on each trade, one average trade pays for the year’s service.

The problem is the huge range of outcomes for the trades. The two highest-returning were 147% and 124% (truncating fractional percentages). The two worst trades were negative 94% and…wait for it…negative 100%. Yes the trade went to zero. Hope you didn’t bet all your chips.

If you had started with $10,000 and rolled the outcome of one trade into the next, you’d have gone bust within a year. If you put another $10,000 in and started over, at close of today 3/28/18 you’d have $55,000 (rounded).

[Note on methodology: the archive only shows opening trade dates, not closing dates, so I could not tell which trades were open concurrently. Many are open single-digit days or weeks, while others run for several months. Therefore I could not do a time-weighted return nor even cumulative growth of $1 invested.]

Another strategy would have been to start with $10,000, and if the trade is a winner, bank the profit, and put $10,000 into the next trade. If it’s a loss, add cash to whatever you salvage, and put $10,000 on the next trade. In this way, accumulating profits and using them to fund deficits, and not magnifying your risk as your total capital grows, you would end with $82,000 (rounded).

So earning 5.5X your money in 3.5 years is about a 63% annualized return. 8.2X in 3.5 years is about 82% per year, annualized. BUT…

You would need to keep about $40,000 handy at all times (so you could trade on $10,000 and have $30,000 standing by to cover a run of three losers…the worst historically but hey it could be worse in the future). Adding the $30,000 cash cushion to starting and ending values means your $40,000 capital grew to $85,000 or $112,000 (instead of $55K or $82K).

Annualized returns are therefore 24% if you roll all the proceeds from one trade into the next, or 34% if you risk a constant $10,000 on each trade. BUT…

Because I don’t know the overlap when multiple trades were open, you should probably have $60K capital on hand at the start, and risk $10K on each trade (with a $40,000 cushion), assuming there are up to two open at a time. That reduces annualized returns (estimated) to 17% if you roll one into the next, or 25.36% for risking constant dollar amounts on each trade.

Those are not returns per trade, but returns per year.

About a third of the trades are losers, and as mentioned above, some are catastrophic losses. So you simply MUST have dry powder to keep playing. Using the actual returns in the past as a sample of expected returns for this strategy, the average return is about 14% and the sample standard deviation about 60% yes 60%. That would predict that for future trades, 13% of the time you make more than 74%. (In fact, 7 out of 50 past trades have made 75% or more.) But 13% of the time you should expect to lose more than 46%. (9 trades out of 50 have lost more than 50%.)

By the way, if you make 74% then lose 46%, you’ve made 10%. But if they happen in the reverse order, you’re down 20%. You need to play many times to obtain results near the average of a 14% win every time. And you need enough money to stay in the game and keep rolling the dice.

Make no mistake, this is a high-risk, potentially high-return strategy. I am currently deciding whether it is too much risk and hassle for me. For those of you who are looking for a trading strategy, this one’s worth a look.

You can get an Interactive Brokers account easily, and their costs are super low.
Live data on NYSE, Amex, NasDaq, and OPRA (options) costs about $6 per month, and their systems are great. If you are an investment adviser, even if only trading for your personal account, data costs more like $200 per month, so that’s another $2,400 hurdle. (OPAL only would be about $45 a month I believe. Prices go up to these levels 4/1/18.)

What are my credentials, and what’s my angle? I am a Certified Financial Planner, Chartered Financial Analyst, MBA, and have been a financial adviser for 30 years. I have no affiliation with Dent nor Gaitan nor their stuff. I am just a customer and thought I’d spare you all some hassle.

I probably won’t check back here. If you want more math, you can pay the $1,500 for a free trial, paste the archive into your Excel, and have all the fun you want!

Good luck!

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gracer
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gracer
September 25, 2018 2:55 pm

Thanks very much for your summary. I just watched the Treasury Profits Accelerator video. Lance mentions a 63% win rate. I am more comfortable with an 85% win rate, so I don’t plan to subscribe. As you mentioned, I would not have the stomach for such large and frequent losses to try and average out for a profit.
In this video, it has a 90 day guarantee, with an ongoing refund mentioned for other Dent products.
The non-Dent newsletter Gains, Pains & Capital by Graham Summers currently has an 87% win rate, but some of the losses are in the 40% range while many of the wins are single digits.
Then there is non-Dent newsletter Options For Income with Jim Fink which has about an 85% win rate, but that includes “rolls” which can be protracted and involve interim drawdowns. The win rate not including rolls is actually I think about 65%, with half of those (17%) resolving favorably and half (17%) resulting in losses.

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Fellow wonderer
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Fellow wonderer
March 28, 2018 8:56 pm

Oops math error! #EggOnFace. The two approaches ended today with $85,600 and $87,800, respectively. So focus on the larger rate of return numbers I posted in the long entry below. Thanks!

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