Burn and Learn
The title of this article is Burn and Learn for a reason. The Dragon’s Eye definitely endured some heat this quarter. The wings got burned a little, as did the tail. The Eyes are still intact though, and the Dragon’s Eye is ready for what come next.
This experiment is now 221 days old as of April 30th 2026.
When we last looked at the Dragon’s Eye, and it’s performance against the S&P 500 it was almost no contest. The Dragon’s Eye was beating the index by a score of +10.94% to +2.26%, and looking like it might track to beat it by +31% if the trend were to continue like that for a year.
I remember asking myself, “Where is the weakness here? Because there has to be one.” My answer came in March, when the conflicts began with Iran, and the markets took a nose dive. I thought that my setup would have some defense for that scenario, and it did, but the magnitude of the markets drop was too much for the type of defense that I had setup to handle without some serious battle scars.
Let’s take a look at what happened to the charts when the conflict hit it’s worst point prior to looking at the evasive manuevers and recovery efforts. Focus on how quickly the S&P suffered a decline from January 1st to March 30th.
The S&P 500 was riding near it’s highs of mid February when on Saturday February 28th the US and Israel attacked Iran in what they called Epic Fury. You can see how the market dipped from that day onward for an entire month to the end of March. Those green days you see after Feb 28th are just days that opened with severe dips, and closed a little higher than the open. However, day after day, the market just kept dipping, and dipping, going lower as a trend for a full 30 days.
This was the weakness I was not prepared for. The next chart shows what the relative performance of the Dragon’s Eye suffered in relation to the S&P 500.
My drops mimicked the S&P drops, but to higher magnitudes because of how my option contracts resulted in being more volatile than simply holding the S&P500 (SPY).
During this drop, several things happened. All of the short call contracts that I had turned out wonderful. They made great profits, and I closed them during the drops. That’s why near the beginning of the decline in March, the blue line had several dips and peaks before the severe plunge. (See chart below)
Short call contracts are bearish, so they benefit in a decline like this, but once they’ve reached the point where their harvest is complete, the utility of them is done. After that, the bullishness of the opposite side, the short put contracts is where things take over.
Look at the chart, and you can see how the blue line just plummets because the bullish leaning contracts suddenly became a huge liability as my performance plummeted alongside the S&P index.
During that period, there are two choices I could have made:
- Cut and run, protect what is left, and take the loss and start over.
- Hold the bullish bias, but push the contracts to the future to avoid being “assigned”.
I chose option 2. I did get “assigned” 2 contracts. On March 2nd I got assigned a contract to buy SPY for $690 x 100 shares, and on March 12 another one for $685 x 100 shares. This meant I had to come up with money to pay for those 200 shares.
If you’ve been following along, you’d know I had been holding US treasuries as a low interest “base”, later I swapped those out for holding SPYi as a base. I had to liquidate those shares, cut off their income, and use that money to fulfill the contracts I allowed to be assigned to me.
Now I had two lots of 100 shares. One cost me $69,000 and the other cost me $68,500. I didn’t run out of cash at that point, but it was getting thin. I wouldn’t be able to take on another 100 share lot, so what I did was I began to push the dates of my short PUT contracts out into the future, and down in price if I could.
I had to push March and April contracts much farther out than I planned for. The problem in a declining market though is there is some punishment for trying to pull off moves like this, so each “roll” out to a future date also means the obligation could get worse.
As you can see by the previous chart, it did get worse. I had to push contracts as far out as January of 2027 in order to keep the market from assigning me more shares that I could not afford to buy. I spaced them out from June all the way to January to keep them safe.
On March 22 I posted a bit of a cryptic message on FB that nobody even reacted to. Of course not, it made absolutely no sense. The symbols are from Japanese, and would be pronounced something like “Gachi-ho”.
ガチホ basically means, hold on for dear life. This is similar to the mantra the US traders in GME (Gamestop) had come up with during the GameStop saga in 2020 / 2021. They’d use expressions like “Diamond Hands” or “HODL” (Hold on for dear life).
I discovered this expression, ガチホ while studying what the Asian markets were doing, and how they were trading around the conflicts in Iran. I found it very educational, and discovered a little about the culture surrounding the Japanese, and Korean traders as a result of that research.
I decided to “Gachi-Ho” and hold on for dear life.
March still had one more week of strong pressure, and my performance versus SPY was at risk of actually being WORSE since the inception of this experiment. I was indeed holding on for dear life.
The Rebound
The market began to realize it had oversold itself, and began correcting, but now to the upside.
All those contracts I had spread out until next year were now heaving a huge sigh of relief. I had to wait a few days, and once we reached April 17th, I was able to perform what I call a “BackFlip” of some of those contracts, basically pulling them backward in time and closer to the front of the timeline again.
I don’t know how to illustrate that, but if you can imagine looking at the timeline, and a contract that is way out into the future is pulled inward in time back to within 45 or 60 days, it’s like literally back flipping through time to bring that contract closer to today. This is an expensive move in a way because there is a cost to buy them back, even though the contract can be closed for a small profit.
Why would I do that? The whole reason for paying to bring a contract closer in time is because this Dragon’s Eye strategy is all about the constant production of cash. Sure, we have to be patient, but that contract from January 15th 2027 would have waited a total of 295 days from it’s opening to realize it’s profit if I just let it decay over time. That is not an efficient use of time or leverage!
I BackFlipped all bullish contracts to bring them back into April and May except for a couple that I had tossed out to June, July, and August. All the September through January contracts were “rescued” by the markets sudden surge, and I could look to find ways to put that money back to use so it can manufacture more cash in the immediate short term time frame (now until 120 days).
What were some of the ways that I could do that?
First of all, there is the matter of the 200 shares, two lots of 100 that had to be bought, remember those?
Fortunately the prices now had risen above the levels that I was forced to purchase them. I was able to sell both lots for gains of over 3% on both of them, in a time span of 42 days and 53 days. I don’t care what % that would annualizes to, the point was, I had to get cash reserves back up so I could put it back into daily/monthly interest earning and get back to churning out gains on contracts too.
Contract production was now back on track, and I had room to put the cash back into SGOV/SPYi if I wanted to. This time, I decided I would put the cash back into SPYI again. It’s not a “sure thing” like the 3.7-4.0% you get from SGOV, but it pays dividends monthly, and it also allows for 70% of it’s value to be used as collateral for option contracts.
For April, I snuck back in days before the dividend paid, and caught it in time. SPYI earned $968 versus the SGOV max peak of $398. I know that doesn’t sound like much, but remember, this is a payment just for letting your cash be parked in something while you’re using it’s power to trade options. So rather than cash just earning about .5%, this is a vehicle to produce more than that.
I feel the trade off from pure cash versus a fund like SPYI is worth the risk, although if there is another severe down trend in SPY, then SPYI will also match the downtrend. I can discuss more of the reason for that strategy change later, for now, let’s look at how the competition with beating the index came back in April after the March rout.
Aprils Dragon’s Eye Results
The Dragon is Flying again
That dip in March was quite a scare for sure, but the snap back was equally satisfying. The “alpha” or the amount that this strategy is beating the S&P 500 is back on track, and has a roughly +17.7% lead again. This return of +26.72% in 221 days, is a bit better than what I had anticipated in the beginning, but the fact that it had to go through some fire to get there proves it’s not without risks.
It’s time for me to make serious adjustments
I am 57, going on 58. It’s time to start thinking about settling these beasts down for retirement. At least half of the bi-polar me thinks that.
If this Dragon’s Eye strategy has appeared to be like a roller coaster, just imagine what my “risky” Juggernaut set of trading patterns looks like.
The results of my other portfolio which can only be described as a Juggernaut (The Marvel character), had me considering major changes in April. The number of years left for me to be engaging in the types of high flying dog fights and Jedi mind tricks are going to run out one day, and I made the decision to quit trading some of my Favorites. I am no longer trading AMZN, TSLA, AAPL, and even NVDA I have left by the wayside in April.
I really enjoyed applying my slinky strategies to those companies, and in the end, I was absolutely astounded by the results. I know when it’s time to hang up the skates though, and on my Fantastic Four, I decided it was time to let them sunset.
How did they perform?
Including all of the components of the Juggernaut, the results were almost ridiculous over the past year from April 30th 2025 to April 30th of 2026.
All 4 of my Fantastic 4 performed better than 100% using my SlinkyStrategies. I had some losers in there too though, my MELI (Mercado Libre) foray was horrible, losing over -18%. I did ok with some companies like SOFI +6.9% and MSTR +22.9%, and some other small plays. LULU (Lululemon) +27.5% worked out perfectly as I managed to get out while the getting was good.
In the end though, which isn’t the end yet, the exuberance of the market has me thinking that April was the time to take the wins, bank them, and look to setup my retirement plan completely.
I won’t have much of a Canadian Pension plan, I left Canada almost 20 years ago, so I can’t rely on that, and I must think about making sure I have my own pension plan setup because I don’t want to work much longer.
After a lot of thinking, I decided I would use the gains from the Juggernaut over the past year to make the Dragon’s Eye my retirement plan. I’ve made significant moves to try to solidify where I went wrong before, and I still have some moves to make, but going forward, what I have done is created the old Bull versus Bear conflict again.
I’ve come full circle to the training I setup for myself in 2023, and I am going to use the Juggernaut as the Bear, and the Dragon’s Eye as the Bull. Two separate portfolios that will lean in slightly different directions.
The Dragon’s Eye has now taken on the responsibility to be my retirement fund. And I have installed two more “Eyes” into it the last week that I would love to explain in another article if there is some interest. I need to protect that portfolio now, as it’s going to be my retirement fund until I am gone.
The Juggernaut will play a role now as the devils advocate, holding a slightly bearish tilt to generate some income during market downturns while aiming to create weekly income through option movements. I will focus on only using the QQQ index (The NASDAQ) and see if I can manage to hedge the Dragon’s Eye successfully allowing it to be a reliable, long term retirement fund.
This has been one heck of a year, it’s a lot of fun to come up with strategies and trade them in real time. I need to make sure though that I don’t let the vacuum take it all away, so it’s time to settle down a little, and work on training the Dragon even more.
Until next time, May the 4th be with you. (That’s Monday coming up) I will be working on my “AntMan” swarm strategy and the 4 phase Micro-Mini-Macro-DeepSlinky progression models.
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