CMLviz Trade Machine

[Yowster]

@Ophir GottliebFor the SO pre-earnings calendars we are always short the options expiring at the end of earnings week, so wouldn't we specify Rollover=7 on the short leg (and Rollover=30 on the long leg since we use the nearest monthly series as the long leg)???

[eudaimonia]

@Ophir Gottlieb Is this out for all users or just beta testers? I'm not seeing the Custom Strategy option when I log in.

[cuegis]

7 minutes ago, eudaimonia said:

@Ophir Gottlieb Is this out for all users or just beta testers? I'm not seeing the Custom Strategy option when I log in.

Same question from me. I logged out, then logged back in.

I thought that would open the new program, but it didn't.

So, I'm assuming you are referring to a beta version that is not yet available?

[Ophir Gottlieb]

55 minutes ago, cuegis said:

Same question from me. I logged out, then logged back in.

I thought that would open the new program, but it didn't.

So, I'm assuming you are referring to a beta version that is not yet available?

 

You will have the ability to do whatever you like. I was just showing one variant of nearly infinite. I think everyone will be more than pleased, and in fact, excited. We'll do our best.

[Ophir Gottlieb]

56 minutes ago, cuegis said:

Same question from me. I logged out, then logged back in.

I thought that would open the new program, but it didn't.

So, I'm assuming you are referring to a beta version that is not yet available?

 

Correct. Still in private beta.

[Ophir Gottlieb]

1 hour ago, eudaimonia said:

@Ophir Gottlieb Is this out for all users or just beta testers? I'm not seeing the Custom Strategy option when I log in.

 

It's in private beta. We're still a week(ish) away, but I thought everyone would like to see the progress.

[Ophir Gottlieb]

PREFACE
Ulta Inc (NASDAQ:ULTA) earnings are due out tomorrow after the close.  In the last 3-years, this time has meant an opportunity.

Read: Ulta Earnings: An Opportunity (VIDEO) 

Here is the Back-test link. 

[Ophir Gottlieb]

4 hours ago, Yowster said:

@Ophir GottliebFor the SO pre-earnings calendars we are always short the options expiring at the end of earnings week, so wouldn't we specify Rollover=7 on the short leg (and Rollover=30 on the long leg since we use the nearest monthly series as the long leg)???

 

Yep, that sounds right.

[rkvbeach]

Not sure, but I cannot duplicate your figures on ULTA when I plug in the numbers. Any ideas? Thank you.

 

[Ophir Gottlieb]

12 minutes ago, rkvbeach said:

Not sure, but I cannot duplicate your figures on ULTA when I plug in the numbers. Any ideas? Thank you.

 

Back-test link. 

[rkvbeach]

Sorry, I did not do a very good job of explaining. Yes, I went to the back test link & all good. When I log in on my account & input the same numbers, I am seeing 29.5% gain instead of the 92.4% gain. Wondering what I am doing wrong or is there a glitch somewhere. I exited, reentered the info & still come up with 29.5 on my login screen....Still 92.4 on yours. Thanks for the help

[cuegis]

Just a comment on your demonstrations of buying straddles 6 before, and selling 1 day before.

I believe that the profits that are made on these trades, are not the result of an increase in IV.

That is just a "by-product".

The value of the rise in IV (when you get it) serves to neutralize/offset the theta for that day.

Vega rises by the loss in theta.

What this does is to give you "free gamma" to use in the most strategic way you can, IF the opportunity arises, during those 5 days.

But, if there is a profit, it is more often than not, the result of getting a large price move in the underlying during that time.

But, a large move is of no value unless you lock in the gains from that, fortunate, large move.

If your software shows a profit from doing this trade, since it has no way of accounting for any re-hedging that you would have done to lock in the gains, then the only profits that will be reflected would be the times when the stock moves away from ATM, during that time, and STAYS away form it, until you close the trade.

If it is a volatile stock during that time, and you are fortunate to get several large moves, back and forth, this will not be reflected in the results of the backtest since there is no way to include "re-hedging".

Does this make sense?

[Ophir Gottlieb]

16 minutes ago, cuegis said:

Just a comment on your demonstrations of buying straddles 6 before, and selling 1 day before.

I believe that the profits that are made on these trades, are not the result of an increase in IV.

That is just a "by-product".

The value of the rise in IV (when you get it) serves to neutralize/offset the theta for that day.

Vega rises by the loss in theta.

What this does is to give you "free gamma" to use in the most strategic way you can, IF the opportunity arises, during those 5 days.

But, if there is a profit, it is more often than not, the result of getting a large price move in the underlying during that time.

But, a large move is of no value unless you lock in the gains from that, fortunate, large move.

If your software shows a profit from doing this trade, since it has no way of accounting for any re-hedging that you would have done to lock in the gains, then the only profits that will be reflected would be the times when the stock moves away from ATM, during that time, and STAYS away form it, until you close the trade.

If it is a volatile stock during that time, and you are fortunate to get several large moves, back and forth, this will not be reflected in the results of the backtest since there is no way to include "re-hedging".

Does this make sense?

 

That is exactly what's happening. Glad you see that.

[Ophir Gottlieb]

27 minutes ago, rkvbeach said:

Sorry, I did not do a very good job of explaining. Yes, I went to the back test link & all good. When I log in on my account & input the same numbers, I am seeing 29.5% gain instead of the 92.4% gain. Wondering what I am doing wrong or is there a glitch somewhere. I exited, reentered the info & still come up with 29.5 on my login screen....Still 92.4 on yours. Thanks for the help

 

This is a matter of you putting a little effort in, right? Just match one window to the next. Did you put in a stop loss? Is the execution fill type the same? Those are my best two guesses.

[Yowster]

20 minutes ago, Ophir Gottlieb said:

This is a matter of you putting a little effort in, right? Just match one window to the next. Did you put in a stop loss? Is the execution fill type the same? Those are my best two guesses.

@rkvbeach @Ophir Gottlieb When I've seen these big discrepancies, its usually caused by the "Execution Fill Type" setting.  The tool default is "Halfway between mid and market" but most of Ophir's example posts use "Mid Market" (probably a better choice).   Since the tool uses end of day prices, where the bid/ask spreads are typically wider than they are during the trading day, this Fill Type setting can have a huge effect on the performance numbers.

[Yowster]

42 minutes ago, cuegis said:

Just a comment on your demonstrations of buying straddles 6 before, and selling 1 day before.

I believe that the profits that are made on these trades, are not the result of an increase in IV.

That is just a "by-product".

The value of the rise in IV (when you get it) serves to neutralize/offset the theta for that day.

Vega rises by the loss in theta.

What this does is to give you "free gamma" to use in the most strategic way you can, IF the opportunity arises, during those 5 days.

But, if there is a profit, it is more often than not, the result of getting a large price move in the underlying during that time.

But, a large move is of no value unless you lock in the gains from that, fortunate, large move.

If your software shows a profit from doing this trade, since it has no way of accounting for any re-hedging that you would have done to lock in the gains, then the only profits that will be reflected would be the times when the stock moves away from ATM, during that time, and STAYS away form it, until you close the trade.

If it is a volatile stock during that time, and you are fortunate to get several large moves, back and forth, this will not be reflected in the results of the backtest since there is no way to include "re-hedging".

Does this make sense?

@cuegisYou may be able to use "Close Trade When" parameters to simulate profit taking" (and the "open next trade immediately" choice if you want to simulate re-opening at new strikes).

[Ophir Gottlieb]

1 minute ago, Yowster said:

@rkvbeach @Ophir Gottlieb When I've seen these big discrepancies, its usually caused by the "Execution Fill Type" setting.  The tool default is "Halfway between mid and market" but most of Ophir's example posts use "Mid Market" (probably a better choice).   Since the tool uses end of day prices, where the bid/ask spreads are typically wider than they are during the trading day, this Fill Type setting can have a huge effect on the performance numbers.

 

Just a side note that our closing prices are adjusted for the wide closes, so that is not an issue. But, very true, execution fill type is one of the  most common differences between various back-tests when trying to replicate.

[Ophir Gottlieb]

1 minute ago, Yowster said:

@cuegisYou may be able to use "Close Trade When" parameters to simulate profit taking" (and the "open next trade immediately" choice if you want to simulate re-opening at new strikes).

 

Yes! Correct!

[rkvbeach]

Yes, Execution type....Thank you...Did not think about it changing. That is a huge variable though.

Thanks again

[cuegis]

1 hour ago, Yowster said:

@cuegisYou may be able to use "Close Trade When" parameters to simulate profit taking" (and the "open next trade immediately" choice if you want to simulate re-opening at new strikes).

Thank you. After I wrote my post I just starting thinking the same thing.

I was a market maker on the floor(s) of Nymex, Comex, Amex, for a long time, and it was always the one big question that everyone who "gamma trades" was always trying to figure out a solid plan for. "When do you re-hedge?"

How much movement, or change in delta, do you need, in order to do something to bring you back to "delta -neutral".

It is a question that goes back forever.

Aside from earnings related trades, you also can seek out underlyings whose real Historical Volatility, is much, much higher than the IV is suggesting.

The stock is moving around a LOT more each day than is priced into the options.

The only way I can think of for finding those candidates is by comparing HV to IV. If HV is much higher than IV, then you have a candidate.

Even without an, earnings related, rise in IV to offset the daily theta, if you can get enough movement, and actively re-hedge your deltas, then you can make your profits from the re-hedging part of the trade.

Even if the original "base" position, loses money in the end.

It is a very profitable way to trade.

But, it still comes down to finding the best plan for when to re-hedge.

[cuegis]

On 5/25/2017 at 10:32 AM, Ophir Gottlieb said:

 

That is exactly what's happening. Glad you see that.

It's interesting that you posted this response to what I said.

Because , I posted the exact same thing, on another "Steady Options" thread, discussing the mechanics/reasons for buying , and exiting, a straddle pre-earnings.

Virtually every member jumped down my throat, with some saying that this is "100% untrue!"

Thank you for "seeing the light"

[Ophir Gottlieb]

33 minutes ago, cuegis said:

It's interesting that you posted this response to what I said.

Because , I posted the exact same thing, on another "Steady Options" thread, discussing the mechanics/reasons for buying , and exiting, a straddle pre-earnings.

Virtually every member jumped down my throat, with some saying that this is "100% untrue!"

Thank you for "seeing the light"

 

I detailed this reality in a video, if you like, for Google, but it applies to all: 

 

You can feel free to use this as your response whenever you like. You are right. It's a fact, and it is not disputable. 

 

 

 

 

[SBatch]

3 minutes ago, Ophir Gottlieb said:

 

I detailed this reality in a video, if you like, for Google, but it applies to all: 

 

You can feel free to use this as your response whenever you like. You are right. It's a fact, and it is not disputable. 

 

 

 

 

Let me interject here in an attempt to diffuse this debate between members arguing what is "fact".  Reviewing the posts and video, it is clear everyone is essentially in agreement!  The bottom line, which nobody is disputing is that pre-earnings straddles can gain from both a rise in IV (when it is enough to outpace theta) even with no stock movement or a gain from movement in the underlying while the IV helps to mitigate or completely eliminate the theta cost or a combination of both.  Larger gains will come from large movement in the underlying although solid gains can and do still occur with a sharp rise in IV with no movement in the underlying.  Everyone involved in this debate agrees with these points, so why is it being continually dragged on?

[Ophir Gottlieb]

4 minutes ago, SBatch said:

Let me interject here in an attempt to diffuse this debate between members arguing what is "fact".  Reviewing the posts and video, it is clear everyone is essentially in agreement!  The bottom line, which nobody is disputing is that pre-earnings straddles can gain from both a rise in IV (when it is enough to outpace theta) even with no stock movement or a gain from movement in the underlying while the IV helps to mitigate or completely eliminate the theta cost or a combination of both.  Larger gains will come from large movement in the underlying although solid gains can and do still occur with a sharp rise in IV with no movement in the underlying.  Everyone involved in this debate agrees with these points, so why is it being continually dragged on?

 

I actually haven't seen a debate and certainly have no joy in arguing. I like what you wrote and I have nothing else to really add, unless someone has a question. 

[cuegis]

I was pursuing the logic in your demonstrations regarding selling OTM put credit spreads 2 days after, and closing 29 days after, earnings.

The cases that you presented worked very well.

Both in terms of % profitable trades, but even more, average gain vs average loss amount.

I went a little further and took a few of the most liquid stocks from various sectors to test some diversity with it.

JPM for example was a big winner.

But, since the only choices for lookback periods are 6 months, 1,2,3 years...then, by definition, any stock you test is being tested against a massive bull market.

It would be interesting to do all of these same tests, with the exact same parameters, during the 3 year period of 2000-2003, and 2007 - 2010.

I have no doubt everything would be showing a different outcome.

Or, if during those  2 periods, you just changed only one of your filters. Instead of , 2 days after earnings, selling put spreads, just sell OTM call spreads instead.

I think the general shape of the results might be similar to the ones you have done.

This made me think of an interesting idea.

I believe you cannot just altogether ignore the backdrop, or environment, that you are trading in.

So maybe there could be just one more category of filter that would allow you to incorporate the general marketplace you are operating within.

I know that the very last thing that we want to get involved with here is paying undue attention to technical analysis.

But, the reason for that is because we do not want to trade "direction" here....and that basically is the purpose of TA.

But, what if you could add just one simple filter, NOT to predict market direction, but to pay some attention to the environment we are working in.

I'm not saying that this specific thing would be THE answer, it is just an example of an idea .

For example, since you are creating an environment, with so many different things working both in your favor, and avoiding those that could work against you, by selling put spreads in a runaway bull market, and AFTER earnings.

You happen to choose put spreads for your backtest but, it is a "directional" trade, because it is a "long delta" trade.

A long delta delta trade in a long term bull market, obviously has you swimming with the current.

In the same way, selling OTM call spreads, or some other form of "negative deltas" in an established "bear" market, would also have you swimming WITH  the current.

So, for example, maybe adding some form of "Trend Filter" along with all of the variables.

No heavy technical analysis, just one simple "wind meter" like, if "price", or "close" is above the (you pick the number) 20, 50, 200 etc. day moving average, THEN, have that guide you toward either positive or negative delta strategies.

If you just open that 1 door, there are SO many different tests you can run, that would take into account more live, real, actual market conditions.

Since we don't want to go down the path of TA too much, just make it 1 simple filter that can be turned on and off, just like you now have trade, or don't trade, during earnings.

Or , maybe you can give a little bit of flexibility within that 1 filter. For example, if close is below "x" day moving average, with "x" being something you can change.

Or, if "x" MA is below "y" MA for "x" amount of time.

These are just a few ideas I'm throwing out and maybe there are much better ones.

But , I think it could improve the range of your program if you could add this other dimension to it so that we can know if we are painting on a white canvass or a blue one.

Or, if the wind is blowing SW or NE...(alright, I'm not that great with analogies).

 

 

 

[Ophir Gottlieb]

Here are the portfolio results over the last 3-months, average holding period is about 6 weeks.

 

We have short vol, long vol, avoiding earnings, custom earnings, stops, limits, stocks, ETFs, and VXX

 

 

PORTFOLIO RETURNS
# Wins	# Losses	Win %	Average Return	Median Return
26	8	76.5%	34.3%	13.4%

 

Published	Ticker	Custom Earnings	Description	Frequency	Return (%)	Back-test Link
5/25/17	ULTA	Yes	Custom Earnings + Short Put Spread + Stop	Monthly	Not Triggered Yet	Link
5/23/17	V	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/23/17	GS	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/18/17	ADSK	Yes	Custom Earnings + Short Put Spread	Monthly	12	Link
5/16/17	BABA	-	Short Put Spread + Avoid Earnings	Monthly	-5.1	Link
5/15/17	AVGO	Yes	Custom Earnings + Long Straddle	Monthly	Not Triggered Yet	Link
5/11/17	REGN	Yes	Custom Earnings + Long Straddle	One Week	Not Triggered Yet	Link
5/10/17	GPRO	Yes	Custom Earnings + Long Straddle	One Week	Not Triggered Yet	Link
5/9/17	NVDA	Yes	Custom Earnings + Long Condor	Monthly	51	Link
5/9/17	NFLX	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/8/17	TWTR	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/5/17	AMBA	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/5/17	KO	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/4/17	INTC	Yes	Custom Earnings + Long Straddle	One Week	Not Triggered Yet	Link
5/4/17	FB	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/3/17	TSLA	Yes	Custom Earnings + Short Put Spread	Monthly	Not Triggered Yet	Link
5/2/17	AAPL	Yes	Custom Earnings + Long Straddle	One Week	Not Triggered Yet	Link
5/2/17	TWTR	Yes	Custom Earnings + Long Straddle	One Week	Not Triggered Yet	Link
5/1/17	AAPL	Yes	Custom Earnings + Long Strangle	Monthly	75.4	Link
4/27/17	GOOGL	Yes	Custom Earnings + Long Straddle	One Week	Not Triggered Yet	Link
4/26/17	SBUX	-	Short Put Spread + Avoid Earnings	Monthly	3.6	Link
4/24/17	AAPL	-	Long Iron Condor + Avoid Earnings + Stop	Monthly	12.3	Link
4/20/17	TSLA	-	Short Put Spread + Avoid Earnings + Stop	Every Two-Months	Not Triggered Yet	Link
4/19/17	MS	-	Long Strangle + Avoid Earnings	Monthly	-58.8	Link
4/17/17	BABA	-	Long Risk Reversal + Avoid Earnings + Stop	Every Two-Weeks	18.8	Link
4/12/17	NVDA	-	Long Iron Condor + Avoid Earnings	Monthly	77.5	Link
4/7/17	AMZN	-	Long Iron Condor + Avoid Earnings	Monthly	9.7	Link
4/4/17	JPM	-	Short Puts	Monthly	3.8	Link
4/3/17	DAL	-	Short Puts	Monthly	14.5	Link
3/29/17	GOOGL	-	Short Put Spread + Stop	Monthly	30	Link
3/28/17	VEEV	-	Short Put Spread	Monthly	50.9	Link
3/27/17	IBM	-	Short Put Spread + Avoid Earnings	Weekly	-61	Link
3/22/17	ANET	-	Short Put Spread + Stop	Monthly	25.8	Link
3/22/17	AMD	-	Short Put + Stops + Limits	Monthly	-41	Link
3/21/17	HP	-	Short Put + Avoid Earnings + Stop	Monthly	1.1	Link
3/20/17	DIS	-	Short Put + Avoid Earnings + Stop	Weekly	3.9	Link
3/20/17	AMZN	-	Short Put Spread + Stop	Weekly	19.8	Link
3/17/17	ULTA	-	Short Put + Avoid Earnings + Stop	Every Two-Weeks	-8.5	Link
3/16/17	ORCL	-	Short Put Spread + Avoid Earnings	Monthly	Not Triggered Yet	Link
3/15/17	SWKS	-	Short Put + Avoid Earnings	Monthly	29.1	Link
3/13/17	NFLX	-	Short Put Spread + Avoid Earnings + Stop	Monthly	59.2	Link
3/12/17	TSLA	-	Long Call + Avoid Earnngs + Stop	Weekly	635.4	Link
3/8/17	ADBE	-	Short Put + Avoid Earnings	Weekly	16.3	Link
3/6/17	AMGN	-	Covered Call + Avoid Earnings	Monthly	-10.7	Link
3/6/17	AAPL	-	Covered Call + Avoid Earnings	Monthly	7.6	Link
3/6/17	CELG	-	Short Put + Avoid Earnings + Stop	Weekly	9.4	Link
3/2/17	BAC	-	Short Put + Avoid Earnings	Every Two-Weeks	-7.3	Link
2/27/17	GLD	-	Short Put Spread + Stop	Every Two-Weeks	31.5	Link
2/21/17	V	-	Short Put Spread	Every Two-Weeks	118.9	Link
2/20/17	MSFT	-	Short Put + Stop	Every Two-Weeks	26.2	Link
2/15/17	VXX	-	Short Call Spread + Stop	Every Two-Weeks	-6.8	Link
2/13/17	QQQ	-	Short Put + Stop	Monthly	20.6	Link

Risk Disclosure 
You should read the Characteristics and Risks of Standardized Options. 

Past performance is not an indication of future results. 

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. 

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. 

The author may hold a position in some of the stocks named above. 

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Edited May 29, 2017 by Ophir Gottlieb

[SBatch]

On 5/7/2017 at 0:43 PM, Ophir Gottlieb said:

 

We can take a look at that, but remember, options do decay over weekends as well (not like weekdays, but it's still a real factor).

@Ophir Gottlieb Have you given an additional consideration to my request for allowing trading days rather than calendar days for the backtests?  We were having this discussion in another thread regarding the lack of theta decay over the weekend.  For example, we were focused on the NKE June 9th strangle which showed essentially zero theta decay over the three day weekend.  Vance Harwood has done a study also revealing that theta decay does not occur over the weekend (please see link below).  As such, I can't see any reason to have the backtest use calendar days rather than trading days.  What are your final thoughts on this topic?  Thanks.

https://sixfigureinvesting.com/2014/10/option-weekend-decay-and-volatility-annualizing/

 

[Ophir Gottlieb]

27 minutes ago, SBatch said:

@Ophir Gottlieb Have you given an additional consideration to my request for allowing trading days rather than calendar days for the backtests?  We were having this discussion in another thread regarding the lack of theta decay over the weekend.  For example, we were focused on the NKE June 9th strangle which showed essentially zero theta decay over the three day weekend.  Vance Harwood has done a study also revealing that theta decay does not occur over the weekend (please see link below).  As such, I can't see any reason to have the backtest use calendar days rather than trading days.  What are your final thoughts on this topic?  Thanks.

https://sixfigureinvesting.com/2014/10/option-weekend-decay-and-volatility-annualizing/

 

 

We use trading days up to 5 in custom earnings, then switch to calendar. We are considering having setting for each member to toggle between calendar and trading days, but it's not a highly demanded feature so we not high on the priority list.

Edited May 30, 2017 by Ophir Gottlieb

[SBatch]

2 hours ago, Ophir Gottlieb said:

 

We use trading days up to 5 in custom earnings, then switch to calendar. We are considering having setting for each member to toggle between calendar and trading days, but it's not a highly demanded feature so we not high on the priority list.

@Kim @Yowster What are your thoughts here?  Would you rather see calendar days or trading days?  Here is the example I used previously to support trading days:

Let's use AMD as an example as I like to use them for a pre-earnings straddle.  If I test for an open 10 days prior to earnings and a close 0 days prior to earnings (as AMD reports AMC) we get very varied results with regard to trading days which should absolutely be the focus here. For example, the back-test for the 10/16 cycle will show 9 trading days.  However, if we compare it to the 5/17 cycle we get 7 trading days.  This is a massive differential for such a short term trade.  We are supposed to be comparing apples to apples but in this simple example one trade is on for over 25% more trading days than the other even though we are attempting to solve for a constant with regard to days before earnings.  The two extra trading days is a very large variable because of how much the stock can move and how much IV can rise or fall in those two days.

[Yowster]

15 minutes ago, SBatch said:

@Kim @Yowster What are your thoughts here?  Would you rather see calendar days or trading days?  Here is the example I used previously to support trading days:

Let's use AMD as an example as I like to use them for a pre-earnings straddle.  If I test for an open 10 days prior to earnings and a close 0 days prior to earnings (as AMD reports AMC) we get very varied results with regard to trading days which should absolutely be the focus here. For example, the back-test for the 10/16 cycle will show 9 trading days.  However, if we compare it to the 5/17 cycle we get 7 trading days.  This is a massive differential for such a short term trade.  We are supposed to be comparing apples to apples but in this simple example one trade is on for over 25% more trading days than the other even though we are attempting to solve for a constant with regard to days before earnings.  The two extra trading days is a very large variable because of how much the stock can move and how much IV can rise or fall in those two days.

@SBatchI think trading days makes a lot more sense - I guess it doesn't matter if a company always reports earnings on the same day of the week, but as your example indicates it can make a difference for companies whose reporting day of the week varies from cycle to cycle.   If this can't be a user-specified settings choice, perhaps a good compromise would be to use trading days for any custom earnings scenario within 2 weeks (up from the 5 days the Ophir cited) and use calendar days for anything outside of 2 weeks?

[Ophir Gottlieb]

5 hours ago, SBatch said:

@Ophir Gottlieb Have you given an additional consideration to my request for allowing trading days rather than calendar days for the backtests?  We were having this discussion in another thread regarding the lack of theta decay over the weekend.  For example, we were focused on the NKE June 9th strangle which showed essentially zero theta decay over the three day weekend.  Vance Harwood has done a study also revealing that theta decay does not occur over the weekend (please see link below).  As such, I can't see any reason to have the backtest use calendar days rather than trading days.  What are your final thoughts on this topic?  Thanks.

https://sixfigureinvesting.com/2014/10/option-weekend-decay-and-volatility-annualizing/

 

 

We use trading days up to 5 in custom earnings, then switch to calendar. We are considering having setting for each member to toggle between calendar and trading days, but it's not a highly demanded feature so we not high on the priority list.

[Ophir Gottlieb]

 

Using JPMorgan Chase & Co Options to Out Smart Market Risk

 

Date Published: 2017-05-30 
Written by Ophir Gottlieb 

LEDE 
There is a way to trade JPMorgan Chase & Co (NYSE:JPM) options that is risk protected but out smarts the market with the timing of the trade. 

If we leverage the idea that the stock "won't go down very much" but add two strict risk protections in case it does, while also avoiding earnings, we find the one risk protected option trade right after earnings that has been a consistent winner, has returned over 85% annualized returns in the last six-months and has been a bastion of safety over the last 3-years. 

The Trade After Earnings 
While most of the focus in the market is on the earnings move for a stock, for JPMorgan Chase & Co, irrespective of whether the earnings move was up or down, if we waited two-days after the market move from earnings, and then sold an out of the money put spread, the results were very strong and risk was well defined. 

Even further, if we added a stop loss to the short-put spread to limit the losses even more, we find a fairly conservative option trade with strong returns. 

We can examine this, objectively, with a custom option back-test. Here is our earnings set-up: 
 

And then we add a stop loss: 
 

Rules 
* Open short put spread 2 day after earnings. 
* Close short put spread 29 days later. 
* Use the option that is closest to but greater than 30-days away from expiration. 
* Use a stop loss at 50% to reduce risk. 

Here is the timing of the trade in an image: 
 

And here are the results of implementing this strategy: 
 

 
Back-test Link

Focusing in just the month after earnings, we see a 56.2% return over a total of 11 earnings releases. We also see that this idea won 8 times and lost 3 times. 



The Logic 
Our idea here is that after earnings are reported, and after the stock does all of its gymnastics, up or down, that two-days following the earnings move and for the next month, the stock is then in a quiet period. 

If it gapped down -- that gap is over. If it beat earnings, the downside move is already likely muted. Here's how this strategy has done over the last two-years: 
 

 
Back-test Link

The "single-month" approach returned 26% over the last seven earnings cycles -- that's just seven months of trading. 

Finally, here are the results over the last 1-year: 
 

 
Back-test Link

That's about 20% over three earnings cycles, with all three turning out to be winners. And for completeness, here are the results over the last six-months. 
 

 
Back-test Link

If we consider that the 14.6% return was just over two-months (two earnings cycles, holding the short-put spread with a stop loss for one-month each), that 14.6% in two-months is 87.6% annualized. 

WHAT HAPPENED 
To see how to do this for any stock and for any strategy with just the click of a few buttons, we welcome you to watch this quick demonstration video: 
Tap Here to See the Tools at Work 

Thanks for reading. 

Risk Disclosure 
You should read the Characteristics and Risks of Standardized Options. 

Past performance is not an indication of future results. 

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. 

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. 

The author has no position in JPMorgan Chase & Co as of this writing. 

Back-test Link

 

 

 

 

 

 

 

 

[candreouTrade]

Is there a thread in SO (or plans for a thread) where we are actually going to place trades that we have found using the Back-Tester?

Kim may be able to advise if there are trades from the back-tester that we plan on doing for the Model Portfolio.

 

 

 

[cuegis]

I provided you with the JPM, post earnings, short put spread on Monday but you did not respond to the rest of my post.

[RapperT]

@Ophir Gottlieb or @Kim, any comment on the option alpha (tasty trade V 2.0) backtesting software they just released?

[cuegis]

7 minutes ago, RapperT said:

@Ophir Gottlieb or @Kim, any comment on the option alpha (tasty trade V 2.0) backtesting software they just released?

Are you saying that Kirk has done something together with the TT guys?

 

I do not see any mention of it on the Option Alpha site.

Edited June 1, 2017 by cuegis

[Djtux]

3 minutes ago, cuegis said:

Are you saying that Kirk has done something together with the TT guys?

 

I do not see any mention of it on the Option Alpha site.

No there is no relationship between the 2. The 2 software don't do the same thing (CML vs OA).

[cuegis]

7 minutes ago, Djtux said:

No there is no relationship between the 2. The 2 software don't do the same thing (CML vs OA).

I was just wondering why you were mentioning Tasty Trade v.2.0?

What is that?

Is that their new Tastyworks platform?

Edited June 1, 2017 by cuegis

[Djtux]

1 minute ago, cuegis said:

I was just wondering why you were mentioning Tasty Trade v.2.0?

What is that?

Is that their new Tastyworks platform?

That's the me :). But i think what @RapperT meant was that OA uses similar strategies as TT, but i don't read his mind.

Nothing related to the actual software.

[RapperT]

15 minutes ago, cuegis said:

Are you saying that Kirk has done something together with the TT guys?

 

 

No I was making a shitty joke

[RapperT]

Thanks @Djtux I wasnt sure.. only saw a brief marketing piece on it and didn't know if tnwould be considered a competitor.

 

and yes, I was commenting on the similarities between TT and OA

Edited June 1, 2017 by RapperT

[Djtux]

I haven't got the time to play with the OA backtester, but you are limited in the tickers you can backtest which correspond to the OA trading strategies (ETF and the most liquid stocks). CML doesn't seem to have that limitation. I believe OA backtester has the calendar but not designed to play around earnings.

[cuegis]

9 minutes ago, Djtux said:

I haven't got the time to play with the OA backtester, but you are limited in the tickers you can backtest which correspond to the OA trading strategies (ETF and the most liquid stocks). CML doesn't seem to have that limitation. I believe OA backtester has the calendar but not designed to play around earnings.

It won't allow me to type in any symbols...so I cannot test it.

[RapperT]

18 minutes ago, Djtux said:

I haven't got the time to play with the OA backtester, but you are limited in the tickers you can backtest which correspond to the OA trading strategies (ETF and the most liquid stocks). CML doesn't seem to have that limitation. I believe OA backtester has the calendar but not designed to play around earnings.

wow that's lame.

 

Eagerly awaiting the calendar functionaility in CML

[Ophir Gottlieb]

 

Trading Broadcom Ltd Options Right After Earnings

 

Date Published: 2017-06-01 
Written by Ophir Gottlieb 

LEDE 
There is a way to trade Broadcom Ltd (NASDAQ:AVGO) options right after earnings that has been a winner more than 85% of the time over the last two-years and has returned almost 120% annualized returns over the last six-months. 

The Trade After Earnings 
The earning moves is the headline grabber for stocks, but for Broadcom Ltd, irrespective of whether the earnings move was up or down, if we waited two-days after the market move from earnings, and then sold an out of the money put spread, the results were very strong and risk was well defined. 

We can examine this, objectively, with a custom option back-test. Here is our earnings set-up: 
 

Rules 
* Open short put spread 2-days after earnings. 
* Close short put spread 29-days later. 
* Use the option that is closest to but greater than 30-days away from expiration. 

Here is the timing of the trade in an image: 
 

And here are the results of implementing this strategy: 
 

 
Back-test Link

Focusing in just the month after earnings, we see a 35.3% return over a total of 7 earnings releases. We also see that this idea won 6 times and lost 1 times. Since we are covering just seven earnings releases, and each trade is just one-month in length, that 35.3% is over just a seven-month period, which comes out to 60% if annualized. 

This is not a trade that ties up capital for very long. 

The Logic 
Our idea here is that after earnings are reported, and after the stock does all of its gymnastics, up or down, that two-days following the earnings move and for the next month, the stock is then in a quiet period. 

If it gapped down -- that gap is over. If it beat earnings, the downside move is already likely muted. Here's how this strategy has done over the last year: 
 

 
Back-test Link

The "single-month" approach returned 20.2% over the last four earnings cycles -- that's just four months of trading. 

Finally, here are the results over the last six-months: 
 

 
Back-test Link

That's about 20% over just two earnings cycles, with both trades turning out to be winners. 

If we consider that the 19.8% return was just over two-months (two earnings cycles, holding the short-put spread for one-month each), the return is actually just below 120% annualized. 

WHAT HAPPENED 
To see how to do this for any stock and for any strategy with just the click of a few buttons, we welcome you to watch this quick demonstration video: 
Tap Here to See the Tools at Work 

Thanks for reading. 

Risk Disclosure 
You should read the Characteristics and Risks of Standardized Options. 

Past performance is not an indication of future results. 

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. 

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. 

The author has no position in Broadcom Ltd as of this writing. 

Back-test Link

 

 

 

 

 

 

[ykotowitz]

An alternative strategy for AVGO is Selling a bear one week put 40/20 delta just before earnings and holding for 2 or 3 days post earnings.

seems to yield over 90% success rate . with average returns of about 20%. Am trying it today. Will report results in a few days.

[Ophir Gottlieb]

4 minutes ago, ykotowitz said:

An alternative strategy for AVGO is Selling a bear one week put 40/20 delta just before earnings and holding for 2 or 3 days post earnings.

seems to yield over 90% success rate . with average returns of about 20%. Am trying it today. Will report results in a few days.

 

Well, it's looking very good right now. Big risk -- but they beat handily an stock is up $8 AH.

[cuegis]

6 minutes ago, ykotowitz said:

An alternative strategy for AVGO is Selling a bear one week put 40/20 delta just before earnings and holding for 2 or 3 days post earnings.

seems to yield over 90% success rate . with average returns of about 20%. Am trying it today. Will report results in a few days.

It is just a long delta trade.

Do the exact same backtest but just change 1 thing.....replace long call spread instead of short put spread... much better returns

[hoyt2004]

On 6/2/2017 at 4:18 AM, cuegis said:

It is just a long delta trade.

Do the exact same backtest but just change 1 thing.....replace long call spread instead of short put spread... much better returns

Hi Cuegis,

I am new to SteadyOptions, maybe i am asking a stupid question, May i know what it means 30 delta, 40 delta and where i can find this greek if i am using IB platform? 

[cuegis]

10 hours ago, hoyt2004 said:

Hi Cuegis,

I am new to SteadyOptions, maybe i am asking a stupid question, May i know what it means 30 delta, 40 delta and where i can find this greek if i am using IB platform? 

Delta is a % number which tells you how much a specific option will move if the underlying stock/instrument moves 1 full point.

If it is a stock , then if the stock goes up $1, and your option is a call, with a delta of .50....then the option will increase by .50 cents with a $1 move higher in the stock.

If it is a call with a .30 delta, then .30 cents ..etc.

If it is a put then , if you "buy" it, the deltas are "negative" deltas. So , with a put, it would be -.50 and if the stock went up by $1, the put would decrease by .50 cents.

Then, if you just flip this whole concept around, and think of SELLING each of the above mentioned options, that would reverse the delta.

For example, if you "sold" a put with a .50 delta, then if the stock went up by $1, the value of the put would still decrease by .50 cents but, since you are short the option, you would GAIN .50 cents.

Sounds hard at first, but everything is simply the opposite of what it normally is if you sell, rather than buy it.

In IB TWS platform, on the basic quote pages, there is a place in the settings, where you can add/remove the different columns.

I don't have it open right now but, you can add a column for "delta" which will show you what every option's delta is in real-time.

Or, you can open "Option Trader" and type in a stock symbol, and it will bring up all of the options for each expiration along with columns showing each of the greeks as they change in real time.

Also, once you are holding a position, you can open up "Portfolio Manager" and highlight, on the bottom right, from the drop down box, the specific symbol that you have a position in,and it will automatically add together, and subtract, all of you + and - deltas, and show you the live Total delta of your entire position.

Edited June 3, 2017 by cuegis