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8 minutes ago, Jjapp said:

We actually use multiple expirations merged together and backwards adjusted to account for rolls etc.  Otherwise we would run into issues with contract price jumps etc when looking at the time series.

Gotcha. But with old crop versus new crop (and again I have very little experience with this) isn't it as if you're fundamentally targeting two different "products" in a sense when you merge those expirations? One has a known quantity as I understand it whereas the other does not so it seems like there's a lot of seasonality/dynamics going on with the interplay between the two. Naturally the multiple expirations makes total sense for normal contracts, I'm just curious how this works with the grain markets specifically and if it might actually be a wrinkle in the system design that needs to be ironed out.

 

https://rjofutures.rjobrien.com/market-news/2015/06/26/old-crop-vs-new-crop/

Edited by ex3y7s

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I don't think it's an issue since we're chaining them together as one expires and the other begins.  We're using a fairly standard roll method (I didn't do anything new for that).  What's important is the price changes (not levels) and linking them and backwards adjusting should account for what you're calling out.

Seasonality is something that will get picked up in the model if you go long term enough.  Our lookback period is roughly six months so we're probably not getting too much of that in our current model.  We are looking at adding a longer term time series forecast over the top of our current model which would catch seasonality if it exists but that is still in development.

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Gotcha--in that case it seems like always using the most liquid options would be the way to go. Are the ones currently being used, which are not, chosen simply because that's what comes up by default in IB?

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In general I'd say trade the most liquid under all our normal constraints.  Not sure about this week.  In IB it is a check box in the corner (at least in my setup).  We may have missed it.  I'll go back and look.  At the end of the day as long as you're not losing to a wide bid-ask you should be ok but yes, I try and use the most liquid available.

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Any thoughts on adding copper or silver to hedge gold?  The liquidity appears ok in both, but better in copper, which looking at a front month continuous chart seems to break from gold more often and in sharper moves. 

I"ve attached two charts.  one with all 3 metals and another with just gold and copper. 

I know your trying to maintain a 25k allocation....

cme_metals.png

metals_comparison_chart.png

gc_vs._hg.png

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I'll run them through our position sizing model and if they look ok I'll add them as a test to this week's forecast run.  We'll hold off on trading them officially until we get a chance to try trading them unofficially for a week.

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8 minutes ago, Jjapp said:

I'll run them through our position sizing model and if they look ok I'll add them as a test to this week's forecast run.  We'll hold off on trading them officially until we get a chance to try trading them unofficially for a week.

would there be an issue adjusting the model portfolio $ amount up to accommodate a few more underlyings?  I know recently a member mentioned adding currencies and the 25k allocation was becoming an issue. ( if of course adding them makes sense in your system)

Edited by lrfsdad
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The system has been traded in a 50k model portfolio since August.  

 

We went with 25k to make it more accessible to more members but obviously that will inhibit our ability to add more contracts over time.

 

we could consider adding an “unofficial trades” thread and posting other signals for larger portfolios.  Right now the only other contract in the 50k is ES

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55 minutes ago, RapperT said:

 

we could consider adding an “unofficial trades” thread and posting other signals for larger portfolios.  Right now the only other contract in the 50k is ES

That would be nice as I like the analysis you do.  Then I guess if you added some currencies, how do you diversify?  European currencies only? Such as pound and euro?  Or if yen and euro have most liquid options just trade the 2 and with them being 2 different continents this would be diversified?  All have had some decent trends the last 6 months, but a qwik glance at a chart doesn't always clarify the magnitude of the move (was it enough to even off set theta) and I dont know the time frame your using for entries which could mean lots of "whipsaw" in a slowly trending mkt.

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13 hours ago, Jjapp said:

I'll run them through our position sizing model and if they look ok I'll add them as a test to this week's forecast run.  We'll hold off on trading them officially until we get a chance to try trading them unofficially for a week.

even if they are in an unofficial thread i would be very interested in a silver signal. another group I follow which uses Elliott Waves says silver is about to break out so it would be nice to have a more risk managed way of investing in silver other than buying straight futures contracts as the EW guys are (obviously) not always 100% right in their predictions.

Edited by ales19

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I don’t have a lot of experience personally trading currencies, we would have to look at correlations between various contracts.  Definitely a good addition to a TF system and most of the big shops are trading them.

 

We will see some additions soon and we can look at posting signals for non portfolio contracts.  Have to chat about that one 

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On 3/20/2019 at 9:25 PM, RapperT said:

The system has been traded in a 50k model portfolio since August.  

 

We went with 25k to make it more accessible to more members but obviously that will inhibit our ability to add more contracts over time.

 

we could consider adding an “unofficial trades” thread and posting other signals for larger portfolios.  Right now the only other contract in the 50k is ES

Just my two cents but I think it would make most sense to increase the size of the model portfolio if required to add more contracts, given that a portfolio we expect to perform better is the ultimate goal and while it may make the portfolio less attractive/accessible to some, it will go the opposite direction for others.

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Silver and copper are getting added this weekend to our database so the first forecast for them will be next week.  Position size could be an issue with them so we'll watch it for a while prior to deciding whether or not to add them to the official trades.

 

For currencies the faster way for us to do this would be to trade the currency futures options vs the crosses.  We do need to think through that a bit before rolling it out.  For example, being long the Euro and being long the Australian dollar is functionally equivalent to just having a bigger short position in the US dollar if I'm thinking about this correctly.  I would like to think about that a bit more before we roll something out.  Currency futures require no new code though so I can do that more quickly than figuring out how to handle the FX market directly. 

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On 3/20/2019 at 6:01 PM, lrfsdad said:

would there be an issue adjusting the model portfolio $ amount up to accommodate a few more underlyings?  I know recently a member mentioned adding currencies and the 25k allocation was becoming an issue. ( if of course adding them makes sense in your system) 

We can accommodate more underlyings.  The issue with portfolio size really has to do with how it affects our target delta.  We're already targeting a 2% max risk per position which is considered aggressive in trendfollowing.  For some underlyings that comes out to a target delta below 0.10 for the options trade.  I don't like being that far out of the money.  Adding them to the model is easy though and we could think about how to publish them.  Then if you're trading with a larger account you would just multiply our target delta by the appropriate factor to get your position size. 

We are continuing to add more contracts though.  We're just trying to be careful and not launch a whole bunch in one week. 

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5 minutes ago, Jjapp said:

We can accommodate more underlyings.  The issue with portfolio size really has to do with how it affects our target delta.  We're already targeting a 2% max risk per position which is considered aggressive in trendfollowing.  For some underlyings that comes out to a target delta below 0.10 for the options trade.  I don't like being that far out of the money.  Adding them to the model is easy though and we could think about how to publish them.  Then if you're trading with a larger account you would just multiply our target delta by the appropriate factor to get your position size. 

We are continuing to add more contracts though.  We're just trying to be careful and not launch a whole bunch in one week. 

Yeah good point--that's another argument for increasing the size of the model portfolio though, right? If adding underlyings reduces the target delta for the smaller portfolio too much we're going to have a hard time profiting even when trending.

Edited by ex3y7s

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Quick note on this week's signals.  Hogs have been limit up for two days now.  We are long so this is great news but the quotes look crazy so far this morning.  If it goes limit up again today we may not be able to roll like normal to the correct delta. If we can we will but if it goes limit up we may need to wait until next week.

 

Just giving everyone a heads up.  This is a high class problem.  

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38 minutes ago, ex3y7s said:

Yeah good point--that's another argument for increasing the size of the model portfolio though, right? If adding underlyings reduces the target delta for the smaller portfolio too much we're going to have a hard time profiting even when trending.

For now we have to stick with 25k for what we are doing here on Steady Options.  We will talk to @Kim about some options for larger accounts when we start the subscription but i dont see any reason why we cant post deltas and contracts for a larger model account.

 

For many this is an introduction to both futures and trendfollowing.  Obviously there are some with more experience and/or larger accounts (or both)

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1 hour ago, Jjapp said:

 

 

For currencies the faster way for us to do this would be to trade the currency futures options vs the crosses.  We do need to think through that a bit before rolling it out.  For example, being long the Euro and being long the Australian dollar is functionally equivalent to just having a bigger short position in the US dollar if I'm thinking about this correctly.  I would like to think about that a bit more before we roll something out.  Currency futures require no new code though so I can do that more quickly than figuring out how to handle the FX market directly. 

I'm seeing $0.02 spreads on eur, jpy and aud options.  

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26 minutes ago, ales19 said:

@Jjapp , when you have the chance, can you update the trade stats thread, if i have it correct we should be back in the black after this week (unless I forgot something)

We are posting monthly summaries at Kim’s request so it would be next weekend that we update for March.

 

but one of us can give an overall snapshot before then.. I’m not at my computer now though 

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28 minutes ago, RapperT said:

We are posting monthly summaries at Kim’s request so it would be next weekend that we update for March.

 

but one of us can give an overall snapshot before then.. I’m not at my computer now though 

Oh right, i must have missed that. I thought we were doing one entry per month with edit-updates each week.

On a separate note, do you track the VIX futures contract and/or plan to add it to the mix in the future? I dont know if it trends well enough for the system or if the trends are too “spikey” and thus not suited for this type of system, but i fugured that tha would definitely be one that moves 😂

Edited by ales19

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If portfolio size is becoming an issue, would it make sense to remove say one of the grains in order to diversify into more metals? I would think two grains and two metals would be more Diversified than three grains and one metal, correct?

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1 minute ago, lrfsdad said:

If portfolio size is becoming an issue, would it make sense to remove say one of the grains in order to diversify into more metals? I would think two grains and two metals would be more Diversified than three grains and one metal, correct?

The issue isn't capital.  The issue is how big some of the underlying contracts are.  We are sizing the option position based on the volatility of the underlying future.  That's why you've seen lean hogs position size decrease over the last couple of weeks even as we are making big gains on it.  The volatility also surged during that time. 

A good example is ES.  We have plenty of capital in the portfolio to buy the ES options.  But if we maintain our standard risk per contract the delta is usually below 10 (right now it is 6) on the trade meaning you're buying far out of the money options.  We've set our limit right now at around a 10 delta.  If the trade is usually below ten we're not trading it.  Right now oil is constantly right around that level. 

We can definitely pull out some of the grains if people want to but it won't change the individual position risk problem. 

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On 3/23/2019 at 12:22 PM, ales19 said:

Oh right, i must have missed that. I thought we were doing one entry per month with edit-updates each week.

On a separate note, do you track the VIX futures contract and/or plan to add it to the mix in the future? I dont know if it trends well enough for the system or if the trends are too “spikey” and thus not suited for this type of system, but i fugured that tha would definitely be one that moves

VIX doesn't seem to trend.  It just spikes on occasion.  I don't think our model would catch that well.  I think Dunn Capital does something with the VIX but I think they run a different model on that one. 

If there's interest I could put it into the system and let it run for a while.  Outside of this system I was fading spikes for a while and that actually worked pretty well.  I think I just got bored waiting for spikes during that couple of year period with no vol. 

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3 minutes ago, Jjapp said:

If there's interest I could put it into the system and let it run for a while.  Outside of this system I was fading spikes for a while and that actually worked pretty well.  I think I just got bored waiting for spikes during that couple of year period with no vol

I figured it was probably too spikey for the system. it would be interesting to see of course, but I don't know if it is worth your time. I will leave it up to you.

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On 3/23/2019 at 11:24 AM, ales19 said:

when you have the chance, can you update the trade stats thread, if i have it correct we should be back in the black after this week (unless I forgot something)

The detailed March report will come out this weekend but here is what I have for closed trades right now.  Month indicated is the month the trade was closed, not opened. 

 

 

 

image.png

 

Edited by Jjapp

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4 minutes ago, Jjapp said:

The detailed March report will come out this weekend but here is what I have for closed trades right now.  Month indicated is the month the trade was closed, not opened. 

 

 

 

image.png

 

I must have missed something in my back of the envelope calculations as i was showing a small profit. either way, march is looking good :Thumbs-Up:

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Just now, ales19 said:

I must have missed something in my back of the envelope calculations as i was showing a small profit. either way, march is looking good

It's possible I missed something too.  I usually do a scrub over the weekend at end of month but if one of my months looks wrong send me a note and I'll audit the trade records for that period.  This was just a really fast pivot on my spreadsheet.

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On 3/20/2019 at 5:36 PM, lrfsdad said:

Any thoughts on adding copper or silver to hedge gold?

I added silver and copper to our db this week.  The first run through the model for a forecast will be tomorrow morning.  We won't post official trades but I will share the position sizing and signal for those interested.

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Heads up:  I am traveling today and may or may not be able to post trades at open as I normally do.  We will get the signals and deltas up so those who want to trade it are able to.

 

Thanks,

Rich 

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28 minutes ago, RapperT said:

Heads up:  I am traveling today and may or may not be able to post trades at open as I normally do.  We will get the signals and deltas up so those who want to trade it are able to.

 

Thanks,

Rich 

Great thank you! I haven't seen this mentioned yet: do you have a delta threshold for when you will keep a position open vs change the strike? For example if the trend model direction hasn't changed but our current strike is no longer the closest to the target delta, would you always change the strike, or if it's within x% just keep it open?

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21 hours ago, ex3y7s said:

Great thank you! I haven't seen this mentioned yet: do you have a delta threshold for when you will keep a position open vs change the strike? For example if the trend model direction hasn't changed but our current strike is no longer the closest to the target delta, would you always change the strike, or if it's within x% just keep it open?

I don’t have a hard and fast rule but it’s something we should look at.  We try to avoid unnecessary commissions and slippage wherever possible.

 

if none of our other rules are met we will usually keep the position open if the deltas are close ( within a few strikes).

Edited by RapperT

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Good morning Steady Futures,

 

Unfortunately Im dealing with another travel day for work (gotta lose this damn day job), i should be able to get most trades up around open but there may be a few posted later in the day.  All signals will be posted around normal time.

 

Thanks!

 

Rich

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1 hour ago, RapperT said:

gave $400 back on copper this am after a great week for that contract but still closed for a nice win.  Another strong week for the system

If I remember correctly, last week some nice gains disappeared late in the week as well in some of the grains. I know the idea is to get as much as we can out of a trend but I think the only huge winner has been once in lean Hogs. Have you done any testing as far as profit-taking at a certain threshold?

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2 minutes ago, lrfsdad said:

If I remember correctly, last week some nice gains disappeared late in the week as well in some of the grains. I know the idea is to get as much as we can out of a trend but I think the only huge winner has been once in lean Hogs. Have you done any testing as far as profit-taking at a certain threshold?

It goes both ways.  I'll post a summary of the "large" wins later but we've had a number of them.  There is a trade off between how often you rebalance delta and overall size of wins.  So if we say we'll rebalance at 150% that just changes the return stream slightly and we cut off the 200% wins.  Personally I don't sweat it.  Jerry Parker talks about this a lot on the TTU podcast.  Large winners give some back.

I haven't done a detailed test on it (that's difficult with options) but I ran a test on an SPX options and T-bills portfolio idea I was working on (it is easier to replicate that option value in backtests if you stay at the money and use VIX futures quotes).  The more frequently I rebalanced deltas the lower volatility the system but the lower returns as well.  It's not apples to apples but that test is driving some of my intuition behind the rebalance question. 

We still made over 100% on HG.  If we had sold yesterday we would have made more.  But if it kept going (which happened multiple weeks in a row with oil last fall) we would have given up an even bigger win.  At the end of the day its trade offs.  If people decide to set a profit target instead of a time rebalance they're probably ok as long as it isn't too tight.  My guess is you'll get lower vol and lower returns long term.

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We’ve actually posted the return distribution previously and will update at some point.  Consistent with other effective TF systems, there is a right skew to our distribution.  We’ve had several large winners.

 

As @Jjapp said people can take profits sooner without rolling but this would almost certainly impact returns. 

 

Also, Vol has been higher than we would like on the 25k portfolio as we are trading larger than normal position sizes in many cases. 

 

Its a a good question and one that comes up frequently. 

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