Saud

Hi Paul, funny I was just reading about this: http://finance.fortune.cnn.com/2013/08/30/latency-arbitrage-costs/ This guy did a study where he showed how he could easily do latency-arbitrage by getting the NBBO ahead of the public. "Here's how Hendershott's latency-arbitrage strategy worked: Redline allowed him to use its "direct market access" -- cables that run directly from exchange servers to its own. Redline's server was co-located with that of BATS Exchange so that the "latency" on information and orders coming from BATS was cut down to barely one thousandth of a second. As a result, some of the quotes on public feeds such as the crucial "national best bid and offer" feed were a few milliseconds behind those Hendershott could see on his direct link with the exchanges. With a half-decent trading algorithm, Hendershott would have had ample time to buy Apple at a stale price with a guarantee that he could sell at a profit. Every couple of seconds. All day. Risk on the trades: zero."

yes you can do all that and more Here's what I do (and there are many ways to accomplish the same thing in IB): Open Option Trader (and keep it open always) and start a new tab for each underlying. I like to use the Combo builder under Trading on that page, right above the Option Chains. All you have to do is click on the ask or bid of the relevant strike and expiry and it populates the fields there. Then you can "add to Quote Monitor", helpful if you want to watch it or set up and bunch to transmit a bunch of spreads at once. Once it's in the quote monitor just highlight the combo and click the "order ticket" button underneath (I also like to have the "preview order/check margin" and "close position" buttons there, among others, plan on spending a good number of hours configuring TWS the way you like it). The combo shows up in Orders below and you can modify, enter the limit etc. and transmit from there. To close, same thing from quote monitor, just use the "close position" button (but be careful to check the limit price before sending it off). I've found that's the safest and fastest way to do it, as it ensures you've got the correct strikes, expiries, number of contracts etc (not that anyone would ever mess that up ). I hope that helps somewhat.

yes I definitely want to clear out any short positions before waiting too long. This recent market drop may be a bit overdone though especially because of such low volume, we'll see over the next few days. At any rate these are very small positions I put on and any real spike will benefit our VIX fly.

I got the 38 call though. Agree about the commissions, that's a real headwind, especially with any adjustments.

Maybe, but at the same time all this uncertainty makes it very unlikely that vol is going to drop too much in the short term so it seems like a good play. At any rate it's holding steady right where it should, ie about BE after comms. The UVXY calendar same thing even with the spike.

Thanks for all that Mikael! I grabbed the VXX BWB 14/15/15.5 just before close yesterday, commissions are indeed a killer on that one.

Hi Paul, Why did you choose the second week? Maybe 14/15/15.5 now that VXX seems to have taken a jump upwards?

My thinking is that this might be the ideal time for that BWB, given that we've got the VIX fly that is slowly going to go under if VIX continues range-bound as it has been lately. We'd benefit nicely from any small drift downward (which would help offset any losses from the other fly if that doesn't work out), and possibly have a small credit if it does move higher. There's still so much uncertainty out there I just don't see a big gap of 3-4 strikes down say, overnight, as very likely in the next few weeks. We're all pretty actively managing our portfolios so there should be ample opportunity to roll down or out if it started to move away from our profit zone. In any case we'd want to be out before the FOMC.

Those look like solid strategies, and indeed, we cannot rely on luck with dodgy trades. I am intrigued by the UVXY/VXX calendar possibilities though. I've got a few contracts just to see what happens with it. This is the ideal setup for it anyway so let's see where it goes. I do like the VXX Broken Wing Butterfly idea as mentioned in the former thread. that would be perfect to have on all the time if you could hedge a little against a very rapid fall, wouldn't it?

Update... I haven't installed it yet (waiting for the latest update) but I spent quite a bit of time going through all the forum threads at various places where he (Tom, the guy behind the project) elaborated his ideas, gone through the results of testing and had feedback from early users. It's so different from anything else that I think it's useful to have an understanding of the concepts behind it before getting into the nuts and bolts. From what I've seen, any problems the early users and testers seem to be having is because of their failure to grasp the ideas it's based on and trying to force their own ideas and methods onto the architecture. First of all, it's not a scalper in the traditional sense (like a HF algo), it's simply designed to buy low and sell high by (what he calls) "wrapping" the price to capture the range as it moves. There's no place for time, it's based only on price points, which move in a sort of channel (but can move to the next channel if the price moves up or down). He rejects both trending systems (zero-sum game) and predictive indicators. Basically, the system just grinds away until the realized profit for each trade reaches the unrealized profit (as he sees it, the main problem with HFT is that the realized profit can exceed the unrealized) and then it ends that trade. So drawdowns during the course of that trade are not thought of as drawdowns, but as "investments", since the system will increase the trade size on an up or down trend (think mean reversion, in terms of the price wrapping). It's meant to run 24/7 through Gateway. He's pretty coy about what's in the black box but the whole idea is that the system "supervises" a number of virtual "players" who are bidding against each other to create what's called an "order cloud" that's superimposed on the points of the price wraps (and there can be multiple overlays). The players are trend buy, trend sell, countertrend buy, and countertrend sell, and their activities determine the buy/sell. The main strategy is sort of a superposition of two trending strategies which seem (long-term) like a countertrend strategy. I admit I don't understand that bit just yet. The hedging aspect of it comes from being able to run multiple instances of strategies on the same instrument (or folio) using "clones" or even multiple bots on the same account. This also keeps each position size quite small and the portfolio "massively" diversified overall. Of interest to us here is the way he's integrated options into it. (This in only the most recent iteration of the system so it probably needs refinement). The bot uses option "corridors" to hedge against the runaways, so usually there will be +2 calls - call instrument +2 puts -1 put One long is to hedge, the other long covers the short, the short pays for the longs. The short credits must equal or exceed the cost of the longs, so their strikes will be near or ATM and the longs further out, with expiries a few months away. It's a semi-automatic process, there's a little "retrieve options" function that populates with the appropriate ones to use. Other combinations like +3/-2 could also be used. Now, the whole idea (since it's targeted at hedge fund managers and large investors) is that the user is freed up from the minutiae and can see the larger strategic picture (allocation etc). So there's every level of discretion available from fully automated on down, and it's intended that each user sort of find and refine their own strategies (with the built-in testing engine which he designed to really be a stress test with the most vicious conditions possible). Anyway just some preliminary impressions in case anyone is interested

OK I'm glad I wasn't the only one who had no clue...

I am Just got the response to my request. I have a feeling it may take me a month just to learn how to use it lol

I thought some of the smart people on here might find this interesting: http://www.datatime.eu/public/gbot/ It's a public project to test algorithms and fully automated trading strategies with a trading platform (robot) and there's a client for (only) Interactive Brokers TWS or Gateway. It's really for fund managers and large investors, but we can download it free for evaluation purposes with a paper trading account, as they're looking for people to test the platform and concepts. Primarily for ETFs and futures but options seem to be fully integrated into it as well. Anyway, there's built-in backtesting, forward testing, and some really unique features - "extracting profit from the price curve by player superposition, and overlaying multiple "dynamic probabilistic cage" or "order clouds" from which the price curve cannot easily "escape" without being scalped. This is implemented through an overlay of multiple strategic layers, each one working with a multi-agent logic and hedging each other (player superposition)." Obviously not for the novice or casual investor but maybe some of you guys here would like to take it for a test drive

Good to know! On balance, I'm happy with IB's quirks, as it's saved me from making some costly mistakes in the past.

Thanks Gary. Just a hypothetical for now, I didn't want to be fumbling around if that situation ever arose.

question... There is no Buy To Open/Sell To Open at IB, only Buy/Sell. So what happens if I wanted to open a new position, part of which overlapped an existing position. For ex, let's say I own Sep 25 Calls as part of an IC or something, but also wanted to open up a new combo such as a calendar which required selling the same Sep 25 Calls. When I select that call to build the combo, the "close position" button lights up. So it's going to be flattened and I would end up with fewer or no Calls in the original IC position. What am I missing here?

Thanks so much, Paul. I came across that whilst looking into the Scale Trader at IB, which is as you say, mainly a tool to break up and disguise huge orders being sent in. Not really suited for smaller investors, but I liked the idea of the profit taking offset on that for scalping. Might be useful for a choppy market coming off a low, but I'm not sure if its really scalable.

I came across this spreader for use with Interactive Brokers.<?xml version="1.0" encoding="ISO-8859-1" ?><conf> <ipaddress>127.0.0.1</ipaddress> <account>BALH1234</account> <spreads> <!-- CL/BRENT --> <spread> <id>1</id> <sid>1</sid> <sid>2</sid> <frontSize>1</frontSize> <backSize>1</backSize> </spread> </spreads> <instruments> <instrument> <sid>1</sid> <symbol>COIL</symbol> <exchange>IPE</exchange> <sectype>FUT</sectype> <expiry>201101</expiry> </instrument> <instrument> <sid>2</sid> <symbol>CL</symbol> <exchange>NYMEX</exchange> <sectype>FUT</sectype> <expiry>201101</expiry> </instrument> </instruments></conf> http://miraclespread.wordpress.com/2010/12/15/configuration/ That's all there is. I have no idea yet how to run this but just in case anyone is interested

Thanks Chris, I rolled for .42.

Thanks I've done that, now have the Jan 164/Jul 165 ratio. I knew I had to roll that 157 put as it was getting unbalanced, but I got caught off guard by the rapid rise and wasn't sure when to do that.

Thanks for the updates Chris. I rolled from the 163 to the 165, not sure about the math but I missed the roll to 164 and I've still got the original 157 put. I think this one was a bit too advanced for me at this stage but trying to follow along and learn as I go too.

I didn't see this until later, and by then the credit was significantly less, so I didn't take it

Is the original trade with the Dec 157 put still ok? That's a five point spread versus one point in the new one... This is my first such trade and I'm just going to follow it through for the duration. I understand the basic concepts but I think that things will become more clear by actually executing the trades and seeing it in action. I did find the P/L change in the position (in IB) after the roll today a bit hard to make sense of. I get that the credit I received for the new short puts doesn't show now in the portfolio P/L and it just shows a big unbalanced loss for the Dec put, but my cost basis for the Dec put was a little over 8.00, now it shows a last price for that of 6.50. How is this possible?

Thanks, I saw only the Jun 28 in IB. I figured out how to set up a ratio combo in there so I'm in

Chris I don't understand what you mean by the June 4 Put