candreouTrade

I initially though the same, but you will get hurt on a lot of these trades over the long run as most the time you can’t setup a 1:1 most of the time. It is more like a 1:0.78

I have recently been playing around with the Option Expiration Week strategy on the S&P 100 index. The link to the paper can be found at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1571786 This strategy basically goes long S&P 100 index (or equivalent ETF) at the beginning of the monthly option expiration week (on the Monday) and closes out the position on the Friday Close. e.g. For January 2018 Long ETF OEF on 15 Jan 2018 at the Market Open Price Close ETF OEF on 19 Jan 2018 at the Market Close Price Looking at the statistics we can see the strategy has : Win Rate = 70% Loss Rate = 30% Avg Win = 1.12% Avg Loss = -1.17% The backtest was run from start of 2013 to the end of 2018. @Yowster, @Kim, I was wondering if you could make any suggestions on how and if we could model this strategy using options. I think this would be really useful, since there is a lot of additonal Academic Research and great quant strategies we could apply option trading too, once we know there is an edge in trading the strategy on the underlying. Our edge would be to be able to trade these strategies as best we can, using options.

@Yowster, @Kim I know this comes up from time to time, but would it be benifical in anyway to have the RV values of non stocks? For example for the SPY etf? if so what is it we would want to plot exactly and how could we use it? I guess we don’t have earning dates for this, so what we need instead? Maybe just the month ends for the last 5 iterations or so?

@Djtux, @Kim - i know this has come up a couple of times in the past, but i thought i might ask again as i am unclear on the answer. Is there any edge in trading our volatility trades on known important Macro Economic Events, to complement what we do currently with earning dates? So how for example would a Spy or Fx calendar/straddle move 30 days prior to the Non Farm Payroll date?

ATR might be good, but i don't think it would help us identify if the stock had a drift. I imagine something like TLT would have a very low drift over time. What could also be good is running a OLS regression on the stocks (again over a 90 day or so period) and seeing which stocks have the lowest coefficient over time. Assuming the R2 was high, stocks with a low coefficient could be good calendar candidates. We could then somehow improve/punish the rating of the stock, based on R2 fit and IV (so low coefficient stocks with high R2 and high IV would be fantastic butterfly candidates in theory)

I was more thinking of historical stock returns. I would think that returns going back maybe 6-9 months would be most relevant and enough to calculate the moments. The reason is that when you look at our TLT trade, we are playing for the stock to be range bound, and I don't believe we have made this decision on many years of data. i guess we are playing the short term trend and will continue to until it no longer holds. Might be interesting to calculate statistics such as moments and mean-reversion on TLT, and use it as a benchmark. We could then scan for any stocks/etfs with better or comparable statistics? These could be candidates to use in a option trading back test, on butterfly trades for example.

@Kim, @Yowster I was wondering if there would be any value in calculating the statistics (Kurtosis, Skew, Variance, Mean) for the return distribution of stocks,etfs and using them in our options trading as an edge? For example could we filter stocks with Low Skew, Low Kurtosis and high Variance and then use them in some type of Butterfly trade? We could then look for other statistics that would be suited to different option trade structures. Any thoughts?

But are there many studies in the academic literature which shows that momentum strategies can be very successful with equites. Also stocks like MSFT or AMZN have a good history of trending higher, and would probably be less likely to crash sharply than VIX. I do definatley see the benefits of VXX over stocks, but would like to try some small positions (maybe paper trade) on some trending stocks to add some diversity.

@Kim, @SBatch - I know that we don't typically trade directional strategies in the SO portfolio, but we have had good success with the VXX Collar trade. My question is would it be possible to trade this vxx collar style trade, as a directional strategy, on any trending directional underling? If not, what would be the main concerns? I would like to try a couple of strategies on some momentum stocks, to see the effects.

@Yowster - thanks for your comments, that sound reasonable. Also i like your point about the 2:1 and 5:2 being a possibility. Would stocks that are close to their 52 week high, be a good candidates for low IV and stocks that would tend to move a little more?

@Kim - cant we trade an underlying that tends to move with non-farm payroll news etc? Maybe an ETF that tracks a currency pair? Have you looked into other events, other that earnings, that also increase IV?

But if we decide to do normal straddles, and the price of the normal straddle is good in terms of RV. Do we still use delta hedging by converting to strangles or do we sell options? I recently came across this issue when selling pure straddle on SBUX.

So when would you prefer converting a straddle to a strangle as a delta hedge strategy in favour of selling options? Or do we no longer delta hedge like this.

Thanks. Do you always try to sell the option that has the least amount of days to expiry?

@Kim - I was wondering if you could provide a detailed explanation on Delta Hedging the straddle. Often when I have a straddle on and I am at about 6% with good stock movement, I am not sure if I should Delta hedge by : 1) converting the straddle into strangle OR 2) by selling OTM options on the side the stock has moved. It would be good to get a detailed explanation as to which one we would use when, and the benefits of each. I understand that converting to a strangle can make us delta neutral, and we can still make gamma gains from the stock move in either direction. I am not so clear how the hedging works when selling options (also which week options should we sell for the delta hedge)? Also i am not clear if we still make money if the stock moves either way? An explanation with some PnL charts from Option NET would be really helpful along with when to use one Delta hedge over the other.

Or probably didn’t manage to double his account in the first year of trading.

Also make sure you have the setting that lets you save settings to server, somewhere in configuration. And make sure when you start TWS, at the login, you also have the settings from server check box checked

I have had this before too. The fix for me was to create a new tab and put your symbols/combos on that. It just seemed to work on the new tab

I was wondering what you thought of the book? I've seen it on the OptionSlam.com website a few times, but from the reviews it seemed to over complicate the strategy. Do you feel there is any good nuggets of information in the book, to help us with our earnings strategies?

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.

Hi Kim, what do you think of using TradeStation instead of using IB and OneNet? My understanding is that TradeStation has lots of back data available so run historic backtesting etc.

Kim, the .mp4 link above doesnt work for me. Can you clarify that the link is working?

Kim, is this no longer the case? I have only been a member shortly, but i can see through January we have mainly traded the RIC.