Victor

Hello Everyone, I am just wondering if it's worth to research and backtest a weekly covered call strategy using SPY as underlying and SPX for covered call writing. The idea is to buy SPY to cover weekly calls written on SPX every week and let them expire worthless (hopefully) each week. I realize that there might be technical issues when SPX weekly calls are exercised, because SPY would have to be sold to cover losses. Have anyone had any experience with this strategy or done similar backtesting (maybe with monthlies) and if so what were the results. Also, any other comments are appreciated. Maybe another index is more suited for this strategy? Just looking for a safe income strategy. Thanks in advance.

I am glad to hear that the most difficult and risky part is behind for you and your family. I hope the recovery process is painless and successful! Best wishes to you @Kim and your family and the best of health and luck going forward! Happy Thanksgiving!

Happy birthday Kim! And many profitable trades to you and your subscribers!

This is a good deal. Thanks!

There really are no viable tablet options available that would satisfy your requirements of having a full blown desktop IB TWS, except a windows 8.1 PRO tablet, which is more like a laptop, really, because it runs a full version of Windows on it. The android tablets, even though they run java virtual machine, they won't run desktop java apps natively. There is a workaround of having a home PC set up for remote access, run the full TWS on it and access it via a tablet through screen sharing. However, depending on your internet uplink it could be extremely slow. Another option is something called ONLIVE. Which is basically a Windows Desktop in the cloud, where you could run an in-browser TWS. This could be faster than the previous option. I have never tried this Onlive for TWS, but it worked well for other apps and just as a desktop in the cloud. Good luck.

So far, I've covered about 10% of the book. What the authors do is introduce a methodology to evaluate option strategies on various underlying assets and provide means to compare them. They use various probability distributions to make their estimates. What I find useful is their reasoning related to statistical analysis as it is applied to options markets.

Ken, Thanks again for posting this book offer. Just started going over it. This is exactly what I was looking, a guide to statistical analysis of options strategies. This just proves the education value of this forum. The current price for the book alone could take care of a few months of SO subscription, and what is to be learned from it is even more valuable. Regards, Victor

Thanks, Ken! Just got it for free!

I was wondering how will the shut down of US Stock Markets on Monday and possibly Tuesday affect our ability to trade options. We have a few positions in options on stocks of companies reporting on Monday after the bell.

Chris, I am starting on a project to write a program that will help me decide on these earnings trades as well as help analyze other opportunities. I have seen you mention using spreadsheets to obtain and feed data. Do you think having the data in an SQL database and accessing it from there would have advantages over the spreadsheet approach? Also, unless it's proprietary info, do you use excel to record ToS data over time? I'm wondering this, because I have thought about implementing it, but not sure how practical it is. Thanks in advance.

Marco, Yes, I remember reading that discussion and even saving that 40 page PDF for a later review. Thanks for pointing out to that discussion. I agree with your statement that theory is theory. However, I feel like it is necessary to understand the theory behind we do here in order to be able to make correct assumptions in various areas of our analysis. I also agree with the idea that, in practice, larger volumes can impact pricing, but I think that impact is more indirect with options. Additionally, economic theory and other theories, for that matter, only describe what happens in a perfect world given that certain conditions are true. And in practice there is usually a lot more 'noise' that comes from the human factor as well as from the inherent interrelatedness of a million other factors, or a self-fulfilling prophecy. I just think that this theory helps to see through that 'noise' and make the correct decisions. It seems that a lot of the discussion on price fluctuation due to volume focuses on market makers. It would be nice to hear about other market participants who do not have the legal obligation to sell according to the options pricing model. Are they statistically significant? Also, theoretically speaking, if we, as people of this forum, 'gang up' and refuse to pay more than what official (TRADES) alerts indicate, all else being equal, would that, even if it's just in theory, not eliminate the after (TRADES) spikes we've been experiencing recently?

So aside from my confusion between $ value and # of contracts, I probably should not multiply by 2, because the OI of a strangle pair would be no more than 197,466 and we are multiplying by the total price of the entire strangle. 197,466*0.15*255, which equals about $7.5 mil.

Chris, thank you for sharing your knowledge and congratulations on your new Column! I noticed you mentioning a trade log in some of your previous posts, I think it is a great idea and I have been considering implementing that myself. Some of the concepts of liquidity as it relates to derivatives such as options are still a bit counter-intuitive to me. So I would like to provide my understanding of these concepts for this discussion. Please, correct me if I am wrong. The supply of equity on any particular stock is constant in the short term and price formation occurs as a result of supply/demand dynamics. As far as I understand, there is supposed to be an unlimited supply of options from the market makers at the 'right price' at any given moment. However, the market makers do not always provide unlimited supply (I guess, they have their reasons, e.g. being able to offset their positions). There is also a catch. The price is not dependent on supply/demand, because it is set, so to speak, independently via underlying, time value and perceived IV. So similar to an economy where prices are controlled by the government, a shortage of these instruments occurs and inefficiencies in the market are created. Hence, the equilibrium price cannot be achieved, because the quantity supplied is less than the quantity demanded at that price level. Under these conditions, the spread between the bid and the ask at that particular quantity level becomes wide. In a case when, for reasons unbeknownst to us, the market makers are unable to provide liquidity, the supply curve does not shift and the spread remains wide. Based on the reasoning above, it may be logical to conclude that while OI is a good indicator of current liquidity, it cannot be taken on it's own merit, without the consideration of the spread between the bid and the ask as the indicator of the current liquidity and the sufficiency of supply. I know, I am probably missing something. Your feedback would be greatly appreciated. Thanks to Chris and Kim for your insights that help me understand the dynamics of the derivatives markets better one step at a time. A graph, showing a shortage is attached for reference. (Courtesy of Economics @ ITT, http://ittecon.wordpress.com/)

Yes, I was referring to SPY. Can't believe that I forgot to mention such a key piece of information. Now it makes more sense, since 59k is the number of contracts, not the dollar value. BTW Just noticed Mark Wolfinger's new article in his column. All about position sizing. Perfect timing! Thanks for the clarification, it is very helpful.

Thank you for the response. Just to ensure that I have the correct reference point, I would like to present an example. One can currently see in TOS/Tools/Widget 360, a total Call Open Interest of 6,719,801. The most calls OI is for Sep '12 145 Call option = 197,466. The most puts OI is for Sep '12 140 Put option = 339,163. If for whatever reason I decide that I need a 140/145 September strangle, than theoretically it may be viable to trade 10-15% of the lowest OI out of the ones mentioned above. Therefore, my total position size should not be more than 197,466*(0.15)*2=$59,239.80 (Lowest OI, 15%, multiplied by 2). Is that a safe assumption to make? Do I need to adjust for individual option prices or will this calculation, for the most part, account for those as long as the position is more or less delta neutral?