PaulCao

Hi, This looks like the configuration file for the application, basically what pair of spread to trade it on, in this case, a pair of oil futures; not the source code, However, there are open source tools that support the different type of order execution on IB you might be interested in, https://code.google.com/p/algo-trader/; see http://doc.algotrader.ch/html/Execution_Algos.html Unfortunately, this tool is designed for executing a block order, so for hedge funds or banks to slice their order into different slices, varying the time when the order is sent to the market to confuse and hide from the human and machine tape readers and randomize a bit the aggressiveness of the bidding; but executes to a set VWAP (volume weighted average price, basically a fancy word for your average fill price if your order gets filled by several partial fills across different times with different price). So not really for retail traders who wants to get a quick fill on a small order - the original tool seems to leg in the order and once one leg is filled, tries to execute aggressively the other leg. There's also another IB order type that you might be interested, https://www.interactivebrokers.com/en/?f=%2Fen%2Ftrading%2Forders%2Fvol.php; instead of entering a limit order for the price, you can enter the IV you want for the whole pair. Since market-makers adjust their prices to the volatility, you might try to have IB automatically adjust your price to IV, Best, PC

Hi, I think learning a bit about technical analysis might help in option trading by selecting the right strikes in a spread order. But I don't know at all about the various TA styles and indicators (RSI, MACD support and resistance etc.) and there are a lot of them out there and books/websites. Does anyone have a particular book or resource to help a newbie get started? Best, PC

Hi, I'm not sure. You can give them a call, sounded like they get the question a lot. I might open an IRA account or do roll-over to satisfy the requirement, Best, PC

Depends on your definition of small, I called them; need to deposit 3K USD to get real-time data. Best, PC

Hi, Thank you for your explanation. So the Fed's plan to step off their purchase of mortgage-backed securities that is designed to keep home loans interest low and stabilize home price; as a result, overall interest rates are kept low. Gold was perceived as an attractive alternative to the CDs/treasuries that had low yield in a inflationary environment, also as a safer hedge/investment to the volatile equity market of 2009-2011. Now that the Feds is planning to step off QE, coupled with what is perceived as a calmer bull market with low VIX, gold is faced with the double pressure of rising interest rate and equities becoming more attractive. Let me know if I'm missing anything else, Best, PC

Hi, Anyone know why gold gapped down today? I couldn't find any fundamental justification for it. The market is down today overall due to Fed comment on easing bond buying program. But usually this bodes well for non-equity asset class as this makes equity a less attractive investment. Not sure why GLD is down today, although it has been on this weird trend while typically inverse-correlated instruments are trending in the same direction, I took a loss on my 125/129 calendar spread and rolled to a more delta-neutral neutral August 9 122.5 put/August 23 123 put/August 9 127 call/ August 23 127 call calendar spread. Best, PC

Hi Mikael, Thanks for your explanation about Jeff Augen's strategy and your implementation of it on AAPL. I skimmed some of his books at the bookstore a long moon ago. However, I couldn't get sense of his strategy. Plus, he had a bunch of books, so it wasn't clear to me what is his core tenet of his trading strategy. It seems a lot of people follow his style, so I think I might go back and revisit one of his books. Which one would you recommend and is there a core tenet to his ideas or is it a mix-bag of techniques he lists, Best, PC

Hi, I think each tick is when every time the option price changes and each bar is when every minute, hour passes? Since the script is calculated based on the bars, I think it should be every bar. But not sure if even each tick would be different. Yea, it would be positive value. If it's negative, it'd be price drop. Not sure what Jeff Augen's price spike dictates, but if you want the price drop, you can modify the line where it calculates the currentSpike to be the absolute value difference, def currentSpike = (AbsValue(close – close[1])) / m; Best, PC

Hi, Looks there's a way to do it: http://demo.thinkorswim.com/manual/dark/thinkscript/reference/Functions/Others/Alert.html I actually have to load the script and play around with it to figure out the exact line to do it but the condition is something along the line of at the end of the script, def currentSpike = (close – close[1]) / m; Alert(currentSpike >= 2.5, "Spike >= 2.5!", Alert.TICK, Sound.Chimes); The problem is I'm not sure if that's the way to represent the last close with the last last close in the previous bar; I haven't really played around too much thinkscript, but at least that's the idea, Best, PC

Hi, Length = The number of bars on which the standard deviation is defined. So I think what happens is depending on the bar setting you have on ToS (minute, day, hour), this line: def closeLog = Log(close[1] / close[2]); generates a data series of the logarithmic ratio of previous bar's option price compared to the next one, so if it was based on hour on a day, it would be a series of [9am to 10am, 10am to 11am ... 3pm to 4pm]. this line: def SDev = stdev(closeLog, length)* Sqrt(length / (length – 1)); Calculates the standard deviation of this logarithmic ratio of that bar-by-bar price over the last 20 bars (again, minute, day or hour, whatever you had it set on) and divides that by squart root of (20/20-1), or 1.025. Not sure what this derives, someone who's more well versed in statistics can pipe-in, but this is basically some derivative of the standard deviation of the last 20 bars of the price ratio. These two lines: def m= SDev * close[1]; plot spike = (close[0] – close[1]) / m; M defines what is the expected move from the previous bar that's one standard deviation away. spike in terms represents a data series of the historical difference of the price bar changes from one to the next vs. the theoretical or expected price bar change at the time (you can think of it as comparing HV vs. IV except in the same sense of comparing the real option pricing change vs. the theoretical expected pricing change defined as being inside 1 std. deviation). Then spike is plotted in such a way that if the historical price change is greater than the 1 std-dev price change, it's marked as green or less than 1 std-dev, it's marked as red. So basically the Jeff Augen entry method signals you to enter a option order when the current option pricing spikes above 1 std-dev calculated off the last 20 bars of price ratio's depending on what bar-setting you have it on, Best, PC P.S You can refer to the ToS thinkscript reference to parse any of these scripts. http://demo.thinkorswim.com/manual/dark/thinkscript/reference/Functions/Statistical/StDev.html

Hi, Yea, I also got lucky with GLD kind of being range-bound during this period. Yes anytime when GLD moves out of the double calendar's tent, it's bad, so I'd adjust as soon as that happens. The risk is GLD does gap on open, gold futures is traded 24 hours; case in point, on July 10, Fed had announcement that they weren't stepping off as easily on QE, gold futures shot up in the 4pm-12am EST trading and GLD gapped up next day 9:30am EST. So in terms of catalyst, I guess any monetary policies. So I try not to get too greedy, select pretty wide strikes and roll and take less probability of profit when it gets outside of tent. Still, I think adjustment only helps to reduce loss and not turn a profit, if GLD's volatility indeed turns out more than expected, then this trade would lose money with or without adjustment. So I plan to do this only if I think GLD volatility is not rising. Best, PC

Hi, Sure no problem. I copied and pasted from my daily IB activity report, so apologize for poor formatting, also you can see my awesome sizing as a major GLD trader, 7/25: Original Entry Symbol Prior Quantity Quantity Prior Price Price Transaction Prior Open Commissions Dividends Total Equity and Index Options GLD 02AUG13 127.0 P 0 -10 -- 0.967081 12.92 0.00 -7.69 0.00 5.23 GLD 02AUG13 130.0 C 0 -10 -- 0.964109 -14.11 0.00 -7.69 0.00 -21.80 GLD 17AUG13 127.0 P 0 10 -- 1.800582 -29.42 0.00 -7.68 0.00 -37.10 GLD 17AUG13 130.0 C 0 10 -- 1.767335 7.34 0.00 -7.68 0.00 -0.34 Opened: GLD 127 put calendar: 0.83 debit GLD 130 call calendar: 0.8 debit Cumulative realized P&L: 0 7/31: Roll down from 127 to 125 put leg to keep GLD in tent Symbol Prior Quantity Quantity Prior Price Price Transaction Prior Open Commissions Dividends Tota GLD 02AUG13 125.0 P 0 -10 -- 0.317863 566.14 0.00 -10.39 0.00 555.75 GLD 02AUG13 127.0 P -10 0 0.806207 0.770637 -939.36 35.57 -10.38 0.00 -914.17 GLD 02AUG13 130.0 C -10 -10 0.523761 0.35146 0.00 172.30 0.00 0.00 172.30 GLD 17AUG13 125.0 P 0 10 -- 1.377055 -600.94 0.00 -10.38 0.00 -611.32 GLD 17AUG13 127.0 P 10 0 1.878139 2.044154 781.85 166.01 -10.43 0.00 937.43 GLD 17AUG13 130.0 C 10 10 1.465742 1.398122 0.00 -67.62 0.00 0.00 -67.62 Closed: GLD 127 put calendar: 1.274 credit Opened: GLD 125 call calendar: 1.06 debit Remaining Open: GLD 130 call calendar: 1.046 market value Cumulative realized P&L: 0.444 8/1; Copied from IB WebTrader; rolled 130 call leg down to 128 to keep GLD in tent: Contract Position Mark Price Mark Value Average Cost Unrealized P&L Realized P&L Liquidate Last GLD, 20130802, 125, PUT, Option, MIAX, USD -10 0.35 -350.00 87.36 523.61 0 No GLD, 20130816, 125, PUT, Option, SMART, USD 10 1.66 1,665.00 198.84 -323.38 0 No GLD, 20130802, 128, CALL, Option, PSE, USD -10 0.3 -305.00 32.82 23.17 0 No GLD, 20130816, 128, CALL, Option, SMART, USD 10 1.58 1,575.00 159.67 -21.68 0 No Closed: GLD 130 call calendar: 0.83 credit Opened: GLD 128 call calendar: 1.28 debit Remaing open: GLD 125 put calendar: 1.31 market value Cumulative realized P&L: 0.474 Hope this is helpful, Best, PC

Hi, Just to update on what I've been doing with this trade, I have been trading GLD double calendar instead of Chris's put ratio trade. So I'm currently in the: August 2-August 15 125/128 GLD double calendar My thinking is that unlike Chris, I don't want to have a upward or a downward bias on GLD, want to stay completely delta-neutral; just that its HV will stay about the same while IV can rise a bit. Whenever GLD touches one of my wings in the double calendar, I close that wing for a profit and then open another wing that's further away, so to keep GLD constantly inside the calendar's tent, I originally started with a 128/130 GLD double calendar but adjust my wings several times down to 125/128, I plan to roll up the whole calendar structure to: August 16-August 30 delta neutral double calendar on August 2 expiration date, Best, PC P.S. For adjustment, https://www.tradeking.com/education/videos/adjusting-calendar-spreads I have found this video by Dan Sheridan to be helpful. Just skip the first 30 minutes as it's a lot of basic option stuff.

Hi, In my humble opinion, trade alerts are the least valuable thing in any newsletter. Price move, liquidity in options are not so great, you are stuck in a meeting and by the time you get back to your desk, the price has moved on. For a slightly off-the-topic but relevant topic about edge and learning about trading, When I started trading, I thought the holy grail is to find an edge through some kind of statistical anomaly in complicated products or identifying the next Google. In another words, I cared a lot about trade entry. I had a huge ego and I worked with similarly full-of-themselves co-workers who had graduated from MIT to build machine-learning tools and backtesters to find the perfect conditions to enter a trade. We reasoned, "if we only if we could build the perfect correlation model between Southwest stock and Crude oil, or if the option skew is off by 0.50% in a OTM option strike in a really long-dated month, we could arbitrage this and make millions," Now the older I get, the dumber I realize that I am and I only hope to accelerate this learning of realizing how dumb I'm. I realize that I don't have the speed as the nimble high frequency trading companies who co-located their trading servers right to the exchange, my account is an speck of sand compared to the hedge fund/prop desks on Wall Street who can move mountains and my brain is a pea in comparison to the combination of econometrics/statistical analysis performed by those with Astrophysics PhD quants. I know nothing about the market and when I make a feeble attempt to guess where it's going, it's as good as a monkey's. So to protect myself from myself, I consider risk management and what-to-do after you enter a trade to be the most important. I follow about half of Kim's trades and honestly, he has had some bad trades (sorry Kim, but no one is immune to statistics). But honestly his good trades/performance doesn't interest me, a monkey can guess correctly some of the time how a stock is range-bound and put on a iron condor and it'll get profitable most of the time. But the one time when it fails, it can wipe you out of the market for good. So honestly, I perk up when I see how Kim reacts to his bad trades, like the AAPL August calendar or the August RUT iron condor. There's no fun in watching someone pick up pennies in front of a slow moving steam-roller but it's more fun to see how they react when they are about to get run over - they get squashed completely or they manage a daring escape; either way, it'll be a poignant lesson for me as a bystander. More concretely, what I learned from SO is: trade adjustment, what to do when the stock moves against you; how to adjust your trade to still keep a favorable risk-reward ratio; overall portfolio management, how to balance your vega, delta positive trades against your negative one's to keep the whole porfolio as neutral as possible; thinking about risk, not to get hung up or married to a single position and learn to when to fold them and keep a steady routine of trade identification, trade management, trade exit and calm regardless of wild portfolio swings Best, PC

Hi, Also wanted to ask if anyone has tried out TradeStation? Not really interested in their fee structure or execution but read that they have historical options data dating back to 2000. If this is true and can be easily extracted via tools or API, it'll be a great boon for the earnings trading strategy, Best, PC

Hi Guys, So I sold all my GLD positions for a loss as my original 121 put was significantly under water, I'm thinking about entering into a new GLD position with less direction bias; thinking about doing a double calendar for Aug 1- Aug 15 128/130. I know that the bias of the original GLD diagonal was that it was going to drift slowly downward; given the recent rally, do you guys still hold that opinion and looking for a pullback? My argument is that GLD IV has reached the local min. http://www.ivolatility.com/options.j?ticker=GLD:NYSEArca&R=1&period=12&chart=2&vct= and I want to long vega without any directional bias, Best, PC

Hi, You want to be careful with that. More often than not, the market price do reflect the risk & reward. An example, during 2011, the IV of TIVO was extremely high while the HV was low - the reason, TiVo was losing rapidly its subscriber base as DirectTV and Comcast was building DVR into their cable-boxes. So there was a huge lawsuit from TiVo for patent infringement and licensing fees. The settlement of the lawsuit was up in the air and could have happened anytime during the first half of 2011. So you could sell TIVO option straddles and collect fat premium until the day when the announcement was going to happen, TIVO was either going to up or down. Another example is MMR, a natural gas company with huge high risk-reward drilling operation. So if there wasn't any drilling report coming out, stock was trading in range and option-sellers collect fat premium. However, if a positive or negative drilling report came out at an unspecified time, you are going to experience real volatility. Same thing goes for the other half of the stocks on that list, small-cap pharmaceutical facing FDA decisions. However, I should add that sometimes there are opportunities where the volatility of an catalyst event bleeds into a option whose expiration happens before the catalyst, e.g., pharma faces FDA decision in August but its vol for July options are still very volatile. Even then, there are risks with early report leaks, early earning guidance etc. Best, PC

TSLA is very volatile; http://www.ivolatility.com/options.j?ticker=TSLA:NASDAQ&R=1&period=12&chart=2&vct= Hi, IV is high because HV is very high. I tried to short vol after TSLA's vol didn't dip after last earnings but instead spiked even higher, The reason for elevated vol. is a lot of controversy surrounding how much the company is worth; supporters think TSLA is going to be the next AAPL and pushing it to higher valuation while the value investors point that bulk of their profits comes from not even selling cars but trading carbon emission credits. Goldman gave it a low target price significantly lower than the current market price, but the market just seems to shrug it off, Normally I don't care about the highest IV, but instead the highest discrepancy of IV over HV: https://www.interactivebrokers.com/en/?f=daily_analysis&ib_entity=llc Pick the 2nd tab: 'Implied Vol. vs Hist Vol', Best, PC

Commenting on the security token, I find it really annoying as well. There's actually a setting in IB Account Management where you can turn off the security token login for trading. You have to click through a waiver that basically says you won't hold IB liable if someone gets hold of your password. However, for regular account management like setting up account deposits/withdrawals, reading IB's messages to you, you still have to use the security token. I have just scanned my security token and uploaded it onto Gmail so I can look it up anytime and input it in for account management. Of course, it completely defeats the purpose of the security token. But I prefer the convenience over security, In regards to IB commission, basically if you never ever trade a market order, you'll never be charged more than the stated contract price; because if it's a limit order and you get hit later, IB should pass through the exchange rebate fees to you. There are rare cases when there's hidden orders on the exchange, meaning someone has a non-visible order on an exchange order book and you hit it; then you have to pay for the exchange liquidity taker's fee's. In regards to IB's awful interface, I completely agree. Especially their WebTrader interface and the way they update the price and when you are trying to input a spread order, an order might turn from a credit to a debit order depending on how the price of your different legs are coming in; and also the way that the limit price box updates to the market bid/ask mid as you are typing in your limit price is very annoying. Another thing most people who don't know IB should know is that they are very very strict about margin. Let's say you exceed margin limit, some brokers will be lenient and give you extra time to liquidate or wire-in additional funds. Not IB, they will send you an e-mail once you are within 5% threshold and start liquidating right away when you exceed your limit, Best, PC

You guys can run hypothetical scenario's for max. loss and profit using option-price.com; if you punch in say, where you think are the upper and lower limits of GLD price in the next 30 days, with the time value left on your long. To see how much decay your GLD long puts will be. For volatility, currently GLD option IV is at 21.54 and falling. http://www.ivolatility.com/options.j?ticker=GLD:NYSEArca&R=1&period=12&chart=2&vct= Do you guys have any other tools that you use to graph profit/loss for calendar trades? e.g., ToS analytic (which I haven't really explored) or OptionVue or something similar?

The way I understand it is that it's basically a calendar spread but ratio'd in such a way that there's a downward bias, more juice on the long put side than the short put side; and you are betting that the realized volatility of GLD will be lower than the implied volatility on the long-side. On the short-side, you don't care as much with this GLD spread because it's structured such that you have more long puts than short puts anyways. Worst thing that could happen is if GLD goes significantly above your long put GLD strike, which means that you can't sell the juicy premium of the ATM GLD puts anymore. This has happened to me, I originally started out with August 121 GLD put for my long when GLD was trading at 118; now at 123.75, my long put is underwater, and all I can do is sell underwater short puts such as the July 122 GLD and 122.5 GLD as well with much less premium. However, I made two critical mistakes in my original trade of selecting strikes and expiration (see my previous posts) while others are still writing the ATM puts. I believe a similar scenario will happen to everyone else if GLD goes way above their long strike as well. Feel free to comment if you don't think my reasoning is correct. Assuming GLD stays at its current level, I'd have to make 0.91/spread per week for the next 4 weeks to gain back the premium I paid for my long put before the last week of expiration. A tall order but at this point, I've already learned my mistake and sticking with my trade (that's very distorted from the main original trade) to see how it works out. Best, PC

Hi Guys, I went to an algorithmic trading meetup hosted by Quantopian, the trading backtesting startup that I referenced a few posts ago, I told the host that their next presentation topic should be on the "VXX VRP trading strategy," and the founders encouraged me to present it. So I plan to use their backtester to try to improve some of the existing strategy and present the results, my ideas include: Concrete idea: a) implement the "Mojito 2.0" strategy; http://www.godotfinance.com/workingpapers/DynamicVIXFuturesVersion2.xhtml Which uses IVTS = VIX/VXV (relation between 1-month VIX and 3-month VXV index); and based on what level IVTS is, another measure of VRP; trade a ratio VXX and VXZ, especially a calendar spread of the short and long-term VIX tracking ETN. Hedging the VXX/SPY hedging strategy; as mentioned before, there is already one existing algorithm, I want to try this method also from Donniger et al. http://www.godotfinance.com/workingpapers/DynamicVIXFuturesVersion2.xhtml; which again based on their metric of IVTS, trade a spread of VXX and SPY. c) Short VXX and long XIV only when the VIX term structure is in backwardation, this happened briefly in the recent VIX spike and then subsequent decline, I'm curious if this is a viable trading signal. Vague idea: d) Use Google trends on words "fear" and "debt" to trade on VXX, this seems very far fetched: however, there was a Nature paper that traded the ETFs to Google trends apparently with great results: https://www.quantopian.com/posts/google-search-terms-predict-market-movements I'll post back whenever I worked through one implementation. I suspect most of the ideas would end up mediocre or not changing much the status quo performance, but it'll be an exercise/excuse for me to follow through on implementing these ideas, Best, PC

Hi Chris, Thanks for your explanation. I made two critical mistakes on my trade, 1) I opened an ATM calendar spread with a weekly option expiring this week. So the premium I gained from the put wasn't as much as you guys who had two weeks out. I was greedy and wanted to collect more premium week-by-week. 2) I selected the ATM strike instead of DITM for my long put and my long put expiring in August monthly instead of the September monthly. At the time, I didn't want to pay more for a far-out month put and was afraid that the current IV on GLD would decline and impact the long. So I have now less weeks to collect the extrinsic value. I'm still keeping my long, and have closed my short and opened a new short that keeps all of my GLD delta-neutral. See where this trade goes, anyways, lesson learned, Best, PC

Gold futures after Ben Bernanke's comment that the Feds won't step off on QE easily has risen up 3.20% after 4pm EST, if the current level holds this means GLD will be at 128 to 129. What's your guys plan? I'm currently leaning towards closing the whole calendar spread for a loss. Or rolling up my long put to the current ATM level, as well as the short put to whatever will be delta neutral. Both would entail realizing a loss, Best, PC

Hi Guys, For those who are interested, there's an actually a following of the backtest of the VRP strategy here, with some responses from the author of the original paper, https://www.quantopian.com/posts/system-based-on-easy-volatility-investing-by-tony-cooper-at-double-digit-numerics Also an implementation that hedges VXX/XIV with SPY since there's correlation there, Best, PC