StockFetcher Forums · Filter Exchange · 20-day steady trends, up or down<< 1 2 3 >>Post Follow-up
heise
11 posts
msg #41043
Ignore heise
2/7/2006 12:06:09 AM

Hi alf44 and nikoschopen,

Just a quick note to thank you for your efforts. I'll have some time tomorrow to do some more work and then hopefully post something worthwhile. The nikoschopen filter showed a lot of stocks that have gone almost completely flat in price. This is almost always the chart of a company that has been acquired and the price is set. I'll check this out further. Maybe I can do something with the slope function?

Thanks again, and let me do some work on this before you put more time and trouble into it (unless you want to :-)).

Cheers,

heise


nikoschopen
2,824 posts
msg #41047
Ignore nikoschopen
2/7/2006 1:22:28 AM

Alf, my motto is crude at best when it comes to helping others with filters: WHAT YOU ASK IS WHAT YOU GET. Sure, I could add bells and whistles to boot. But my understanding is that if I provide the basic building blocks, they can lay the foundation for themselves along with other cosmetic enhancement of their choice.
_____________

Heise, I'm still contemplating on how best to utilize the "slope of" or the "resistance/support slope" functions, with which I'm not very satisfied. The slope acts as a mean for the price over a certain length of period, and the result you get are bars or candles that bounce around this mean. It serves no purpose when it comes to, say, a trendline. Hence the reason why I chose to use a price band of 4% or less to give enough room for the stock to move without being too restrictive.


heise
11 posts
msg #41057
Ignore heise
2/7/2006 10:35:00 AM

alf44 and nic,

I do need to respond to Alf's comments about charts of RMBS and IDEV not having the same pattern. I agree, however:

The two parts that are the same is that they both have had a 20 day or so period where there is a slope to the price and the change in price is small from day to day and the daily range in price is small. Both have a longer term price range history that is "large" compared to the last 20 days.

Options pricing is based on market forces like any other security (higher pricing if there is strong demand and lower pricing if there is not). However, in the absence of heavy market influences, the options pricing model reverts to being based on volatility of the underlying issue in the past 20 days. Thus, the lower the volatility in the last 20 days, the cheaper the option price (all else being equal). If the issue has a history of high price volatility before the last 20 days, then we know that the options were higher priced before (excluding all other factors). Both RMBS and IDEV charts have had periods that are alike in these characteristics. IDEV has a present 20-day trend of lower prices and low volatility now and RMBS had two events in the past, the December 05 period and the August 05 period. All three 20-day periods, one in IDEV and two in RMBS, have a falling price, but it makes no difference to me if the trend is up or down.

As an aside and the converse, if you were wanting to sell options, you would want to sell them during a period of high volatility in the past 20 days. Every thing else being equal, you would get a better price for the options you were selling.

Cheers,

heise


alf44
2,025 posts
msg #41073
Ignore alf44
modified
2/7/2006 9:24:22 PM

heise,

In your first post in this thread you said...

"The trading application for me is longer term swing trading using options straddles and strangles. I am looking for an edge in volatility skews..."

In a subsequent post you describe briefly this IDEV position...

IDEV: In fact, I have a straddle working on it with the 07Jan5C and 07Jan5P. The cost of both positions was $2.45. The type of trend I am looking for to enter the trade has been a gradual trend over the past 13 days (a bit short of the 20 days) and the price range from Oct 05 to early Jan 06 was approximately $2.5 to $6. So, I will be profitable for sure if the price goes above $7.45 or below $2.55 during the next 11 months.

----------------------

Tell me more about how "volatility skews" played a part in your decision process (or, if it did) when you put this IDEV Straddle position on !

I understand that you are hoping for both a large move in EITHER direction (ie. $2.45 above the $5 Strike of the Call or $2.45 below the $5 Strike of the Put) in the price of the underlying stock AND a resultant increase in "implied volatility" of the options to add to the profitability of the position.

My impression was that "volatility skew" was not as much of a consideration when Buying Straddles and Strangles as it can be with other Option Strategies !

Also...have you examined the set-ups my filter returns ?

I assume you have...and it's not quite what you had in mind !


Regards,

alf44




heise
11 posts
msg #41075
Ignore heise
2/7/2006 9:47:40 PM

Hey alf44,

Thanks for your interest. This is cool, and I appreciate your interst and input.

You said, "Tell me more about how "volatility skews" played a part in your decision process (or, if it did) when you put this IDEV Straddle position on!" Answer: OK. I picked up IDEV off ivolatility.com, and thought it was pretty good. I looked at the price charts and entered the straddle with a little economy on the price of the $5 calls and puts. Basically, how it worked, is that ivolatility.com showed the implied volatility to historical volatility ratio to be quite low. I went to the charts and found I liked it. So, I entered a position. Why not just go with ivolatility.com scans to pick situations you might ask. The reason is that I find so many flat positions identified where there have been acquisitions and thus, no play. Also, I find I can see things in chart setups that look attractive where I don't see them identified on the volatility scan.

You wrote: :"I understand that you are hoping for both a large move in EITHER direction (ie. $2.45 above the $5 Strike of the Call or $2.45 below the $5 Strike of the Put) in the price of the underlying stock AND a resultant increase in "implied volatility" of the options to add to the profitability of the position." To which I'll answer, YESSSS, both the intrinsic value and volatility (or extra value of the option).

You wrote, "Also...have you examined the set-ups my filter returns? I assume you have...and it's not quite what you had in mind !" Yes, the returns were not "Nervana". However, even one may not exist each day, and this is why I have to keep pursuing this to see if I can find the filter that gives me the best results.

I think the reward on this may be exceptional on a routine basis. IDEV comes out with earnings Thursday, 2/9/06. I'm hoping for the best. If it interests you, I will give you the details of the trade if it interests you.

Yours for making bucks through better work,

heise


Regards,

alf44



alf44
2,025 posts
msg #41076
Ignore alf44
2/7/2006 10:35:07 PM

heise,

So...when you speak of "volatility skew"...you are referring to a disparity in the Historical Volatility to the actual "Implied Volatility" that is currently being priced into the Option Premium (if I understand you correctly).


My understanding of the term "volatility skew" (and therefore the reason for my misunderstanding of your use of the term)...

...has to do with disparities in the Implied Volatilities of Options in the SAME Stock...with the SAME Strikes...but DIFFERENT expiration Months (ie. horizontal skew)...

...has to do with disparities in the Implied Volatilities of Options in the SAME Stock...with DIFFERENT Stikes...but with the SAME expiration Months (ie. vertical skew)...

----------------------

As for the filter...I'll keep thinking !

Keep me posted on that IDEV Straddle...and any others you wish to post about. Pretty interesting stuff !


Regards,

alf44




heise
11 posts
msg #41078
Ignore heise
2/7/2006 11:16:40 PM

Alf44,

Re: Your clarification missive: You and I pretty are much agreement. Based on what we've each written, I think we have a pretty clear mutual understanding about option volatility pricing relating to price patterns.

You have done much for me, so if you want to check it out, let me give my present straddle positions in place. Maybe you will want to monitor them for deliberation about your trading styles and alternatives. All of the following have a bearish or bullish slant as to the strike prices, but all are straddles. TWX, PLAB (took this one off your filter), IDEV, NUAN, ABB, and RBAK.

I like that you are willing to freely contribute your talents. I perceive that you are very analytical and accomplished in SF code writing. I, on the other hand, may have some trading experience and ideas to contribute. Let's continue to collaborate and hopefully prosper.

Your truly for whipping the markets,

heise


heise
11 posts
msg #41079
Ignore heise
2/7/2006 11:24:26 PM

Alf44,

Are you sure your contraction/expansion work doesn't have applicability to the volatility issue? Seems like we would be looking in reverse here, i.e. we want to see expansion (volatility) in the period before 20 days and then contraction (lack of volatility) during the 20-day period. Your comments please.

heise


alf44
2,025 posts
msg #41080
Ignore alf44
2/7/2006 11:56:04 PM

...I don't really think so !

I know that was your original assumption and why you mentioned it early on in this thread.

My so-called "Range Contraction/Expansion Filter" was put together to scan for a GROUP of 1, 2 and 3 day price patterns !

I can't see how it would be of any real use in the situation(s) you are trying to uncover ! fwiw


Regards,

alf44




heise
11 posts
msg #41141
Ignore heise
2/10/2006 10:53:59 AM

Hey Alf,

Read your comments on options trading on the "Give Up? thread". I pretty much agree with you about the negatives that can make options buying "a fool's game", but the slow trend and volatility approach mitigates much of the down side you posted. For example, I just exited the IDEV straddle at the same underlying price I bought it for. I lost only the commission (about $150). I bought the position for $2.60 (1.55 for the Jan07 calls and 1.05 for the Jan07 puts) and just sold them for exactly the same price despite the large bid/ask spread and relatively low liquidity when I bought them. They were much more liquid this morning after the earnings news. I could have hung on to the puts a bit longer, because technicals support IDEV going lower. However, I'm believe the volatility will contract over the days or weeks ahead, and even if IDEV moves below $5, the put option may well not move at all (or even move against the price down move of IDEV). I plan to do some work on the filter this weekend. It may well be that what I call the two ideal periods in RMBS may present themselves rarely in any issue.

Additionally, I am interested in your expansion/contraction filter and what it may pick up in the days or weeks ahead in gold mining companies like AUY, RGLD, BMO, and GSS (I have traded all of them successfully recently just basing entry and exit on 60 minute ticks with a 10 and 20 MA). I believe in the secular bull market in gold and would look to see a set up where these type of stocks prices contract after what appears to be the start of a significant correction underway in gold and gold mining stocks right now -- maybe days or weeks from now.

As another aside, FYI I take a subscription to Vector Vest which is taking their model portfolio entry position short today on 10 stocks. Won't know what the 10 are until this evening. Do you agree the techicals look like a top has been put in?

Cheers,

Gary


StockFetcher Forums · Filter Exchange · 20-day steady trends, up or down<< 1 2 3 >>Post Follow-up

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