StockFetcher Forums · Filter Exchange · HOW TO DESIGN A SYSTEM (NOT JUST A FILTER)<< 1 ... 18 19 20 21 22 ... 43 >>Post Follow-up
fortyfour
185 posts
msg #103240
Ignore fortyfour
11/6/2011 6:09:44 PM

Any words from option experienced people on using results of Kevins filter to put on "bull put spreads" in general?

Cherry picking AMZN, the day it fell to $200....
Sell to open $200 put for approx $9.60 ( iv high and falling...good for put seller)
Buy to open $190 put for approx $5.60
Net (max profit) credit approx $400 / contract.

Obviously this spread has worked and could be held or closed
today as...

Buy to close $200 put for $ 1.70 ( $7.90 profit)
Sell to close $190 put for $ $.80 (loss of $4.70)
Profit of $320/contract

Downside protection is (strike diff - credit) or $600/contract when AMZN is below $190
Breakeven = 200 strike - 4 credit = AMZN price of $196

The best exit level of Zscore = -1 in Kevins strategy I would say is moderately bullish as is the bull put spread concept .
The infrequent large outlier losses when 15 or 20 days when owning the stock ( of course 10%$ stops etc could be used to somewhat of a detriment to long term results) is managed by the put spread

For option experience people ( of which I am not)....How would you construct the AMZN bull put spread?
For example...go for a better ratio of spread/credit ?...... Credit/Max loss?







gmg733
623 posts
msg #103245
Ignore gmg733
modified
11/6/2011 9:34:46 PM

44,

Great question. The answer will vary depending on the responding trader. The nice thing about options is you can do various trades and be right on all of them.

Trading options is about trading the greeks. I don't have the data from that day, but what I would have done is look for a short put with a delta around the -.20 to -.30 and then chose my long put based upon ROI that I want to make. In this case it would of either been 5 or 10 wide, of course. I usually want to make around 20% on my risk/reward. So there are a lot of 'depends?' going on here.

I like to exit spreads when I make 50% of my credit back. I used to sell them one month out and found that expiration week can be unforgiving as the 'market' hunts the max pain for options buyers/sellers. So I like to be out by expiration for the month of the option as well. What I found is by taking 50% profits on trades, I have a very high success rate. When holding spreads into expiration to get that last .20 increases your risk. This is the way I trade.

For example, say I have a 5 wide bull put spread. I collect $1 for the spread. My risk in the trade is $4 and max profit is $1, or 25% potential profit. If the spread makes me 50% of the credit in a short period, I take the trade off. If the trade takes off and I anticipate an almost zero chance of the trade going against me, I'll leave it on to expire worthless. Again, I don't like doing this too often.

I like determining the general direction/trend/cycle of the equity and that tells me which trade to put on. AMZN based upon my charts and the way I do things is in an uptrend, so I will only take bullish trades on this equity. Bull Put Spread, Bull Call Spread, Poor Man's Covered Call, Risk Reversal....

The trade also would be determined on the liquidity of the options. If I had a bullish bias and the bid/ask on the puts was wider and less liquid than the calls, I would most likely put on a different trade than a bull put.

As you can see it depends and when trading options you just get a feeling of the right trade. Various ones will work.

I most likely on that day would have done a bull put spread. Sell either the 190 or 185 and did a $5 wide spread and try and make a $1 or get out at .50 if I got the return fairly quickly.

Lastly, be patient on your spreads if the bid/ask is wide. Don't over pay for the option. It makes it hard to adjust or take a profit if you are looking for .50 and you give up a dime right off the bat.

Just some thoughts to consider.



fortyfour
185 posts
msg #103254
Ignore fortyfour
11/7/2011 6:44:00 PM

http://www.optionistics.com/f/option_prices

Is my source of "approx" data from the past month.

I have to say I am surprised and disapointed with the thin volume
on large cap stock options. "GLD" is on a tear now and the ATM call
trades approx 1000 to 2000 contracts/day.

I have read your posts...sounds like youre enjoying it....
Thanks and good luck.


mahkoh
894 posts
msg #103277
Ignore mahkoh
11/9/2011 5:51:56 PM

Fetcher[
Average Volume(30) above 200000
market is etf

corr(SPY,30,Close) is above 0.85
corr(SPY,60,close) is above 0.85
add column corr(SPY,30,Close)
and compare with SPY



/*FIRST DETERMINE HISTORICAL RATIO OF S&P STOCK TO THE SPY OVER THE LAST 16 DAYS*/
SET{PRICERATIO, CLOSE / IND(SPY,CLOSE)}
SET{RATIOMA16, CMA(PRICERATIO,16)}
SET{RATIOSTD16, CSTDDEV(PRICERATIO,16)}
SET{DIFF16, PRICERATIO - RATIOMA16}
SET{ZSCORE16, DIFF16 / RATIOSTD16}
SET{THRESHOLD16, RATIOSTD16 * 2}

/*NEXT, SET CRITERIA NECESSARY TO TRIGGER A PAIR TRADE*/

SET{UPPERBAND16, RATIOMA16 + THRESHOLD16}
SET{LOWERBAND16, RATIOMA16 - THRESHOLD16}

DRAW LOWERBAND16 ON PLOT PRICERATIO
DRAW UPPERBAND16 ON PLOT PRICERATIO
DRAW BOLLINGER BANDS(16,2)
ADD COLUMN ZSCORE16 {Z-score}

DRAW ZSCORE16 LINE AT 2
DRAW ZSCORE16 LINE AT -2
DRAW ZSCORE16 LINE AT 0
sort column 6
]




Pick a couple of etf's with the lowest z score and open a pair trade against those with the highest z score. My theory is that those with extreme z-score values should at some point reverse to the mean. Difficult to backtest but looking back by offsetting the date seems to generate positive results. Probably shouldn't use leveraged etf's.
Any thoughts?

Kevin_in_GA
4,552 posts
msg #103284
Ignore Kevin_in_GA
modified
11/10/2011 11:25:42 AM

The "long-short" pair trading you are describing here needs some tweaking. I (of course) looked at both long and short versions of this, but in the end the long version was by far more profitable than the combined system. Could be the settings, but this approach is best validated through backtesting and selection of a limited set of ETFs that have shown historical mean-reversion against EACH OTHER, rather than the SPY.

In concept this makes sense and should work fine. In practice there are other more statisitically rigorous ways to do this that I personally would be more comfortable doing.

Kevin_in_GA
4,552 posts
msg #103286
Ignore Kevin_in_GA
11/10/2011 12:51:43 PM

Intraday BUY signals:

AAPL - Zscore16 at -2.48, W %R at -97.8. Currently at 383.11

GME - Zscore16 at -2.25, W %R at - 99.5. Currently at 24.46

duke56468
683 posts
msg #103302
Ignore duke56468
modified
11/11/2011 12:06:54 PM

GME crossed above the -1 z-score intraday, you may want to exit or place a close stop since it was only on intraday that it was discovered

GME - GAMESTOP CP 25.26 2.68 873,374 +0.25

Kevin_in_GA
4,552 posts
msg #103342
Ignore Kevin_in_GA
11/14/2011 6:17:52 PM

End of day BUY signal for AAPL.

Kevin_in_GA
4,552 posts
msg #103356
Ignore Kevin_in_GA
11/15/2011 11:09:56 AM

Intraday BUY signal for GME. Currently at 23.99.

Kevin_in_GA
4,552 posts
msg #103370
Ignore Kevin_in_GA
11/16/2011 9:55:38 AM

AAPL - intraday exit signal (zscore is at -0.62). Currently, AAPL price is 389.91.

This trade netted just over 2% in 2 days. Not astounding, but this happens all the time from this filter and over time this consistency adds up.

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