Lets develop a strategy

[jamit_05]

So ultimately getting the price direction right is the only way to profit.

When one says "Getting the price direction right is the only way to profit", he is correct... but a little misleading.

In the way that, when we take a trade we do NOT know the direction. Only when the trade finishes do we know whether we are right or wrong....

On the other hand, if one takes on a trade and claims to know the direction and depends on that knowledge then he is trading the wrong way...

There is a subtle difference between the two approaches, which may not mean a lot to the reader and it would appear to be a case of splitting hair. But, on a mental/psychological level it has a huge impact. I would go as far as saying that this is what differentiates successful traders from the the lot.

 

[biggles]

hey manish,
can u give an example of how you would trade ur system?

no m friend; I m not even TALKING about buying. The underlying hypothesis is that 300 points away strikes will expire worth less; so we will sell them basis our ATR or super trend or whatever trend following system and not buy them.

 

[manileo]

Thank you for all the responses; however it seems none of the audiences really read the article before commenting.

90% and more options will expire worthless. this is a time tested fact; no arguments there.

10% where they will expire in the money can rip u apart. Point taken. nasim taleb in his book antifragile talks precisely about that and he only buys out of money calls and puts all the time to be profitable only once or twice an year.

his point is those 02 months will be more than enuf to offset the 10 month of small losses. he mocks the black and scholes as IDIOTS.

To do that u need a huge corpus that I do not have and trading is a gambit, not an earning stream in such a set-up.

Now my system.

First of all my system is like any trend following system. a chandlier, modified ATR, super trend or any that you like.

2) it is an intra day system to take away any chance of gap ups and gap downs.

3) it gets active only in the last 05 days to expiry to take away huge movements.

Now a trend following system will have whipsaws, that's part of the game. this system scores above the ususal trend system in selection (filter) where we r trading in the direction of probability (90% chances).

So I know the direction. I m not delta neutral.

If we could back test it on hourly; 15 minutes to figure out the equity curve, drawdowns, sharpe ratio, and if all falls in place can be automated thru Symphony or any other algo company.


E.x. plot any 300 point away call/put graph on your amibroker or any other platform. load your trend indicator on that. ATR, Chandlier, Super trend, Parbolic sar etc.

do it for last 12 months or more.
run the AFL; with the added code to exit at 3:20. Optimize it to figure out best timeframe, best parameters, even best strike prices (300,200,100 points away).

All I am saying is that predicting and forecasting is for idiots. there r only 02 kind of forecasters, those who know that they don't know and those who don't know that they don't know. D.K

Any programmers who can take it from here and a) modify the code and b) back test it as requested.

 

[Happy_Singh]

"In Trading,those who are loosing always want those that are winning to prove it."

. . . . :lol:


EDIT: Note to the OP:

The data for testing a hypothesis should be big enough to have any statistical significance
in this case lets compromise a bit and say we have minimum 100 sets (of 5 days data) from the expiry week
show me all the relevant data that you will be using only then we can talk about coding. . . .

 

[rh6996]

Hi, I am still grappling with the basics in Option, so my Post may not be too relevant.
I also realised this that the best way to earn money in Options is to SELL them, but there remains the risk. Did buy options on N occassions and 100% of them expired worthless. Never tried selling Options. Have always been told that Selling Options carry an unlimited risk so never ventured. Though I did do Paper Trades on Selling Options and was successful 90% of the time !
I was selling OTM options and making money every month but whenever my Trade did not click, the OTM option in one month would eat away the Profits accumulated in past 3/4 months as Profit being limited and risk being unlimited. I realised that if I can manage risk I can succeed. Looked around TJ and read every thread about Options. Did get to read quiet a few very educative Posts on options by Dan and others. But my 'basics' being weak could not grasp much out of it.
Now coming to the main reason for my posting : Saw that you are trying to have some system to SELL OTM options, hence this Post of mine.

I have a Chandelier Stop in Metastock, which is similar to Supertrend. If we apply Supertrend on EOD Nifty Futures and sell the Options nearest to the Supertrend Value whenever a crossover happens we can earn money. I observed that the crossover happens only once in a month and we need to cash this. When it crosses again we need to manage the risk !
I am posting a chart from Jan 2013. Only in March it crossed the Chandelier stop twice !

What are the horizontal lines in your Pic.?
Why dont you share the AFL for chadelier stop in the graph?

 

[manileo]

Option data for the last 8 years. every month 5 days before expiry.

Well that's a drag!!!

 

[jamit_05]

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[rh6996]

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[Happy_Singh]

Option data for the last 8 years. every month 5 days before expiry.

Well that's a drag!!!

Yep,

You also need to first determine the range for the options data that you need
That could be 6-8 or even 10 strike price that you need to collect, for every expiry a different set of these 8-10 SPs . . .

Another options for you would be scan through all the data that is available to you 2 months, 6 months or whatever and arrive at a mental impression, then test it live gradually upping the size . . .

The concept if it is clear to you and you can think it out from different angles/scenarios then you should go with it . . .

Take a chance . . . after all you are in a business of speculation


Happy

 

[rh6996]

Based on something similar to what rkkarnani has posted, if one has to sell OTM opions, How to decide at what strike should we sell???