Non-directional Option Strategies for Stocks and Indexes

[Options_Trader]

ya it's not DB its little modified as it kept the mid dip above the zero line... it can be constructed more effectively after some fine tuning as i said in the first post...

your pic is of short straddle? what are legs and it values that have been used?

no question of option repair in static strategies

BTW when you say back testing framework does it have option data for last five years with all the strike prices? can you explain in length so that we know where we are heading.

thanks

The spread I have posted is a long calendar. Short this series and long next series with same strike price (6900). Strike price can of course be adjusted based on your view of market range.

For back testing:

Only index data is required for final payoff while the cost of spread can be calculated based on current data (the cost of spread will more or less will always be same).

For non-static strategies, I use the VIX data (available from Mar'09). VIX is a close approximation of IVs and with some tweaking you can use it in place of IV.

Let me know what strategies would you like to be back tested.

 

[Options_Trader]

ya it's not DB its little modified as it kept the mid dip above the zero line... it can be constructed more effectively after some fine tuning as i said in the first post...

your pic is of short straddle? what are legs and it values that have been used?

no question of option repair in static strategies

BTW when you say back testing framework does it have option data for last five years with all the strike prices? can you explain in length so that we know where we are heading.

thanks

Details of back testing framework for static strategies:

1. Positions taken 1 day after expiry at closing prices. E.g. previous series expired on 23rd April, take position on 24th April at 24th April index closing prices.

2. Cost of spread can be calculated based on option pricing formulas or the present series as cost of spread does not vary significantly.

3. Finally at expiry calculate the payoffs using index closing prices.

 

[Options_Trader]

Details of back testing framework for static strategies:

1. Positions taken 1 day after expiry at closing prices. E.g. previous series expired on 23rd April, take position on 24th April at 24th April index closing prices.

2. Cost of spread can be calculated based on option pricing formulas or the present series as cost of spread does not vary significantly.

3. Finally at expiry calculate the payoffs using index closing prices.

Disadvantages include not able to choose the strikes based on Option Chain data. But that keeps changing, so may be won't have much impact.

 

[toughard]

2. Cost of spread can be calculated based on option pricing formulas or the present series as cost of spread does not vary significantly.

I am just thinking that for 2 to 3 % yielding strategies this method of back testing is good or not?

any way lest go with max pain as a base.

 

[Somatung]

Appreciate if you can point out anything else I should learn.

As I do not have all aspects of what you know about trading, beside what you show and post here, I am not really in a position to tell you what further you may should learn. There is always some thing to learn in trading. Some times just a little topic which we can add to our plans, some times big bangs when done real big mistake and other times what ever. A good and with discipline traded trading plan should be there to avoid the big bangs on the head.

If you want to do an exercise for your self, you may ask your self the following questions and follow the points which come up (if any): Where do I see my biggest knowledge or organizing gap when it comes to live trading? Is the way I trade in the live market based on facts and which one of those facts is the one which is not tested into the last details? Do I understand the derivative I trade in a way, that this knowledge is enough to survive the fight against the other players in the market or which part is really missing in this knowledge?

The answer/s to this can go in any direction, as live trading has so many different aspects we have to consider. Starting with the start capital for your trading and how long can you stay with out any profit in trading and still can pay your bills, moving to the different hardware we use like computer, handy, telephone, batteries, external disk to safe data and all what is needed that it works at all the time, the on line tools we use, the software included for our trading, place from where we trade, broker and commissions, trading platform knowledge including order types and data backups, having a clear idea about what we want in the market, having clear trading plan which we understand and comes from us. A trading plan which includes the strategies/s we want to play, the derivate s we want to use, the way we want to trade this strategies/s, the MM with clear stop loss rules, the time frame, the needed knowledge to read a chart, directional or non directional plan. Other points to consider: Full time or part time, the time we can spend before market opening, the time we can spend for trading, the time we can spend to analyze the trading day after market closing, the time we can spend for out door activities and so on. Hope it helps and take care

 

[Options_Trader]

I am just thinking that for 2 to 3 % yielding strategies this method of back testing is good or not?

any way lest go with max pain as a base.

Cost of spread: I will substantiate with an example. If you go for the following butterfly 6800L-6900S-7000L then the cost of spread should be approximately around 7-8 rs at the start of the series. For 6700L-6900S-7100L it should be around 16-20 rs.

As pointed in earlier thread, I don't have option pain data. So, this will be a crude analysis.

 

[toughard]

Appreciate if you can point out anything else I should learn.

Now I just went through your question on

http://www.traderji.com/futures/91950-day-trading-futures-539.html#post962932

what you are asking and what he is telling :rofl:
and
still here you coming back and asking him for more advice:annoyed:

ufff.... ok if not have OI, OI chain and MAx pain data then how we select the strike price and its prices for back testing

 

[Options_Trader]

Now I just went through your question on

http://www.traderji.com/futures/91950-day-trading-futures-539.html#post962932

what you are asking and what he is telling :rofl:
and
still here you coming back and asking him for more advice:annoyed:

ufff.... ok if not have OI, OI chain and MAx pain data then how we select the strike price and its prices for back testing

We do not need the option prices as explained earlier. For OI chain, data extraction, if you have a good script, it should not be difficult. Send keys using VBA should do the trick.

You must have used it in inductis

The other way might be taking a general trend of max pain. It may be like Strike +- 100 points . We can test 2 scenarios for each month and keep the best one.

 

[Options_Trader]

The spread I have posted is a long calendar. Short this series and long next series with same strike price (6900). Strike price can of course be adjusted based on your view of market range.

For back testing:

Only index data is required for final payoff while the cost of spread can be calculated based on current data (the cost of spread will more or less will always be same).

For non-static strategies, I use the VIX data (available from Mar'09). VIX is a close approximation of IVs and with some tweaking you can use it in place of IV.

Let me know what strategies would you like to be back tested.

@toughard: Just thought should point it out. The calendar spread I have posted does not account for drop in volatility of the long option. This will not be the case.

 

[Options_Trader]

VIX increased today. Who knows the market maker ways?:clap: