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Filter Exchange · OPTIONS STRATEGY - SELLING WEEKLY PUTS
jimmyjazz
msg #117842
modified
1/22/2014 9:58:22 AM

Good post, edellner. Question:

"3) . . . Also, balancing call and put credit spreads will limit your option portfolio delta risk. Aim for delta neutral to improve daily performance no matter which way the market moves."


I have been working on a pair of strategies which seek out small pullbacks against the trend, either long or short. Backtesting indicates that I might trade both strategies for 25% - 35% annualized gain over time. (In other words, I am long a few stocks and short a few stocks every day, and basically swing trading to grab a percent or two over the course of maybe a week. Rinse and repeat.) I would like to use long puts and calls in practice, but it isn't necessary.

My theory here is that being roughly long and short the same $ amount should reduce my exposure to sudden market shock (which is usually down, but not always). Would you agree?

Filter Exchange · OPTIONS STRATEGY - SELLING WEEKLY PUTS
jimmyjazz
msg #117819
1/20/2014 11:26:48 AM

Here is an AAPL example for expiration this Friday:

Sell JanWk4 $525 call
Buy JanWk4 $522.5 call
Net debit: $1.98 (split the bid and ask)

Max profit = $52 (79.65% of trades)
Max loss = - $198 (16.69% of trades)
Other = -$73 (3.66% of trades, just averaging max gain and max loss)

Your expectancy is $5.70 per contract. I'd trade 10 ($57), and my commissions would be $50 round trip. So, a net of $7 per 10 contracts. Chump change. No sense closing out legs that are OTM, though, so you could improve that commission number a bit.

If I trade the credit spread:

Sell JanWk4 $525 put
Buy JanWk4 $522.5 put
Net credit: $0.50 (split the bid and ask)

Max profit = $50 (79.65% of trades)
Max loss = -$200 (16.69% of trades)
Other = -$75 (3.66% of trades)

Your expectancy = $3.70 per contract. Trading 10, you're at $37. BUT your spreads will expire worthless almost 80% of the time, which saves $25 of commission per 10 contracts. That's actually a significant effect. Of course, you need margin to make this trade.



Filter Exchange · OPTIONS STRATEGY - SELLING WEEKLY PUTS
jimmyjazz
msg #117818
1/20/2014 11:05:33 AM

I can sell naked puts. Not sure why you think that's unusual.

I am in the camp that you're probably better off spreading the trade with a purchased put another strike out of the money. Now your risk is capped along with your reward.

I don't think you'll see much difference wtih debit spreads, but you have alluded to the contrary. The main issue I see with debit spreads is that you need to close them out when things go well because both legs are in the money; hence, more commisions. Your broker might handle the wash, though.

I prefer to purchase fairly deep ITM calls on stocks I am bullish on, and puts for those I am bearish on. Say, delta of 0.8 or so. They tend to move in a logical manner, whereas spreads can get crazy on the path to expiry.

Filter Exchange · The RED LIGHT ... GREEN LIGHT Trading System !
jimmyjazz
msg #117474
12/21/2013 10:51:55 AM

alf, I'm gonna do you a favor. I promise to let you know when you actually contribute something of value. Until that point, assume you're just a boat anchor on this forum who isn't half as funny or smart as you think you are.

Happy Holidays.

Filter Exchange · The RED LIGHT ... GREEN LIGHT Trading System !
jimmyjazz
msg #117467
12/20/2013 8:49:30 PM

Kevin's questions seem very reasonable. If you look at the red/green transitions on SPY, it's clear you'll get whipsawed terribly before SPY finally starts a long uptrend.

At the risk of incurring alf's hair trigger ire . . . alf, have you actually traded this? I'm not sure I see the value.

Filter Exchange · PORTFOLIO SELECTION AND MANAGEMENT USING RISK/REWARD RATIOS
jimmyjazz
msg #117310
12/10/2013 9:27:01 AM

FYI:

SPY has overtaken IWM. This doesn't mean anyone should exit IWM and jump into SPY, because the system looks at month-end data only. Just a heads-up.

Filter Exchange · PORTFOLIO SELECTION AND MANAGEMENT USING RISK/REWARD RATIOS
jimmyjazz
msg #117141
12/1/2013 10:57:38 AM

amtmail, Kevin also provided this link a few weeks ago. Just bookmark it and review after the close of trading on the last day of each month, investing in the ETF with the best 3-month performance:

http://finance.yahoo.com/echarts?s=SPY+Interactive#symbol=spy;range=3m;compare=iwm+efa+agg;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

General Discussion · How about a max drawdown function?
jimmyjazz
msg #116835
11/18/2013 7:37:15 AM

Kevin's posts have more value than 99% of the other posts around here. He can tell me to take a long walk off a short pier as long as he keeps coming up with innovative ways to look at trading that are based in sound logic and statistics.

Filter Exchange · PORTFOLIO SELECTION AND MANAGEMENT USING RISK/REWARD RATIOS
jimmyjazz
msg #116752
modified
11/14/2013 8:08:06 AM

Haven't had a chance to test the 3-month performance strategy on daily close data, but I thought I'd point out that IWM crossed EFA yesterday. Let's see what happens between now and December 1st. (One sample, I know.)

Filter Exchange · TESTING A NEW TRADING APPROACH
jimmyjazz
msg #116720
11/13/2013 9:08:50 AM

Good luck on EGHT -- I bought it @ $11.19 on 11/1 and it's dumped to $9.84 since then. I'm gonna let it ride on the chance you're right and it comes back a bit.

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