Yeah,unwritten convention used by every Investment Bank/Derivatives Desk in the world..
Are you for real???
Are you for real???
16-Delta is the "sweet spot" for short put?
- Thread starter turkeyneck
- Start date
Yeah, I'm so real that I have enough of your childish postings stealing my precious time. Welcome to my killfile! Bye bye!
@taowave!!!
Are you talking with earth imperator again? The guy has no understanding of how options work. The guy is a programmer. LOLAnyway, I have a question that I want to pick your brain with:
Besides the input put into the backtest being different, how do the two approaches differ in terms of the backtest results and processes?
He unblocked me and I took the bait...
I havent run "Percent of Spot" backtests,nor have I run many backtests with IV filters...I will for shits and giggles
The process is pretty similar....Obviously,the percent of spot approach is unaffected by IV volatility..The strike will be a fixed % from spot regardless of IV...
With the "Delta" approach,IV will have an effect on how far OTM/ITM the strike will be..
Look at the 45 day option with a 16 Delta at X vol and see what happens to the Delta when vol is 2X.. For an OTM option,the Delta will be higher..
The important thing is to intuitively understand how IV will affect the process/backtest and if you are good with it. maybe you run "Percent of Spot" strike with a Vol filter..
Another thing to consider is how many 16 delta Options should you sell when comparing returns to the SPY. Selling a 16 delta option vs buying 100 shares of SPY doesnt bode well in a bull market like the 10 year period backtested.. Should you have sold 6 to approximate 100 shares?? Hint: Look at the Max drawdon in Matts backtest..
FWIW,I have no idea how the author came up with 16 delta puts being the optimal to short..
I havent run "Percent of Spot" backtests,nor have I run many backtests with IV filters...I will for shits and giggles
The process is pretty similar....Obviously,the percent of spot approach is unaffected by IV volatility..The strike will be a fixed % from spot regardless of IV...
With the "Delta" approach,IV will have an effect on how far OTM/ITM the strike will be..
Look at the 45 day option with a 16 Delta at X vol and see what happens to the Delta when vol is 2X.. For an OTM option,the Delta will be higher..
The important thing is to intuitively understand how IV will affect the process/backtest and if you are good with it. maybe you run "Percent of Spot" strike with a Vol filter..
Another thing to consider is how many 16 delta Options should you sell when comparing returns to the SPY. Selling a 16 delta option vs buying 100 shares of SPY doesnt bode well in a bull market like the 10 year period backtested.. Should you have sold 6 to approximate 100 shares?? Hint: Look at the Max drawdon in Matts backtest..
FWIW,I have no idea how the author came up with 16 delta puts being the optimal to short..
@taowave!!!
Anyway, I have a question that I want to pick your brain with:
Besides the input put into the backtest being different, how do the two approaches differ in terms of the backtest results and processes?
They listen to Tasty Trade
If you didn't unblock him, why can you see his post to know he said that?
He unblocked me, I attempted to lead him from the path of ignorance and failed miserably..
And then he mercifully blocked me..
And then he mercifully blocked me..
You attempted to lead him from the path of ignorance...LOL You are talking about somebody who blocked people for telling him to evaluate his options positions using payoff diagrams and you think you can lead him from the path of ignorance? LOL He's beyond ignorance, tao.
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Me either. It's from this 10-year study I guess that somehow discovered shorting 16-delta puts gives the highest profitability. LOL
The thing is backtesting using fixed strike at different levels with a vol filter is kinda moot. I mean if one's holding IV constant while just changing the strike price level, then of course the option at the higher delta would yield higher profit as it would be more sensitive to price change in the underlying and would move more. It's the vol. that changes everything so I think it would make more sense to backtest at different IV levels to see how the option behaves at different strike/delta level.
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