Any bear traders out there.

[sss12]

(Using Van Tharp's definition of Expectancy.)
Expectancy is dependent upon current VIX value:

[Bull Market, 1995 to early 2000 / early 2003 to 2007 / mid 2009 to present time]

Normal VIX range is 10-14 most of the time in a Bull Market. Expectancy=1R or slightly >.

Medium High VIX of 15-19 a few months a year in a Bull Market. Exp=1.5R to 1.7R.

High VIX of 20 and > for less than 2 months a year in a Bull Market. Exp=2.5R.

---------------------------------------------------------------------------------------

[Bear Market, 2000 to early 2003 / 2008 to early 2009]

Medium High VIX of 15-19 in a Bear Market. Exp=1.5R to 1.7R.

High VIX of 20 and > in a Bear Market. Exp=2.5R.

….and has this matched your actual returns.

 

[ironchef]

right, are you exercising or selling..guess it doesn't matter for this discussion.

It was a paper backtest.

In general when long options I don't exercise. If I want to own the underlying I buy it.

 

[sss12]

It was a paper backtest.

In general when long options I don't exercise. If I want to own the underlying I buy it.

got it. but an additional question....using a back test what value is given the option ? the close on expiry day ? if so couldn't that be a little misleading ?

 

[ironchef]

got it. but an additional question....using a back test what value is given the option ? the close on expiry day ? if so couldn't that be a little misleading ?

At expiry there is no time premium so the option price will be = (underlying - strike). The complicated part is how to find the call premium at start, back in 2013 through 2017. It is counter intuitive or I made an error in my backtest: I always thought, like the other poster, that buy and hold option till expiry was not a good strategy, i.e. the no free lunch principle.

But in a bull market like we have since 2009, buying options is like buying on margin, there is no skills or edge, you are just riding Beta.

And there will be lot's of pain when the music stops (like for me, Feb-Mar and Sept-Oct of this year).

 

[sss12]

At expiry there is no time premium so the option price will be = (underlying - strike). The complicated part is how to find the call premium at start, back in 2013 through 2017. It is counter intuitive or I made an error in my backtest: I always thought, like the other poster, that buy and hold option till expiry was not a good strategy, i.e. the no free lunch principle.

But in a bull market like we have since 2009, buying options is like buying on margin, there is no skills or edge, you are just riding Beta.

And there will be lot's of pain when the music stops (like for me, Feb-Mar and Sept-Oct of this year).

Understand, but that wasn't my point. Your backrest is somewhat hypo as you may not be able to execute the trade (if it were live) at the price your test is using.

 

[ironchef]

Understand, but that wasn't my point. Your backrest is somewhat hypo as you may not be able to execute the trade (if it were live) at the price your test is using.

Not so.

1. I can get accurate Call premium value if I purchase data from a data house.

2. Or I could use historical IV, risk free rate and dividend rate to compute a fairly accurate Call premium.

3. If you want you can purchase SPY LEAP at about mid of bid/ask.

 

[sss12]

Not so.

1. I can get accurate Call premium value if I purchase data from a data house.

2. Or I could use historical IV, risk free rate and dividend rate to compute a fairly accurate Call premium.

3. If you want you can purchase SPY LEAP at about mid of bid/ask.

Disagree, your stuff will be close but not true execution level.

 

[ironchef]

(Using Van Tharp's definition of Expectancy.)
Expectancy is dependent upon current VIX value:

[Bull Market, 1995 to early 2000 / early 2003 to 2007 / mid 2009 to present time]

Normal VIX range is 10-14 most of the time in a Bull Market. Expectancy=1R or slightly >.

Medium High VIX of 15-19 a few months a year in a Bull Market. Exp=1.5R to 1.7R.

High VIX of 20 and > for less than 2 months a year in a Bull Market. Exp=2.5R.

---------------------------------------------------------------------------------------

[Bear Market, 2000 to early 2003 / 2008 to early 2009]

Medium High VIX of 15-19 in a Bear Market. Exp=1.5R to 1.7R.

High VIX of 20 and > in a Bear Market. Exp=2.5R.

I still cannot get it right.

 

[ironchef]

Disagree, your stuff will be close but not true execution level.

Not a problem, just trying to be helpful. OK to disagree.

Good luck to you.

 

[jeffalvinson]

….and has this matched your actual returns.

Yes.