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<b>Automated trading with stocks and 2 options</b>
Here is another automated strategy from a user of mine (to be played by a Bot). (I have permission to discuss it here for possible improvements).
This is a fusion of 2 strategies which work together.
[I am currently developing the calculator for him to tune the strategy parameters.]
This strategy seems to have potential of sure profits and I would like to hear your comments before submitting it to
extensive test.
This can be played on either 2 accounts (straddle or out-of-the-money options) or only 1 (on-the-money options),
depending on the options one buys.
- IDEA -
Assume you use 2 accounts.
Call them: Long account and Short account.
On the first one you always buy shares, on the second one you always sell shares.
Assume current price for a given stock is 35.85
On the LONG account, you buy 100 PUT options strike 36
On the SHORT account, you buy 100 CALL options strike 35
On the LONG account always let the bot buy shares under the PUT
strike. If it's not an open-position order, additionally, require also the price
has declined of a fixed amount (called Delta) since the last buy.
On the SHORT account always let the bot buy shares above the CALL
strike. If it's not an open-position order, additionally require the price
has raised of a fixed amount (called Delta) since the last sell.
Now let's consider the LONG account only. The SHORT will be symmetrical.
While and if the price declines continue to buy, averaging down until
you reach 10.000 shares (covered by the PUT option). Buy no more shares beyond that
(however the Bot can close position if the prices jumps up to a profit on shares,
and restart the process).
After you are with the 10.000 shares, and deep in the money, may exercise the PUT option.
While you are within of the descent, let the Bot close your position every time it sees a profit greater than a given target T (due to price reversal).
So you will also be capturing price oscillations while waiting to reach the limit number of shares.
The crucial point is how you size the buy orders and the Delta.
If Bot increases the order size *much* more than linearly while descending, and if the step
Delta is large enough, there seems to be a minimum *sure* profit (computable in advance), which is also capable to largely cover the cost of the option on the other side too (which may become worthless, or almost).
[ Clearly if Delta is too small and the sizing is not done appropriately you will lose
a lot, but that can be computed in advance, given Delta and the sizing factor. ]
If the price goes up, of course you do the same, on the other account, by placing strongly size-increasing (sell) orders above the call strike price, until you reach -10.000 shares, covered by the call (deep on the money).
(This powerful game clearly requires capitals)
Tommaso
<b>Automated trading with stocks and 2 options</b>
Here is another automated strategy from a user of mine (to be played by a Bot). (I have permission to discuss it here for possible improvements).
This is a fusion of 2 strategies which work together.
[I am currently developing the calculator for him to tune the strategy parameters.]
This strategy seems to have potential of sure profits and I would like to hear your comments before submitting it to
extensive test.
This can be played on either 2 accounts (straddle or out-of-the-money options) or only 1 (on-the-money options),
depending on the options one buys.
- IDEA -
Assume you use 2 accounts.
Call them: Long account and Short account.
On the first one you always buy shares, on the second one you always sell shares.
Assume current price for a given stock is 35.85
On the LONG account, you buy 100 PUT options strike 36
On the SHORT account, you buy 100 CALL options strike 35
On the LONG account always let the bot buy shares under the PUT
strike. If it's not an open-position order, additionally, require also the price
has declined of a fixed amount (called Delta) since the last buy.
On the SHORT account always let the bot buy shares above the CALL
strike. If it's not an open-position order, additionally require the price
has raised of a fixed amount (called Delta) since the last sell.
Now let's consider the LONG account only. The SHORT will be symmetrical.
While and if the price declines continue to buy, averaging down until
you reach 10.000 shares (covered by the PUT option). Buy no more shares beyond that
(however the Bot can close position if the prices jumps up to a profit on shares,
and restart the process).
After you are with the 10.000 shares, and deep in the money, may exercise the PUT option.
While you are within of the descent, let the Bot close your position every time it sees a profit greater than a given target T (due to price reversal).
So you will also be capturing price oscillations while waiting to reach the limit number of shares.
The crucial point is how you size the buy orders and the Delta.
If Bot increases the order size *much* more than linearly while descending, and if the step
Delta is large enough, there seems to be a minimum *sure* profit (computable in advance), which is also capable to largely cover the cost of the option on the other side too (which may become worthless, or almost).
[ Clearly if Delta is too small and the sizing is not done appropriately you will lose
a lot, but that can be computed in advance, given Delta and the sizing factor. ]
If the price goes up, of course you do the same, on the other account, by placing strongly size-increasing (sell) orders above the call strike price, until you reach -10.000 shares, covered by the call (deep on the money).
(This powerful game clearly requires capitals)
Tommaso
)