Backtest results with neutral options strategies on stocks with highest implied Vola ?

[destriero]

I thought said lowercstrike putS

Long shares at 100, short call at 100, long put at 90. Long the synthetic 90/100 bull spread. That's what he's suggesting, no?

 

[taowave]

I only noticed this

For this I'm using a CoveredCall + some LongPuts

Long shares at 100, short call at 100, long put at 90. Long the synthetic 90/100 bull spread. That's what he's suggesting, no?

 

[destriero]

I'm initially trying to apply it for "EventTrading" (ie. stock has high ATM IV b/c an event is due soon, like FDA decision etc.). For this I'm using a CoveredCall + some LongPuts. Here's a recent example describing it, see also this related posting there.

I am referring to this idiocy. He is diagonalizing, however. I promised myself not to open myself to his scripts.

 

[destriero]

OK, I will add that the nut had proposed a conversion arb as a hedge to a land purchase. When called out on it he implied he was right bc there was no risk to the conversion.

I weep for the planet.

 

[taowave]

Lol!!!
Me too...

It's the some Long Puts that led me down the backspread path..

I am referring to this idiocy.

 

[destriero]

Lol!!!
Me too...

It's the some Long Puts that led me down the backspread path..

I just shorted a box to protect my Tahoe prop.

 

[Quanto]

Why the covered call and not short put??

What you are doing appears to be a backspread.

Covered call complicates it unless you feel the stock will become hard to borrow and can take advantage of it.

I chose CC because the $ requirement for a CC in my CashAcct at my broker TDA is
Requirement = StockPrice - SC.Premium
Ie. the requirement is not StockPrice This is important when the stock is below $10 or so...

Actually it doesn't matter what you take, CC or CSP or just naked SC or naked SP. It just is about getting some high credit (from the shortsale), and financing the other legs from that credit... ie. NetCredit (or a small NetDebit) as the whole investment, best achieved with some ShortSelling of course...
The main construct has to show a good/acceptable PnL curve.

Yes, the PnL curve is very much like a backspread, but not exactly as we constantly improve it till expiration, see below.

The most important thing to know is the PnL chart (aka PnL curve, PnL diagram).
The PnL chart should be your only God to follow, nothing else...
Forget all the options greeks etc. No need to complicate matters. Things are in reality much much simpler, only some make life unnecessarily too complicated.

The PnL chart shows you every possible outcome, and you can influence it by adding some more cheap LP.Qty or a new cheap OTM leg etc.
You will be surprised how powerful this is. By doing so you can also set your own leverage factor. I'm doing this with cheap OTM LP's, when they become cheap after time-decay.... Ie. one constantly improves the construct by adding some more Qtys or new LP.K's etc. Even cheap OTM LC's is possible...
As said: one sees the result in the PnL chart in advance even before extending the construct...

This all is new also for myself, only just recently started to apply in practice.

 

[Quanto]

Early assignment risk does not equate to your position being closed.
Assignment = same risk,but an opportunity for better return as you have been "granted" an option via assignment..

An early-assignment means the position gets closed early (initiated by the other side).
It suddenly breaks apart a carefully designed construct that took many work over time by constantly improving it by extending it.

Early assignment could be harmful if there is a dividend>carry ,or really nasty if the stock can not be borrowed/buy in risk.

Yes, that's another issue. But ShortStock is out of scope in my design.

If you are shorting vol in super high vol names,I would check to see if the stock can be borrowed should you be assigned...But thats just me

No need for any ShortStock as it would complicate matters further.

 

[taowave]

You need to get a better understanding of short options and the potential of early exercise and how it affects your position..

An early-assignment means the position gets closed early (initiated by the other side).
It suddenly breaks apart a carefully designed construct that took many work over time by constantly improving it by extending it.


Yes, that's another issue. But ShortStock is out of scope in my design.


No need for any ShortStock as it would complicate matters further.

 

[Quanto]

When you say 30% per month,are you talking about a 100,000 account making 30,000 per month??

You arent talking return on margin..Very different...

I'm talking of a CashAcct, not MarginAcct.
(With MA even some more should be possible, at least theoretically.
But I rather think the real benefits of a MA over CA is minimal, but this is just my subjective judging, cannot back that claim with some hard facts yet; currently no time to test/simulate this).

I can't say the upper limit (b/c not tested/simulated yet), but IMO any acct with upto say $250k inital value should pose no problem.

Ive been trading for way too long,and I honestly can not remember getting hurt on early assignment..Yes,when a I put on a position on a large div stock,I factor in getting assigned early or not. I stay away from being short calls in hard to borrow stocks,but that just me..

I have answered this in my prev. posting here. The reason for my objection is different, cf. there.