Developing a naked puts trading system
- Thread starter drmark27
- Start date
There are lots of studies on this subject. Some academic some from Wall Streets. Here are just two I read when I started trading options back in 2013:
1. http://www.cboe.com/micro/put/PutWrite.pdf
2. https://www.researchgate.net/publication/228289846_Why_are_Put_Options_So_Expensive
# 2. is a well known paper by professor Bondarenko and a lot of put sellers quoted him and based their strategy on his research.
If you want to do your own backtest, the historical data are expensive to gather and I gave up trying - Not worth the cost to me.
Another point: #1. showed only modest outperformed over buy and hold the underlying, not the 20% a week outsize returns you read from some professional posters here on ET.
I think you can make a decent living trading naked puts but you have to figure out how to prevent an occasional wipe out that seemed to affect many who shorted options: trades that have limited profits but occasional unlimited losses.
Good luck.
1. http://www.cboe.com/micro/put/PutWrite.pdf
2. https://www.researchgate.net/publication/228289846_Why_are_Put_Options_So_Expensive
# 2. is a well known paper by professor Bondarenko and a lot of put sellers quoted him and based their strategy on his research.
If you want to do your own backtest, the historical data are expensive to gather and I gave up trying - Not worth the cost to me.
Another point: #1. showed only modest outperformed over buy and hold the underlying, not the 20% a week outsize returns you read from some professional posters here on ET.
I think you can make a decent living trading naked puts but you have to figure out how to prevent an occasional wipe out that seemed to affect many who shorted options: trades that have limited profits but occasional unlimited losses.
Good luck.
Consider this more of an academic exercise about trading system development than anything else for now. If the results look good then I'll think about viability.
RedDuke and ironchef--I have option analytics software that gives me backtesting data to 2001.
Handle123--requirements are significantly lower in a margin account.
I want to focus specifically on how to conduct the backtest and I'll fill in a couple blanks. First, I will enter on every trading day because I want a large sample size. Second, I will sell the first put under X delta to keep probability of profit constant throughout the 15+ year sample. Third, I will exit when premium drops under $0.30 or just before the close on the final trading day. Fourth, this will be a daily backtest and I will collect all data at 15:30 ET.
Any further suggestions would be appreciated.
RedDuke and ironchef--I have option analytics software that gives me backtesting data to 2001.
Handle123--requirements are significantly lower in a margin account.
I want to focus specifically on how to conduct the backtest and I'll fill in a couple blanks. First, I will enter on every trading day because I want a large sample size. Second, I will sell the first put under X delta to keep probability of profit constant throughout the 15+ year sample. Third, I will exit when premium drops under $0.30 or just before the close on the final trading day. Fourth, this will be a daily backtest and I will collect all data at 15:30 ET.
Any further suggestions would be appreciated.
Not really. CBOE data is really cheap multiple years under 1K. CME will cost about 5-6K for a number of years. Not that expensive at all considering that garbage data is useless for back test.
And for put sellers, so is the suicide rate.
You may take that as a joke. It isn't.
Margin accounts and short puts do not mix well.
Trade cash-secured, or not at all.
$1K is expensive.
It is all relative. Garbage in, garbage out. Data that can not be relied on is useless. It will cost a not more when launched, unless it is done for fun on demo of course.