Developing a naked puts trading system

[ironchef]

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.

Yes it is all relative.

Questions:

1. Do they provide all calls/puts, bid/ask, for all strikes all expirations, open interest, volume, open, high, low and close everyday?

2. If I am only interested in IV, do they provide greeks for all strikes, all expirations, open, high, low and close everyday?

If they provide all of that for $1K it is not expensive.

Thanks.

 

[DTB2]

I sell naked puts on dividend aristocrats earnings days.
Far enough out, not a ton of premium but very little volatility of P/L.

Seldom ( I won't say never, but they haven't yet) do they drop out and not bounce back quickyl if assigned.

 

[drmark27]

We're getting off-topic here. I specifically wanted discussion here about the system development methodology. Please go back to my last post. I left a big piece out in the hopes that you would give your opinions about it. Thanks!

 

[franT]

If you wait till premium is less than $0.05 to exit, there are no commissions.
I'd hedge every trade on entry with a longer dated put, effectively creating a diagonal or similar. Less capital requirements, more ROI, and tail risk eliminated. Your mileage will depend on your vola and direction forecasts, as always.

 

[Martinghoul]

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.

One suggestion I would make is you should try to produce at least a rough estimate of transaction costs, which takes into account your execution methodology (e.g. are you hitting the best available bid or sitting on the offer at some "fair" selling price).

This may be especially relevant if you're simulating trading in and out every single day.

 

[RedDuke]

Yes it is all relative.

Questions:

1. Do they provide all calls/puts, bid/ask, for all strikes all expirations, open interest, volume, open, high, low and close everyday?

2. If I am only interested in IV, do they provide greeks for all strikes, all expirations, open, high, low and close everyday?

If they provide all of that for $1K it is not expensive.

Thanks.

1K is CBOE (this was a while back, could be more now), CME is more expensive. I only bought EOD data, it has most of the above (IV and delta). Every bids/ask means tick data, they have it but it is a LOT expensive.

Both CBOE and CME provide all strikes, all expirations, open, high, low and close everyday.

 

[ironchef]

1K is CBOE (this was a while back, could be more now), CME is more expensive. I only bought EOD data, it has most of the above (IV and delta). Every bids/ask means tick data, they have it but it is a LOT expensive.

Both CBOE and CME provide all strikes, all expirations, open, high, low and close everyday.

Thank you for your help.

 

[ironchef]

We're getting off-topic here. I specifically wanted discussion here about the system development methodology. Please go back to my last post. I left a big piece out in the hopes that you would give your opinions about it. Thanks!

RedDuke gave you the tools to get data which is the most important first step. You can then build your system, backtest around the data set to see if your system works.

The questions I asked him are very relevant: If you build a system to day trade options, you will need all the data set, if you are swing trading options, you perhaps can make do with EOD data. But even for us swing traders, timing your entry, bid/ask during the day is still very important and sometimes is the difference between profits vs losses.

Good luck.

 

[Windlesham1]

Idiots trade naked-and just because QE has held the fake markets up for so long does not mean they won't crash and hit the skids for a decade or two. The global economy is BS- so much debt and money printing nobody knows what's real any more, and the market does not need another who dilutes option prices even further. Do something intelligent and productive

 

[sle]

Idiots trade naked-and just because QE has held the fake markets up for so long does not mean they won't crash and hit the skids for a decade or two. The global economy is BS- so much debt and money printing nobody knows what's real any more, and the market does not need another who dilutes option prices even further. Do something intelligent and productive

Why such hatred? If you could find value in trading naked optionality, go for it, nothing bad about trading naked options. Personally, I think it's more intelligent to trade naked options judiciously then trading complex spreads blindly. Also, if that 'A' is diluting the option prices to the point of them being cheap, that's a good thing, IMHO.