Ending the year at 114% ($226K -> $485K) trading options

I did show unlocked price. See previous message.

And I can't even find you on Twitter, or your past messages. What happened there?
I approached you by showing you your own base setup (you only confirmed one out of 2 or 3, exposing some ratios you didn't like). I absolutely didn't ask you to reveal anything, just wanted to see if you'd be interested in partnering up, but you blocked me before I could explain.
I just had too many setups & strategies that could use polishing and open new opportunities, for you. Maybe you could be just an advisor, getting free equity in something valuable. Maybe you could just validate/vet my backtests or strategies and offer them to large quant firms. Maybe you could take a look at my internal software for trading options (Silexx alternative), which could be useful to tons of people. Plenty of other potential opportunities. But you're just acting petty and worrying about small stuff, unable to see bigger picture.
In the past I had VCs and potential partners approaching me (stuff unrelated to trading) because they were coming up with ideas how to monetize great stuff and scale out. But it takes small petty mindset to constantly bicker and think about how to sell some seminar for $30K.
No worries though, I have sufficient vision and resources to do what I want without you, and without ET or Twitter for that matter.
 
I think we've resolved our differences. I don't appreciate being tagged on Twitter or any SM. I've offered @guru some tweaks to his structuring in PM. I stand by my contention that there was no skew or switch edge in TSLA during the time in question as I was a large % of OI in the name.

I'll let it go.
 
guru said:
View attachment 330696


Notes:
My account seemed to be around $498K on Friday, but TDA recalculated option values overnight. This happens almost every night, so the value does fluctuate a bit from day to day. Some of my option contracts are illiquid, but not horrible in terms of getting in & out.

I’m 90% sure I have some (multiple) of the most efficient methods of extracting alpha out of options skew, including protection from jump risk. This can be confirmed mathematically, logically, and intuitively, meaning that the methodology can be understood and traded with a degree of confidence, even though it was found with the help of machine learning. I’m also 100% sure that I’m inefficient at utilizing it.

It’s easy to become cocky in a bull market when everyone makes money. I just regularly post my P&L online (on Twitter/X) due to confidence in the long-term sustainability of my approach. I definitely wouldn’t make so much profit without the bull market, but the goal was to get bullish at minimum cost, and it worked, just better than expected. In a whipsaw market I may be just trying to balance the account. I’ve also had decent wins on bearish trades and could focus on building bearish positions at minimum cost, which would then require a bearish market to make excessive profit. I still do mix in some bearish trades, while even some bullish trades may turn out bearish (I’ve lost money on those, then learned how to use them for hedging).

Most of my trades are at a debit and with limited risk, which is much more difficult to balance and continually grow than collecting credit & theta as many options traders do. Though, I also try to collect theta on those debit trades. And I enter some trades at credit, some with unlimited risk, sometimes offset with other trades with unlimited profit potential. Alpha often comes from combining somewhat different, even opposite strategies, sometimes at once, other times layered across time.

I face the risk of large drawdowns, but most of it is from large profits that build up. Meaning that I don’t expect to lose more than I put in (which can be 10% - 20% of capital), but if I make $100K, then theoretically I can lose that $100K if I don’t close trades on time. Also, as stocks get more overpriced, my new trades have an increased chance of failure as it gets more difficult to find alpha in a bull market, including the skew no longer expected to reverse from bearish to bullish. Thus, my % profitability is expected to decrease.

I started the account with $200K in Sept 2021 but didn’t trade as much until May 2023, as previously I was still researching and backtesting a variety of option strategies, often unable to get fills on my favorite trades. One of my strategies was making a decent profit, which was later offset by a different one that didn’t work as well as in backtests. Later I figured out the problem, as well as experimented with and finalized new strategies.

Machine learning/AI has very limited value in options trading unless accompanied by thousands of hours of back-and-forth interactions, continually analyzing problems and feeding new ideas and solutions to the ML that it can then re-test and optimize. AI can do a lot of things in terms of analyzing and summarizing data, but it won’t come up with hundreds of original ideas and solutions. It’s all about problem-solving, with ML being just one of the tools to use.

My original goal was to finalize research and find the optimal methodology of trading options, then proving that it works. Possibly I’m nearly there, except now trading and managing trades consumes all my time. It also became boring and mechanical, just reviewing millions of possible trades and placing orders for whatever I may pick. It can be fun when making money, stressful when losing, but also lacking purpose. I was going to publish some research, but then found more alpha than I expected, and many furus reselling everyone else's stuff. I want to code some new stuff, maybe an options trading platform, maybe release some alpha in chunks.

To be continued…
More...

What is the data source that you used to backtest your option strategies?
 
traider said:
What is the data source that you used to backtest your option strategies?
More...


CBOE DataShop, but also ORATS and some other data providers found on Google.
All of them offer similar and similarly bad data that needs solid re-smoothing. I’ve actually went through many iterations of smoothing option prices because I was getting too many arbs in backtests. So my data quality is now better than any provider’s.
 
Were you processing mid-point or last sale? Were these liquid symbols with tight markets and lots of trades or the opposite?

guru said:
CBOE DataShop, but also ORATS and some other data providers found on Google.
All of them offer similar and similarly bad data that needs solid re-smoothing. I’ve actually went through many iterations of smoothing option prices because I was getting too many arbs in backtests. So my data quality is now better than any provider’s.
More...
 
Robert Morse said:
Were you processing mid-point or last sale? Were these liquid symbols with tight markets and lots of trades or the opposite?
More...


Smoothing both the mid-point and IV (also based on mid-point), using various forms of approximation to make sure no specific strike stands out on its own. Also came up with different approximations for OTM vs ATM & ITM strikes. Even had to use some hard-coded logic on stuff that wouldn’t play along.

I had to smooth out absolutely everything, including illiquid stuff, to the point of backtests not being able to arb much, as they’re very sensitive to smallest mistakes and showing false profits when things get mispriced.
Of course later I’ve learned in practice that I can’t fill many illiquid orders, or when I can then I may not be able to exit. So in practical trading I had to learn what to avoid, but also performing some actual arbs when MMs did let me fill stuff they shouldn’t (like diagonals at credit that should be debit). And I do have lots of illiquid stuff in my inventory when I know I won’t lose much but can make decent profit when the underlying does make a large move.

Even currently I have some minor arbs on UVXY that has very illiquid options and all over the place, but very difficult to fill, like with MMs also unable to price it properly. Sometimes I wait days to fill them, other times leg-in.
Basically feeling confident in pricing illiquid options, as long as there are a few reference points/anchors in more liquid strikes.

As an example, here is my smoothed options chain for the current UVXY LEAP Calls that are quite illiquid and all over the place (bid, ask, and my smooth est value):

upload_2024-1-1_14-28-23.png
 
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The OCC for end of day values for their TIMS calculations (PM Requirements) do similar smoothing. They did not for years creating horrible values for OTM puts where some were $0.00/$0.50 and some were $0.00/$0.05 on either side of the wider market.
 
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