Finished Natenberg book, what tools are best for strategies?

B

Borteg

Hi Traders,
I am an experienced long term equities trader that has beaten the S&P 500 since starting trading in 2000, using a long term accumulation/distribution model. However, this model ties up large chunks of my capital for years. Therefore, I am now trying to learn more short term option trading. Just finished Natenberg's Option Volatility & Pricing book and found it enlightening from a theoretical perspective. However, it is not very concrete in specific methods of finding stocks/futures that are good candidates for various volatility spread strategies.

Curious of hearing from experienced, successful option traders that were once at my point of self-education.

1. Which tools/sites are best to find volatility disparities and volatility charts as Natenberg likes to show in his book?

2. Which broker is best to use for following weekly adjustment delta-neutral model that Natenberg preaches. It seems most retail broker's commisions greatly affect the profit margin in doing delta neutral adjustments that I would have to make to follow his method of non-directional, volatility-only, delta-neutral trading.

3. Additional reading that perhaps might built upon Natenburg and give me more concrete methods to find underlying stocks/futures that fit strategies, now that I've got a good theoretical foundation from Natenberg?

Thanks & Regards,

Bob
 
Why would you want to trade spreads if you were self-reportedly successful in long-term directional trading? The reason given by you sounds like an excuse and rather sounds like you attempt to chase ever higher returns. If you generated annualized 20% returns on average since 2000 then I strongly recommend you to just continue what you have been doing. Do not go down the route of so many of the guys on this forum and try something here, something there, ending up with nothing to go for. Either you specialize and be better than everyone else (or at least belong to the top couple percentiles) or you do something with slightly above average quality but do it consistently. Look at all those blown-out creatures here. They talk about 40 million USD condos but never made a dime trading or held on to even part-time jobs in real life for more than days. Stick to what works for you and stop trying to beat those who are best in their own field of expertise while you have zero experience trading spreads.

Just my 2 cents.

Borteg said:
Hi Traders,
I am an experienced long term equities trader that has beaten the S&P 500 since starting trading in 2000, using a long term accumulation/distribution model. However, this model ties up large chunks of my capital for years. Therefore, I am now trying to learn more short term option trading. Just finished Natenberg's Option Volatility & Pricing book and found it enlightening from a theoretical perspective. However, it is not very concrete in specific methods of finding stocks/futures that are good candidates for various volatility spread strategies.

Curious of hearing from experienced, successful option traders that were once at my point of self-education.

1. Which tools/sites are best to find volatility disparities and volatility charts as Natenberg likes to show in his book?

2. Which broker is best to use for following weekly adjustment delta-neutral model that Natenberg preaches. It seems most retail broker's commisions greatly affect the profit margin in doing delta neutral adjustments that I would have to make to follow his method of non-directional, volatility-only, delta-neutral trading.

3. Additional reading that perhaps might built upon Natenburg and give me more concrete methods to find underlying stocks/futures that fit strategies, now that I've got a good theoretical foundation from Natenberg?

Thanks & Regards,

Bob
More...
 
Read Sinclair and Baird. Mentioned several times before.

Nothing wrong with tying up capital if it makes a profit. However, a more natural evolution of your trading might be to go into shorter times frames and/or employ the leverage provided by futures.

I think what got volpunter riled up is that your going into an arena with a higher level of complexity and cost ( time, commission, technology) instead of scaling up what you do so well. Doesn't make sense. I would go back (still trying) to trade the underlying if I was producing good risk adjusted returns.

However, we do get the chicks.
 
If you are concerned about tying up funds, maybe try using Leap options to go long. You can be log the stck with say 30 percent of the the cost of the stock.
Having traded options for a while, I see professional traders retuning 20 to 30pc per annum over a 5 year term..so why distract yourself if you have beat the spx for over 5 years, unless you feel you just got lucky in the past to beat the spx
 
Thanks for the advice. My long term trading method holds stocks (and capital) for 3-10 years or longer. Occasionally there are exceptions but this is the time period I've experienced so far. I cannot live of these cap gains as I can never predict when the rise/distribution will happen. My method works for the very long term and I will continue to use, but it cannot be used to produce income. I'd like to retire from my IT Consulting career and find a short term more predictable, income producing method to replace this income. Since my formal education was in Physics and App Math, I was attracted to options because the mathematics were immediately familiar and the statistical distribution model offers much higher degree of predictability than other short term methods I've read about. However, if someone knows of a short term method that offers higher degree of predictability than options, please let me know! The only reason I mentioned long term trading experience was to indirectly (perhaps too indirectly as it appears the point was entirely missed) say that I believe I have reasonably tackled the hardest part of any trading methodology -- handling the mental/emotional aspects of trading.

Hopefully, an experienced option trader can address the 1st two questions I was asking regarding tools/functional aspects of option trading. I've found ivolatility.com which appears to have volatility tools and services. It also seems that OptionHouse may be my best bet for a retail brokerage, but if someone disagrees, please let me know.

Thx,
Bob
 
It is exceedingly difficult to try and replace income from a steady job with option trading income. Trust me I've tried it. Options are volatile. Hence your P&L will be volatile. I would implore you as an intelligent person not to fall too much in love with statistical models and hedging theory. They're all wrong. I spent a fair amount of time reading quant books, coding up stochastic vol models, trading delta/vega neutral, and (over) hedging. The end result for me was a steady flow of slippage. My best results happened when I cut out the complexities and began trading index flies, hedged using good old black-scholes-merton. Being disciplined, taking measured bets on vol, and knowing when NOT to touch a position have resulted in much better results for me. Someone recommended reading Baird, and I agree. Excellent book. Just don't try to actually be a market maker. Dynamic Hedging is also fairly interesting.
 
Smells fishy to me, why would anyone beating the SP over 14 years is working a day job and seeking new methods amazes me.

Not to mention a 2nd time poster
 
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