Gauge upcoming high volatility

[ChimpTrader]

This should equate to about 70% of days being short vol, 22% flat, and 8% long.

That is the exact reason, why I find no reason to buy options. Having that said, what makes me ponder is how people afford to buy limited edition Porsche when I am struggling with my mortgage.

To gauge IV my process is apply 2StdDev Bollinger Band on IV and tally that with its corresponding IVP along with HV. So when IV touches the upper band, I expect it go lower but sometimes it still continues to go up, so does the upper band. When IV touches the lower band, I expect it go up but the same phenomenon repeats. I also follow John Carter's TTM Squeeze studies, so whenever Bollinger Band of Close gets into the territory of Keltner Channel, I expect it to explode in any of the direction, yet again often it just fade away. Still not getting the guts to buy options for a home-run with hope to be right on both direction and expected volatility.

The Angel in me forces me sell options and the Devil wants to buy! Running out of ideas.

 

[Jerkstore]

So when IV touches the upper band, I expect it go lower but sometimes it still continues to go up, so does the upper band. When IV touches the lower band, I expect it go up but the same phenomenon repeats.

My algo for beginners: sell vol when vix is lower than 19. Buy vol when vix is higher than 28. Stay vol flat in between those vix values.

Notice we are saying the same thing. Then ask yourself why your strategy doesnt work.

If you want to play the reversion, at the very least buy vol when it goes through the 2nd st dev bolinger band from the lower out bounds. Do not step in front of the trend as it drops into the 2nd band and touches it. As you've found, the trend often continues in that situation.

I would not play the vol reversion game

 

[vegamedic]

how people afford to buy limited edition Porsche when I am struggling with my mortgage.

I was in your shoes not too long ago, and I'd like to offer some advice you probably haven't gotten yet. Instead of committing personal capital (money, time, focus) to trading, focus on getting your financial situation straight first. Shift whatever time you're putting towards options to working overtime (or a side gig if you're salaried), adding marketable skills to help get a better job, creating a financial plan to reduce spending, etc. Trying to trade successfully with your "real life" finances hanging above your head will be tough, I've been there and my trading suffered for it. It makes trading from an objective point of view much more difficult no matter how much you may think otherwise.

Just my two cents.

 

[ChimpTrader]

Notice we are saying the same thing. Then ask yourself why your strategy doesnt work.

If you want to play the reversion, at the very least buy vol when it goes through the 2nd st dev bolinger band from the lower out bounds. Do not step in front of the trend as it drops into the 2nd band and touches it. As you've found, the trend often continues in that situation.

I would not play the vol reversion game

Yes sir! Thanks

Are there any other approach that I can add to my option selling arsenal in the context of volatility apart from HV-IV relationship/IV Percentile/IV Rank?

 

[ChimpTrader]

I was in your shoes not too long ago, and I'd like to offer some advice you probably haven't gotten yet. Instead of committing personal capital (money, time, focus) to trading, focus on getting your financial situation straight first. Shift whatever time you're putting towards options to working overtime (or a side gig if you're salaried), adding marketable skills to help get a better job, creating a financial plan to reduce spending, etc. Trying to trade successfully with your "real life" finances hanging above your head will be tough, I've been there and my trading suffered for it. It makes trading from an objective point of view much more difficult no matter how much you may think otherwise.

Just my two cents.

Thank you for your kind words.

I am learning the risks as a student of the market. I use Amibroker. Without any programming background reading the manual line by line, coding strategies in AFL took me 3 years (still in progress) - over 7000 lines. I am very passionate about trading, because despite of initial losses, trading has made me become aware of my true potentials. Have become a different person in these years - can mentally calculate better, has turned more vigilant on several aspects, my perception of reality has tremendously improved, have become more goal-oriented, organized. These are all gifts of trading.

Because of the intensity that I brought into learning this World of the Markets, I failed to keep up with my job and now relying on my roller coaster trading income for a year. It will be very hard for me to go back to the other life that I left, and spend my time for and with self-centric, blindfolded, brainwashed, egoist, kiddish adults in a corporate cubicle. I want to relinquish my bondage and be free from my money constraints.

Anyways, I heartedly thank you for your words, there are very few who care to give good advice.

 

[mushinseeker]

I code AFL and if you need assistance on things I can do, post it and I will try to help. AB functionality is so big that after coding it for 3 years I prob have plumbed like 30% of it.In addition to your methods above, read books by Jeff Augen regarding volatility and by the now deceased John Bender in "Stock Market Wizards". It will help you in the timing of your trades. Don't get caught up in 1 lean towards selling. There ain't no free lunch. The buyer of that option you are selling is not doing it to lose $$$. Much like the real world, no one goes into a trade if it does not serve his own economic interests.

 

[ChimpTrader]

I code AFL and if you need assistance on things I can do, post it and I will try to help.

Thank you.

AB functionality is so big

Yes, humongous! I doubt whether Tomasz is a human. It was really hard for first 3-4 months until I understood the array structure of AFL compared to generic loops in other programming languages. Then my absorption rate increased. Luckily, no other platform codes are so freely available like ABs to play with.

read books by Jeff Augen regarding volatility and by the now deceased John Bender in "Stock Market Wizards"

Thanks for the suggestions. Give me couple of weeks - I will post my doubts.

 

[ChimpTrader]

@mushinseeker thanks for recommending Jeff Augen. To better understand the scenarios presented by him, I think I need "Probability Cone" and "IV Probability". How do I get that in AB? Before delving into finding probabilities of IV, my first huddle would be to get "Probability Cone". Unfortunately, could not find comprehensible math for the cone.

Well, below is what I am able to think. Any suggestion?

_SECTION_BEGIN( "Probability Cone" );
     SetChartOptions( 0, chartShowDates );
   
     intrvl = Param( "No. of days ahead", 5, 1, 252 );
     stdPer = Param( "Std. Dev.", 2, 1, 5 );
   
     vol = Foreign( "VIX", "C", 1 );
   
     stdDev = stdPer * ( C * vol * sqrt( intrvl / 365 ) );
   
     u = C + stdDev;
     d = C - stdDev;
   
     bi = BarIndex();
     laU = LineArray( SelectedValue( bi ), SelectedValue( u ), Status( "lastvisiblebar" ), SelectedValue( u ) );
     laD = LineArray( SelectedValue( bi ), SelectedValue( d ), Status( "lastvisiblebar" ), SelectedValue( d ) );
   
     Plot( C, "", colorDefault, styleCandle );
     Plot( u, "", colorRed, styleLine | styleNoLabel );
     Plot( laU, "", colorRed, styleLine );
     Plot( d, "", colorGreen, styleLine | styleNoLabel );
     Plot( laD, "", colorGreen, styleLine );
_SECTION_END();

 

[mushinseeker]

There is enough volatility band/studies within AB that you don't need to recreate it in AFL which is what I think ur trying to do above. I can give you generalities on approaches to take with AB vs. just using the canned studies. My involvement with AFL is primarily in backtesting so won't be much help w debugging indicators. That being said, Augen's daytrading options book needs programming in AFL since it compares mondays to other mondays, tuesdays to other tuesday,etc. That does not come canned..

 

[ChimpTrader]

There is enough volatility band/studies within AB that you don't need to recreate it in AFL which is what I think ur trying to do above. I can give you generalities on approaches to take with AB vs. just using the canned studies. My involvement with AFL is primarily in backtesting so won't be much help w debugging indicators. That being said, Augen's daytrading options book needs programming in AFL since it compares mondays to other mondays, tuesdays to other tuesday,etc. That does not come canned..

Nothing worth comes canned.

Anyways, I just stumbled upon the formula for Probability Cone. Let me first fine tune that in AB. The problem with the "Probability Cone" is that it assumes constant volatility. Probably a "Volatility Cone" would be a solution whose math I am yet to discover.

Does anyone know how to get an egg from an egg without involving the mother chicken? Uh...derivatives