Have I just been lucky?

nln1972 · Feb 9, 2019

So here's the spread I've been doing for just over 2 years now:

- Identify 10-20 stocks where the 2 S.D. put is close to a support level
- Sell a weekly put for each stock, one week out, typically for ~$0.40 (usually a 95%+ win rate)
- Depending on the stock this can be between 5-15% OTM
- Buy the ~$0.05 put for protection (this has been hit 11 times in ~1500 trades)
- Collect the ~$0.35 premium

I keep running the max loss scenarios and it still seems to be an acceptable risk, given the probabilities.

IB margin reqs for options this far out are usually pretty much the same as margin req. for the underlying stock, so I would be OK if every stock was assigned.

I can't help but feeling that I've just been lucky but even the Feb 18 crash didn't dent performance. The stats on the trades have played out pretty much as you'd expect but still the performance is great: +37% in Yr1 and +29% in Yr2.

Have I just been lucky?!?

victorycountry · Feb 9, 2019

One thing any trader should remember is trading with real account is different world...I am afraid.

Untill you fig out market characteristics and find ways to utilise them, it will be very hard. Statistical findings from very limited data mean very little...

nln1972 · Feb 9, 2019

I wasn’t clear sorry. This is my real account ($90k).

I also keep a separate account for a collection of ETF’s, ring-fenced outside of IB.

victorycountry · Feb 9, 2019

nln1972 said:
I wasn’t clear sorry. This is my real account ($90k).

I also keep a separate account for a collection of ETF’s, ring-fenced outside of IB.

Nice! You have fund to trade. Do you work for a fund company?

It is worth note that Most stocks (those held by institutions) will go up persistently after February until around this time next year. GL

Maverick1 · Feb 9, 2019

nln1972 said:
So here's the spread I've been doing for just over 2 years now:

- Identify 10-20 stocks where the 2 S.D. put is close to a support level
- Sell a weekly put for each stock, one week out, typically for ~$0.40 (usually a 95%+ win rate)
- Depending on the stock this can be between 5-15% OTM
- Buy the ~$0.05 put for protection (this has been hit 11 times in ~1500 trades)
- Collect the ~$0.35 premium

I keep running the max loss scenarios and it still seems to be an acceptable risk, given the probabilities.

IB margin reqs for options this far out are usually pretty much the same as margin req. for the underlying stock, so I would be OK if every stock was assigned.

I can't help but feeling that I've just been lucky but even the Feb 18 crash didn't dent performance. The stats on the trades have played out pretty much as you'd expect but still the performance is great: +37% in Yr1 and +29% in Yr2.

Have I just been lucky?!?

Market has been generally trending up for the past 2 years, with the exception of Feb 18 and late 2018 selloffs. If you isolated the trades from those periods, how did they do?

victorycountry · Feb 9, 2019

Maverick1 said:
Market has been generally trending up for the past 2 years, with the exception of Feb 18 and late 2018 selloffs. If you isolated the trades from those periods, how did they do?

I think he said he been focusing on "PUT" and this paid off because the market been bearish since March last year and still is and will be until Februrary is over. We will see the reversal in the trend very soon. It is sth he may want to consider into his trading.

qlai · Feb 9, 2019

nln1972 said:
this has been hit 11 times in ~1500 trades)

In two years, sounds like you have a good system. One thing I am curious about ... 2SD is only 5-15%? Sounds like low HV stocks which normally don't have juicy premiums.

victorycountry · Feb 9, 2019

qlai said:
In two years, sounds like you have a good system. One thing I am curious about ... 2SD is only 5-15%? Sounds like low HV stocks which normally don't have juicy premiums.

Sorry to step in. I am sure he will answer your question. You don't estmate the premium based on realized volaitlity. You estimate the premium based on implied volatility and that is why you trade stocks where majority of shareholders are institutions

qlai · Feb 9, 2019

victorycountry said:
You don't estmate the premium based on realized volaitlity. You estimate the premium based on implied volatility

But they should be relatively close, you would not expect stock with 10hv to have 50iv, right?

victorycountry · Feb 9, 2019

qlai said:
But they should be relatively close, you would not expect stock with 10hv to have 50iv, right?

That's a misconception. One good example is pairs trading, which is built based on realized volatility.
https://en.wikipedia.org/wiki/Pairs_trade

It's also known as a statistical arbitrage and convergence trading strategy, which was abandoned after a huge loss in the following year after it was implemented by Stanly Morgan in 1970s.
Another company suffered by the strategy is Long-Term Capital Management ... gone bankrupt, right?

Realized and implied volatility are not the same.