Thanks for the info. If you feel comfortable answering...are you typically looking at anomalies that persist for minutes, hours, or days? Or all of the above?
High Probability Options Trading Journal
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Thanks for the info. If you feel comfortable answering...are you typically looking at anomalies that persist for minutes, hours, or days? Or all of the above?
All of the above. This actually can be a trap, because an anomaly that persists for hours may later extend to days or even weeks, expanding the IV.
Just checked my Robinhood account where I do occasional option trades for experimenting and fun but not wanting to lose it either. And that one is also growing steadily, but not as cleanly. Especially it shows negative balance when GME blew up, but the balance was fake (and not possible without portfolio margin) and I had no large risk, only brokers simply couldn’t estimate option prices that were making wild swings. I mainly had some put butterflies on GME at that time. Now I have a couple LEAP call butterflies on couple large cap stocks, and an occasional UVXY put.
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Interesting thread. How many trades do you place per week? Would you say that you do mostly butterflies? I looked at TD a while ago, but their API was very limited. I place a lot of short-term (2 - 3 weeks until expiration up to 1.5 months) ratios on lots of different S&P500 stocks and liquid ETFs and have found IB's API essential. Most of the trades that I place never fill and it would take me far too long to enter them manually. If you're placing a lot of trades, the API can save a lot of time. Will TD give a better per-contract option rate than 0.65 for say 6,000-10,000 contracts per year.
This is becoming ridiculous, today the market is crashing and I'm making a killing. Up 3.5%, mostly thanks to ADBE that dropped almost 9%. If you look at my previous screenshot from last Friday you'd see that I was actually losing the most on ADBE. So today I just fully got out of ADBE options to lock-in the profit.
Below is the P&L graph until yesterday (though showing today's balance at the top, which fluctuates every few minutes).
Some of my other options are illiquid and the realistic account balance may be closer to $250K (rather than $255K showing today), which now makes it at least 25% profit for ~3 months.
Below is the P&L graph until yesterday (though showing today's balance at the top, which fluctuates every few minutes).
Some of my other options are illiquid and the realistic account balance may be closer to $250K (rather than $255K showing today), which now makes it at least 25% profit for ~3 months.
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I love butterflies and calendars, but after running millions of backtests and learning from losing, I made various adjustments to turn them into custom setups that may be similar to basic hedged spreads, unbalanced butterflies/BWBs, various ratios and diagonal/time ratios, as well as other custom setups with 3-4 legs; while reinvesting small profits into cheap hedges, etc. But for regular trading I like LEAP butterflies and calendars.
It can be difficult to manage my positions at TDA as for now I'm not using TDA API, but I'm simply copying and pasting orders into TDA with couple clicks. I have a custom app that outputs trade suggestions as text that I can simply paste into TDA as orders that only need to be approved/submitted. My orders are based on custom templates of option combos that I don't have to supervise daily.
TDA commissions are same as at IB, but negotiable and I'm waiting for them to analyze my account activity to determine whether they will give me a lower rate. I've seen people paying $0.35.
Though mostly TDA is better with margin management and not only take less margin when you have some naked holes, but also gives you a day or two to take care of any margin issues. I may sometimes need it due to illiquid options being mispriced and showing wrong P&L (and therefore wrong margin), while I may also need it when some of my options expire before others and leave me temporarily open.
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If every stock in the market opened 30% lower tomorrow morning (I know that's not possible with halts), but hypothetically if it did, what would that do to your P/L? Given that you mentioned that you're completely hedged, would that be a 2 or 5% loss, a significant profit, or something in between?
I'm hedged for variety of situations but am definitely not completely hedged and have large pockets of risk, while also still experimenting with various types of hedges. Sometimes I'm hedged better while other times being more exposed. Also some of the same of my positions may have the risk growing over time while others having the risk decreasing over time. However, I call my method risk arbitrage (unrelated to merger arb) where I profit where other people think I'd have risk. So in theory I can lose $100K but in practice I may lose $0 or even make $100K.
Have you ever been hedged and lost even when the stock dropped? I did, many times in the past, until I learned where & why people lose on their hedges, which now lets me sell the "wrong hedges" while buying the "right hedges". This may also align with how market makers price options, so I may be riding the wave of natural options price movement (aka convexity) where my loss could equate to MMs also losing and obviously that's rare. I mean, MMs who only delta hedge in theory wouldn't be able to sell enough stock fast enough to stay hedged if a stock dropped instantly by 30%, so they could also blow up (not many MMs buy wings, which would be seen in options OI). Instead, they have to adjust options pricing accordingly, either prior, during, or even after an extreme event.
However, getting this right is very difficult and there's plenty of room for mistakes. It definitely helps that I've spent thousands of hours staring at the options chain, coming up with custom options pricing formulas, smoothing the options pricing, and backtesting my approach through various past market crashes.
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BTW, @ET180 , I edited my above reply to add minor assumptions about MMs, but this is actually an interesting topic/question on its own. What, in your opinion, is the risk to MMs under the same circumstances of all stocks dropping by 30% overnight?
Another question is whether MMs really do buy wings and the sufficient number of them, and is there a proof of that in the OI? I've seen different people claiming different things regarding MMs buying vs not buying wings. Some say that MMs are fully hedged via wings, others say that they only delta-hedge with shares. If it's the latter, then wouldn't their risk exceed their equity, and wouldn't their risk management be in controlling the options pricing while delta hedging with shares on the way down & up?
Another question is whether MMs really do buy wings and the sufficient number of them, and is there a proof of that in the OI? I've seen different people claiming different things regarding MMs buying vs not buying wings. Some say that MMs are fully hedged via wings, others say that they only delta-hedge with shares. If it's the latter, then wouldn't their risk exceed their equity, and wouldn't their risk management be in controlling the options pricing while delta hedging with shares on the way down & up?
I don't really know how market making happens. I assumed that most hedging was done with shares. Isn't that the entire idea behind the meme stock run earlier in the year? Retail traders buy call options, market makers short those options and buy some smaller ratio of shares / sell puts to hedge their position? I assumed that market makers try to stay as delta neutral as possible and it's mostly or fully automated.