HowardCohodas Index Options Credit Spread Trading Journal

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Quote from sle:

70% edge on a sample of 120 months is just as "un"-glaring as 1% on a sample of 1000. This is becoming an increasingly academic discussion on low probability statistics. There are many thing people can do to evaluate statistical qualities of outer tails in distributions and there is a lot of non-financial work being done in that area.

In the end, most of your risk is not in evaluation of fair value (which is fairly straight forward), but rather in preventing a ruinous loss. That's where the skill of the portfolio manager comes in.
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Won't the average gains and average losses be essential when evaluating the value? If a strategy proves to be correct 90% of the time over 1000 instances, but has an average win of 1 and loss of 5, I'm pretty sure we can put a lot of faith into this system.

Even though we don't know with a high confidence that it truly is correct 90% of the time, we can have a better understanding of the expected value because of the win/loss amount.
 
Quote from falconview:

You guys are way over this amateurs head. Not that it isn´t interesting. But as an hands on guy, I just don´t trust all that statistical stuff for making money. I like to read it and so forth, just don´t trust it.

Maybe it comes from building a lot of boats up to 50 ft in wood. If it looks good, it is good. If you followed the plans and it doesn´t look right, then it is probably not right. Simplistic I know.

In the meantime i am in a SAD mood. Went from being up 5% last month in cash, to down 9% so far this month, from starting account balance. Made a STUPID mistake. Entered my volatility, premium ballooning trade fine. But in the couple of weeks of doldrums in between, I had been playing with scalping the spy and somehow during my volatility bread and butter trade, I did not take my profit when I should and switched, or rationalized myself into going for a longer couple of day trade and finally had to close out losing. I did not stick to my rules and kicked my butt all over the house for a couple of days. Ahh well! Wait now patiently for the next one. Had been sick the day before to the doctors and missed an excellent trade, so next day I took a weaker version, which worked, except I changed the parameters mid stream. Sheessh! Probably old news to all you smart guys who are so rich from trading options. :D
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start with a blueprint,then keel,then ribs.....no guesswork ...do the same with trading..big picture ,then s/r(keel) then several small trades (ribs) to finish your boat(account)...you would never take an axe to the keel when the boat was half built....clarity of mind would stop you..same with trading...smart moves or do nothing
 
Weeelll that was a sweet comment. Appreciate it. Been spending a few weeks trying to figure out how to trade the SPY without whipsaws. Havn´t got that figured out yet? Driving me nuts. I can´t seem to set down the trading rules, that would eliminate messing around in whipsaws.
 
Quote from falconview:

Weeelll that was a sweet comment. Appreciate it. Been spending a few weeks trying to figure out how to trade the SPY without whipsaws. Havn�t got that figured out yet? Driving me nuts. I can�t seem to set down the trading rules, that would eliminate messing around in whipsaws.
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Are you trying to trade the noise?
 
Howard

Trade the noise? Sort of I guess? You can whip off a $100 net profit couple of times a day. But one loss usually wipes out 5 winners.

I think I might be getting a handle on it? Going to bigger time frames and let the ruddy prices gyrate a few hundred dollars up and down. Can only trade 2 spy a week anyway, because of day trader rules, so makes sense.
 
Flutter, chatter, noise, whipsaws, I´ve heard it called several things. One of the things is the ability to calculate stop-losses if you use them and still leave enough room for the prices to fluctuate, without getting caught in a trend reversal. Or some other method of stops when you will exit. Myself I use trend lines, or speed lines.
 
Quote from sle:

Forget about options spread, lets take much simple example - people who do event-driven arbitrage. They have a fairly small sample to work with yet somehow they are confident that the strategy has a statistically significant edge. E.g. a guy who does month-end-extensions in bonds would probably have to test his strategy on maybe 240 samples and even that is pushing it. Yet he somehow believes that he has a statistical edge... Do you think he is stupid?
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Event driven arbitrage is a much easier example to work with. They don't have statistical confidence on their likelihood of being correct, but their gains and losses outweigh the probabilities. If they know they losses aren't going to be much bigger than there gains, their statistical confidence in the probability of success is worth a lot less.
 
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