Is selling options before earning Good Strategy?

[srinir]

LOL - that's the wrong criteria for starters.

Chill out man.

I didn't quote you. I quoted specific sentence in vegamedic post. I am testing for specific thing here.
* He mentioned market structure. If there is market structure issue, it is systematic, it should exhibit in all stocks or group of large number of stocks.

. You have to look between 14 days to 7 days or so before earnings. Implied volatility ahead of earnings begins to trickle in at that moment.

I am not testing recommendation of 7 days or 14 days of CMLVZ. I am not even testing effectiveness of this strategy. I did even mention it might even work in few earnings momentum stocks.
There was an example presented with QCOM which was traded before earning 2 or 3 days. I am not privy all the criteria. So I used that as criterion. Looks like you are closet member of his forum. If you are interested you can present the data

The biggest sweep up in the volatility occurs in the last 7 days so if you look at 3 days you are buying heavy premium.

So if one is buying heavy premium 3 days before, then buying 14 or 7 days before and selling at 3 days should work rt? Why are you, others and CMLVZ recommending selling before just before earnings

Specifically stated was that you have to back test against specific stocks. .

I answered above why i tested above, just looking for vegamedic market structure.

Specifically stated was that you have to back test against specific stocks. .

So it works for specific stocks. What specific stocks?

As I wrote some stocks are in fact static ahead of earnings moving neither right nor left - you will lose money on those and lose big time.

I am not paying attention what you write. I didn't even quote you. Let me know when you make verified 80% CAGR with 40% cash in the account (So it is like 125% in these trades ) then i will pay some attention.

So doing a scan of the Nasdaq 100 is meaningless

I did not do scan. I tested all of them.

because you should have looked inside those 100 stocks and chosen the ones that have exhibited this behaviour in the past.

What one should look for in the past and how long? 1, 2, 3 or 5 years? Is it statistically significant?
Even better looks like you access for this software, why don't you present the data?

I purchased some lousy Augen's book and enrolled in this testing software just to prove some one wrong in the internet (silly me). Present the data otherwise you are just hand waving like others.

Third mistake is standard closing 1 day before earnings - this has a major effect for stocks that report AFTER closing as opposed to before.

I just enrolled into the software and looked at their FAQ. Looks like you have been using this software and you don't have a clue. Here is from their website.

I used 1 day before earnings too. Looking at your handle, this trading business is too mystifying for you.

What makes me laugh though is that you used CMLViz to do your testing.. They are the ones that routinely recommend this strategy in their regular updates. In fact they suggested you open a straddle on TGT yesterday in their news mail of end October.

I don't care what they recommend. I don't trade single stocks and certainly not some website recommends.

 

[srinir]

1. Buy and sells at market b/a - this criteria alone probably reduced the gain by at least 3-4%. In reality, the fills are much closer to the mid than to the market b/a.

But then again, I don't need to prove anything - our results speak for themselves.

What is 3-4% when these trades achieve 125% returns? am i right

Your results? I am still looking for these verified track records. Not paper account snap shot confirmations.

 

[Kim Klaiman]

What is 3-4% when these trades achieve 125% returns? am i right

Your results? I am still looking for these verified track records. Not paper account snap shot confirmations.

It is 3-4% per trade. But I guess you won't let the facts to confuse you.

What - no response to my other comments?

 

[srinir]

It is 3-4% per trade. But I guess you won't let the facts to confuse you.

What - no response to my other comments?

Looks like you are getting magical mid-point fills in your paper account. I can use somewhere in between b/a and mid-point can retest it.

I addressed why I did the test in tradingdymystified post.
Neverheard of scalping vega in $10,000 accounts. Transaction costs only eat-up that gains. But then again transaction costs does not matter in paper accounts

What? where is your verfied track records?

 

[Kim Klaiman]

This whole discussion with you was a complete waste of time. Your only goal was mocking and bashing, and you won't let the facts to confuse you.

You are in my ignore list.

 

[srinir]

Nice. Fact is that 125% return every year from long vol. exists only in la-la land. Anyway some other nick will show up to attack me.

 

[TrustyJules]

<SNIP>

I don't care what they recommend. I don't trade single stocks and certainly not some website recommends.

This strategy is used on single stocks - its just a strategy man - there are dozens of strategies. That you dont care what anyone recommends is clear - that's your prerogative. The fact that you dont see the irony that you use a tool to demonstrate this strategy doesnt work when the very people that operate that tool routinely recommend said strategy based on their data and tool is odd. Come on man - dont be so serious - its funny.

You presume a lot about me by the way. I didnt say I did that research on CMLViz - I said they recommend it and recommend it as recently as for a trade yesterday. So whilst I know of CMLViz and am slightly familiar with it, I have never more than dabbled with it. Its interesting what they propose but I am unsure as to what it brings.

What I did do is replicate some of Augen's work on the pinning behaviour (or lack thereof) of some stocks.

This is just one chart I made plotting the pinning behaviour of the apple stock in March of this year on expiration day. X axis is time in minutes of expiry day and the Y axis is the distance from a strike price. In a post like this it is not possible to spell out 305,000 data points and 10 monthly sheets I used to produce valid data for (just under) a year. But I do have that available - I am sure you arent interested though - the point is I have spent a considerably longer time examining this effect than the rather self-evident fact that implied volatility increases before earnings.

My feeling is you are not grasping the concept of prediction or predictive models. By definition a prediction is uncertain particularly (as we like to add in my country) if it is about the future. There are millions of predictive models - I think it is Augen who made the analogy with weather prediction. You come across as a man who scoffs at the TV weathermen. Well they use two models for weather prediction - one is based on detailed measurements of pressure, temperature, prevailing winds and strength thereof etc... and then model what weather should occur. In a sense fundamental value investors use this strategy - they look for companies that have good numbers and presume that these good numbers will eventually bear out in a pleasant bullish (or bearish) trend.

The other method is mass data analysis whereby you gather information on the weather all across the world over many years. When trying to predict the weather in your location you make note of what it is right at that moment and look in your database for a weather pattern that is similar to that one. From your database you then find what weather followed the weather pattern that matches your prediction and presto you can go on TV and present the weather.

The approach on pinning but in fact also on the pre-earnings movement (or lack thereof) is based on this logic of prediction. You look for patterns that match as closely as possible the current one you have before you. Evidently looking what the same stock did in the previous years is meaningful but other considerations are also important. What are general market conditions, is the stock one that moves on earnings in the first place (bio techs tend to react on announcements for example and not earnings), at what point on average in the past did the effect start (my completely unscientific presumption would be that more heavily traded stocks would start earlier than less heavily traded ones) and so forth. With regard to pinning behaviour quite as Augen suggests in his book some stock exhibit this behaviour frequently (like Apple which I verified). Some like Ali Baba do this ca. 50% of the time only:

I am not going to counter point by point what you say - suffice it to say that where you call for proof and academic approaches you seem to reject doing the actual grunge work to go into it. I cannot vouch for a CAG of 80%, its possible though of course I am as sceptical as next man. Someone consistently able to have 80% CAG would turn 100,000$ into 35$ million in ten years. If only it were so simple...

 

[Kim Klaiman]

Someone consistently able to have 80% CAG would turn 100,000$ into 35$ million in ten years. If only it were so simple...

Not really. Matter of scalability. As we mention on our website, our service is suitable for accounts in 10-100k range (we have other services for larger accounts). So once you reach 100k, it becomes more difficult and the results will be much lower.

 

[srinir]

This strategy is used on single stocks - its just a strategy man - there are dozens of strategies. That you dont care what anyone recommends is clear - that's your prerogative. The fact that you dont see the irony that you use a tool to demonstrate this strategy doesnt work when the very people that operate that tool routinely recommend said strategy based on their data and tool is odd. Come on man - dont be so serious - its funny.

You presume a lot about me by the way. I didnt say I did that research on CMLViz - I said they recommend it and recommend it as recently as for a trade yesterday. So whilst I know of CMLViz and am slightly familiar with it, I have never more than dabbled with it. Its interesting what they propose but I am unsure as to what it brings.

What I did do is replicate some of Augen's work on the pinning behaviour (or lack thereof) of some stocks.

View attachment 179359

This is just one chart I made plotting the pinning behaviour of the apple stock in March of this year on expiration day. X axis is time in minutes of expiry day and the Y axis is the distance from a strike price. In a post like this it is not possible to spell out 305,000 data points and 10 monthly sheets I used to produce valid data for (just under) a year. But I do have that available - I am sure you arent interested though - the point is I have spent a considerably longer time examining this effect than the rather self-evident fact that implied volatility increases before earnings.

My feeling is you are not grasping the concept of prediction or predictive models. By definition a prediction is uncertain particularly (as we like to add in my country) if it is about the future. There are millions of predictive models - I think it is Augen who made the analogy with weather prediction. You come across as a man who scoffs at the TV weathermen. Well they use two models for weather prediction - one is based on detailed measurements of pressure, temperature, prevailing winds and strength thereof etc... and then model what weather should occur. In a sense fundamental value investors use this strategy - they look for companies that have good numbers and presume that these good numbers will eventually bear out in a pleasant bullish (or bearish) trend.

The other method is mass data analysis whereby you gather information on the weather all across the world over many years. When trying to predict the weather in your location you make note of what it is right at that moment and look in your database for a weather pattern that is similar to that one. From your database you then find what weather followed the weather pattern that matches your prediction and presto you can go on TV and present the weather.

The approach on pinning but in fact also on the pre-earnings movement (or lack thereof) is based on this logic of prediction. You look for patterns that match as closely as possible the current one you have before you. Evidently looking what the same stock did in the previous years is meaningful but other considerations are also important. What are general market conditions, is the stock one that moves on earnings in the first place (bio techs tend to react on announcements for example and not earnings), at what point on average in the past did the effect start (my completely unscientific presumption would be that more heavily traded stocks would start earlier than less heavily traded ones) and so forth. With regard to pinning behaviour quite as Augen suggests in his book some stock exhibit this behaviour frequently (like Apple which I verified). Some like Ali Baba do this ca. 50% of the time only:

View attachment 179360

I am not going to counter point by point what you say - suffice it to say that where you call for proof and academic approaches you seem to reject doing the actual grunge work to go into it. I cannot vouch for a CAG of 80%, its possible though of course I am as sceptical as next man. Someone consistently able to have 80% CAG would turn 100,000$ into 35$ million in ten years. If only it were so simple...

I didn't read wall of text, except for your first paragraph.

I just enrolled into the software to see if there is any systematic issue vegamedic raised. That software may be fine for others, but I am just an index guy.

 

[sle]

Not really.

Let’s consider this without weighing in on the merits of the strategy. I understand and still do event trading (and I know this alpha very well too), but the ethical aspect is more interesting here.

No matter how you present it, there is an obvious conflict of interest. The crux is the motivation to sell subscriptions instead of running this strategy, on your own or with institutional funds.
(a) imagine that this alpha works as well as you claiming. in that case I can see two possible reasons to dilute it via selling subscriptions - either you front-run your clients (not likely given the types of underlying stocks) or you found the strategy to be so capacity constrained that you’d be making more on subscription sales.
(b) this alpha has decayed. in this case you’re misleading people either about your track record or about the stability of alpha at this stage.
Sounds to me that your subscribers are fucked in all cases

PS. So you’re recommending a strategy that scrapes 200*12 to people with 10k accounts? That’s borderline predatory