Perfect quote. Who is Larry Hirabedian? Google is not much of a help here.
Is selling options before earning Good Strategy?
- Thread starter Cam123
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Perfect quote. Who is Larry Hirabedian? Google is not much of a help here.
If you had told me “35-40% win rate and 0.6 information ratio” I would not be arguing. I know event trading well, but maybe you you have a really smart selection process. However, once you pitched 2+ IR, 75% win rates and 80+ ROC, on a long risk premium strategy is really too good to be true. I know enough about vol markets to smell a fish.
In fact, let’s disregard what you promised on your site for a second. If, in real life, your clients manage to hit 0.5 Sharpe and 40-50% win rates based on your trade suggestions, you are providing a great service to them.
That QCOM straddle picture pains me... I had tried QCOM straddles based on SO's theory and was just being greedy and did not move my bids and did not get filled. I was late by a few minutes to read the advisory email, and by that time the boat had sailed... most members hit the profit target in a matter of hours. Like I said in my previous post, that is one big disadvantage of trying to follow SO advisory emails blindly.
The options market for most underlyings is too thin to trade with a large capital... I have seen cases when my mid price becomes the ask.. and I allocate a very small amount for options trades. I don't know exactly how many subscribers SO has, but I think we collectively move the market in several thinly traded options. One can literally see how the bid/asks get swamped within a few minutes of the advisory emails for thinly traded markets.
In fact, I am thinking of not taking up any trades for options that don't meet a certain liquidity criteria.
I don't think Kim should post the trades till they are closed. Many members, including myself, enter trades a day or more later, if the prices pull back and certain criteria are met.
The options market for most underlyings is too thin to trade with a large capital... I have seen cases when my mid price becomes the ask.. and I allocate a very small amount for options trades. I don't know exactly how many subscribers SO has, but I think we collectively move the market in several thinly traded options. One can literally see how the bid/asks get swamped within a few minutes of the advisory emails for thinly traded markets.
In fact, I am thinking of not taking up any trades for options that don't meet a certain liquidity criteria.
I don't think Kim should post the trades till they are closed. Many members, including myself, enter trades a day or more later, if the prices pull back and certain criteria are met.
I think you are right... I have was able to get into about 90% of the trades posted (those I followed based on the advisory email) but almost at worse prices for most of them. The slippage was bad for the thinly traded markets. However, my win rates are close to them but the net profit is lower because of slippage.
The ones that I analyzed based on the discussions posted and entered myself, I got results that I am happy with. Truthfully, I am using SO as a learning tool more than an alert service. However, if you were to follow those blindly, miss say 10-15% of the trades, and if you faced 10% slippage in entry and exit, your results would still be good provided you pay low commissions. The real problem is not being able to get those results but not being able to scale it up properly. If you trade a 10k account, you probably will get close to those results but as you scale up, you will see how liquidity negatively affects performance. In fact, I think it will be very difficult to blindly trade the SO advisories with an account greater than 30k. You will have to skip quite a few trades because of liquidity issues.
Then this is not a useful system for anyone trading for a living?
I am going to try it out on my own using this concept but with some variations based on comments from sle and Kevin Schmit.
Thanks for your posts.
Not true even in 10k account.
Let us analyze this model portfolio case.
Subscription fee assuming you subscribe to only one service = $1250
Average trades per month according to his website:
So about 172 (14.3*12) round trips or about 344 single transactions per year.
They use different spreads.
Straddles 2 leg, IC 4 leg, Calendar 2 and Bfly 3 legs. Average assume 2.5 legs per trade.
So it is about 860 (344*2.5) legs per year.
Website says they 4-5 open spreads. So average 5 open spreads.
In $10,000 account, 5 spreads mean around $2000 per spread. Conservative estimate looks like probably 2 contracts per trade.
So yearly contracts traded 860 * 2 = 1720 contracts traded per year.
Assuming $1 contract commission fee = $1,720 per year.
Just from subscription and commission, client is spending $2970 ($1,720 + $1,250) per year. That is 30% cost or hurdle rate one has to overcome.
I did not even include slippage.
You stated 10% slippage per trade. There are about 344 transactions per year. So slippage cost is 344*10% = 34.4%.
So total cost 34.4%+29.7% = 64.1% expenses.
That 82% CAGR is a mirage.
He was a system vendor from the early 80's, pre-Futures Truth era. I am not sure whether he was talking about his own track record, or other vendors' track records in the quote. If the current incarnation of Futures Magazine has a searchable historical archive of articles, you can probably find reference to him there. Or if old issues of "Club 3000 News" are online, look there.
He sold an ATR breakout system he lifted directly from a Richard Bookstaber book for $1500. Astoudningly, another system vendor sued him over it, claiming sole ownership of a model neither one of them had any actual rights to.
Larry has had a good bit of litigation with ex-partners, you can find numerous references in California judicial records. His current LinkedIn profile lists him as an analyst or researcher at some firm I have never heard of.
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I think the 10% slippage that I said was based on the official prices that SO posts... I don't think it is 34% of the total account as you posted...
From my first month's experience, 5% return per month on capital, after all expenses seem reasonable. I will take even 1/2 of that on a regular basis anytime. However, the problem is the inability to scale up the operation.
From my first month's experience, 5% return per month on capital, after all expenses seem reasonable. I will take even 1/2 of that on a regular basis anytime. However, the problem is the inability to scale up the operation.