Is there a tool to pick the best option?

S

spinn

Hi everyone, I am a fairly good trader and am probably right in terms of direction on 60% or more of my trades. My problem is I really do not know what I am doing :) . I am just picking options to sell to open usually that are worth $1,000 or so. I am aware of the risks of selling naked but so far it has worked out pretty well but I think I would be doing better with some help finding the best option to trade. So I watched this video
and at about minute 8, the guy talks about something that screens for the most likely options for a given trade. I use Interactive brokers so they may have it but it is overwhelmingly complicated. I trade almost entirely etfs selling option premium. So suppose I am looking at SPY at $300 but think it is going down in the next 30-60 days. Is there a tool that would help me pick the best option to trade? Arbitrarily picking options based on price, as I am doing now, cannot be the best way to do this. I take very small risks but am hoping to increase position size at some point.
 
Yes, there is such a tool. It weighs roughly three pounds, everyone is given one at birth, and it rests between their ears. Otherwise you can always just use this.

:p

spinn said:
Hi everyone, I am a fairly good trader and am probably right in terms of direction on 60% or more of my trades. My problem is I really do not know what I am doing :) . I am just picking options to sell to open usually that are worth $1,000 or so. I am aware of the risks of selling naked but so far it has worked out pretty well but I think I would be doing better with some help finding the best option to trade. So I watched this video
and at about minute 8, the guy talks about something that screens for the most likely options for a given trade. I use Interactive brokers so they may have it but it is overwhelmingly complicated. I trade almost entirely etfs selling option premium. So suppose I am looking at SPY at $300 but think it is going down in the next 30-60 days. Is there a tool that would help me pick the best option to trade? Arbitrarily picking options based on price, as I am doing now, cannot be the best way to do this. I take very small risks but am hoping to increase position size at some point.
More...
 
There are more than 5000 listed tickers in the US that have options.
Assume on average each of them has 4 expiration dates. Further assume each expdate has on avg 5 Call strikes and 5 Put strikes. Makes in total 5000 * 4 * 5 = 100,000 Call strikes and 100,000 Put strikes.
Just some guestimates (though I can look up for exact numbers).
One usually needs a scanner to find good looking trades from such a big universe.
 
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Pffft... "scanner"!??! I should have known. :banghead:

earth_imperator said:
There are more than 5000 listed tickers in the US that have options.
Assume on average each of them has 4 expiration dates. Further assume each expdate has on avg 5 Call strikes and 5 Put strikes. Makes in total 5000 * 4 * 5 = 100,000 Call strikes and 100,000 Put strikes.
Just some guestimates (though I can look up for exact numbers).
One usually needs a scanner to find good looking trades from such a big universe.
More...
 
Of course the next question is: how to find the best trades?
How to define it? :)
I already have found a good method: I call it the "area method": one computes the PlusArea and the MinusArea say between -1SD and +1SD, both absolute, then calc the pct relation of the PlusArea wrt the TotalArea.
My score consists from this and some additional calcs. But area alone can be used too.

For example for a Put spread consisting of a ShortPut and LongPut (just an incomplete excerpt):
Code: 
...
End(DayOffset=30.0000 S=100.0000 S_IV=150.0000 L_IV=150.0000)
Area_at_End(DayOffset=30.0000 sSx=65.0485 eSx=153.7314 Pos=883.31(82.53%) Neg=187.04(17.47%)
Ie. PosArea=82.53% can be seen as the probability for success, within that range from -1SD to +1SD.
 
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We have an Options Scanner that can help.

In the video, Kirk mentions POP, liquidity (slippage), adjusting IV to check profitablility, and using IV rank or percentile. We have all that. You can filter results for POP, bid/ask spread, and other metrics. Kirk is also a proponent of backtesting and we have that too.

In addition we have the ability to set a bullish or bearish outlook over a timeframe that sounds like it would be useful for you. We adjust the outlook by shifting the distribution of stock price outcomes for the expiration days to expiration. For example, if you think SPY will go down over the next 30-60 days by 10%, the short call spread scan would look like this.

325864c844cd822bdff212ae68283df5.png

https://gyazo.com/325864c844cd822bdff212ae68283df5

Whereas without a bearish outlook the D% or distribution edge would look like this:
7463fa05e1da1f9d8da35dcbfc6fc856.png

https://gyazo.com/7463fa05e1da1f9d8da35dcbfc6fc856
 
earth_imperator said:
Of course the next question is: how to find the best trades?
How to define it? :)
I already have found a good method: I call it the "area method": one computes the PlusArea and the MinusArea say between -1SD and and +1SD, both absolute, then calc the pct relation of the PlusArea wrt the TotalArea.
My score consists from this and some additional calcs. But area alone can be used too.
More...
Yes, area is like POP (probability of profit) or risk reward. We use three standard deviations.
f9b0c9e319e9ab9ac84c63980271eb35.png


https://gyazo.com/f9b0c9e319e9ab9ac84c63980271eb35
 
spy said:
Yes, there is such a tool. It weighs roughly three pounds, everyone is given one at birth, and it rests between their ears. Otherwise you can always just use this.

:p
More...
Lmao. Good one. Did anyone tell him that you can do a PhD on this topic and many have done so?
 
Orats has my vote,I use it,but its not plug and play..Right 60 percent of the time? That's pretty dam good..Not sure I would be naked selling options if I was that good..Have you looked at your risk adjusted returns vs the underlying?

And what do you mean by looking at the SPY at 300,but think it's going down in the next 30 -60 days??

I'm guessing your are looking to short calls/call spreads for apx 10 bucks anticipating a 20 percent plus decline??

Don't love that trade

Definetly check out Orats and put the time in




spinn said:
Hi everyone, I am a fairly good trader and am probably right in terms of direction on 60% or more of my trades. My problem is I really do not know what I am doing :) . I am just picking options to sell to open usually that are worth $1,000 or so. I am aware of the risks of selling naked but so far it has worked out pretty well but I think I would be doing better with some help finding the best option to trade. So I watched this video
and at about minute 8, the guy talks about something that screens for the most likely options for a given trade. I use Interactive brokers so they may have it but it is overwhelmingly complicated. I trade almost entirely etfs selling option premium. So suppose I am looking at SPY at $300 but think it is going down in the next 30-60 days. Is there a tool that would help me pick the best option to trade? Arbitrarily picking options based on price, as I am doing now, cannot be the best way to do this. I take very small risks but am hoping to increase position size at some point.
More...
 
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