Long-scalping equity options against time decay and market drift

Status
Not open for further replies.
Since last time ES had just a small fluctuation of about 1%

upload_2022-3-24_9-33-36.png


Finally, NQ too, which we included for testing. is barely positive, but frankly it has been a tremendous waste of time and resources. So we know how to stay away from that.

ES FOP 20220323 3800 P GLOBEX 50 E-mini S&P 500 [E4CH2 P3800, 546996676, mult: 50]

is expired and 3 other options are just a week away:

upload_2022-3-24_9-47-24.png

ES FOP 20220331 3600 P GLOBEX 50 E-mini S&P 500 [EWH2 P3600, 518635917, mult: 50]

So I will wait for their expiry to start working with new layers because there are no sufficient funds to cover the margin requirements. For now, let's just grab the last few cents:

upload_2022-3-24_9-39-43.png


at the moment we are making 29.4K net according to the bot. Commissions: $4.817.55

IB reports a change in net liquidation of:

Δ NetLiquidation 30680.69 USD

but they do not include closing expenses as we do (since this is a scalping instrument it must know at any instant the precise amount at penny level including closing expenses, or else one might close unprofitable combinations of orders).
 
Wow, I can see we have already exceeded 10K views!

Thank you so much for your interest. I was not expecting so much. To celebrate the special occasion, I will indulge in a few general considerations about this approach, and, of course, your feedback and suggestions are welcome.

We have seen that this approach has some positive aspects:

- The possibility of modulating the risk by moving from one instrument to another and selecting the appropriate delta
- Compression of the drawdown
- Protection with “mechanical” long scalps. (There are no-nonsense "signals" or "predictions" involved here)
- Systematic recovery of the "stranded" hedging orders (stop orders)
- Worst-case scenario with a very low market: an opportunity for further investments
- Profits can be made even if the S&P 500 declines.
- Protection by circuit breakers

Of course, if you want the margin requirements to be contained, one has to choose far-off strikes, and this also implies very distant maturities (even more than a year), so that the price is not too small. When trading at such extreme distances, the procedure becomes quite tedious, although, once in regimen, it certainly brings the cash home, slowly, steadily, and safely. It can be a timid strategy, but one that is psychologically beneficial if you are trading hard-earned money.

Clearly, the risk can be modulated and one can make it much more audacious by using closer strikes and maturities (like I am doing now to speed up the process and to avoid boredom).

An even riskier approach, but also a more profitable one that uses fewer margins, would be to work by scalping/hedging directly on an option strangle of a commodity (clearly, it must be an instrument that does not have a long term drift). Scheme (I use CL just as an example, but can be anything not drifting and with suitable options):

CL CALL deep OTM (scalping/hedging long, under short constraint)
|
CL futures [not traded direct]
|
CL PUT deep OTM (scalping/hedging long, under short constraint)

Where, of course, the buy orders that remain open are then closed by subsequent rollovers (or "information transfers"). This could be more suitable for an investor with less risk aversion who is not immediately frightened by some drawdown. The profits could be stellar, especially if the underlying remains in a fairly limited range.

Unfortunately, a financial instrument that has large volatility in a very confined range and liquid options is still unknown to me :-( So there is still the possibility of quite uncomfortable drawdowns even though a lot is "dampened" by the low delta. Or else, this would result in the possibility of amassing unlimited wealth with practically no risk (which is not the case). By the way, let me know if you know one :))
 
Last edited:
Another weekend has arrived and I wish you all a good one.

This is finally the situation with ES:

upload_2022-3-26_0-16-8.png

ES FUT 20220617 GLOBEX 50 E-mini S&P 500 [ESM2, 477836957, mult: 50]

and the folio:

upload_2022-3-26_0-16-53.png


NQ seems impossible to close as all orders get rejected (receiving the message "The price does not conform to the minimum price variation for this contract" at any valid ask). I am not going to try a mkt order (all my orders are always lmt): will have to let IB close it at expiry.

Currently about $33.4K profit (53 days). Commission paid: $4865.83. Current position: 180.
 
ES has returned almost to the same level where we started almost 57 days ago:

upload_2022-3-29_1-10-13.png


The folio situation is as follows (36.6K profit and almost 4.9K commissions):

upload_2022-3-29_1-12-37.png


Finally, NQ closed too, but it was just a tremendous waste of time and margins.

We are fully "invested", but we have 3 layers expiring in 3 days. So no worries. As soon as they close, I will return to use half of the account size to have room for drawdown.

Example:

upload_2022-3-29_1-14-20.png


ES FOP 20220331 3600 P GLOBEX 50 E-mini S&P 500 [EWH2 P3600, 518635917, mult: 50]
 
ES has reached about 4631 and it is right now slightly declining:

upload_2022-3-30_21-1-52.png

ES FUT 20220617 GLOBEX 50 E-mini S&P 500 [ESM2, 477836957, mult: 50]

We do not have any funds left to enter a new position, unfortunately, but we have 3 layers expiring tomorrow. Then we will restart with some new layers.

upload_2022-3-30_21-3-6.png

entire folio

Currently up 34.5K (with almost 5K commissions), 58 days elapsed.

Info from IB:

Δ NetLiquidation 36131.12 USD
 
Now the option layers have expired, and the broker removed our position. So our margin requirements have dropped and we have funds to restart trading.

upload_2022-3-31_22-32-16.png


Clearly, we need to resync the position and this is done easily by inserting the "external fills" made by IB (the platform allows that).

Folio situation (35.3K):

upload_2022-3-31_22-43-42.png


Now we need to decide what new option layers we wish to create and start scalping/hedging.

The current situation of ES:

upload_2022-3-31_22-35-9.png


Profit according to IB (you can see when they actually close that the profit was overestimated, while G-Bot always computes it accurately, including all closing expenses):

Δ NetLiquidation 35654.56 USD
 
End of another week, We have been trading for 60 days now.

Today I have added 2 more layers:
ES FOP 20220520 2700 P GLOBEX 50 E-mini S&P 500 [EW3K2 P2700, 495662508, mult: 50]
ES FOP 20220531 2700 P GLOBEX 50 E-mini S&P 500 [EWK2 P2700, 530344310, mult: 50]

and only the first one has opened a new position so far:

upload_2022-4-1_23-15-18.png


ES is more or less at the same level of yesterday:

upload_2022-4-1_23-17-21.png


PNL from IB:
Δ NetLiquidation: 35914.99 USD

while the bot says: 35168.67, and 4968.07 in commissions.

Good weekend to all (and healthy fasting where it applies :-) )
 
Status
Not open for further replies.
Back
Top