Long-scalping equity options against time decay and market drift

[fullautotrading]

Hi @fullautotrading, this strategy indeed looks promising.
I'm new here, I couldn't read all the postings yet.
Is there a posting with a chart that shows the development of the account? An equity curve or so. Or just the monthly raw data.
Ie. useful also for seeing the DDs etc.

Is this for options on futures?
Can it work also with options on (US) stocks/indexes/ETFs etc?

Thx

>this strategy indeed looks promising

Yes. It is not just promising. It works. At least, so far I could not find much better.

It is also easy to grasp conceptually and why it should work, as well as lend itself to a clear understanding of what are the situations which could give DD problems and therefore how to cope with them (accept the "risk" or invest in some "protection" structures too...).


> Is there a posting with a chart that shows the development of the account? An equity curve or so.

Sure, you can also get the full broker report if you wish. This is made for "public illustration" purposes and is fully transparent.

Further, if you have a suitable account and machine you can run it on your own and display progress here on Elite Trader (check details on my page). No problem.

PNL evolution:

Current folio (including rollovers):

File with all orders AllFills.zip (autogenerated by application, must use Excel to open it, any other program would not display it correctly, as far as I know).


>Is this for options on futures?

Yes. The instruments on which it can be practically applied are few. In practice only the most liquid ones. A form of "diversification" is obtained here through the options matrix and through the passage of time (and the consequent different shapes of the price trajectory).

(It could be applied to selected liquid commodities FOPs with some variations (both to the folio, and the scalping-hedging game, in case of very large accounts).


>Can it work also with options on (US) stocks/indexes/ETFs etc?

No. It would not be viable in practice.

 

[earth_imperator]

@fullautotrading, thank you, I'll need some time to go thru it.
So, I think I read in one of the postings that a PM account is required (which itself requires >= $100k).
Unfortunately I'm currently below these lower limits. :-(
But nevertheless very interesting.
I can only say: Beat It!

 

[fullautotrading]

@fullautotrading, thank you, I'll need some time to go thru it.
So, I think I read in one of the postings that a PM account is required (which itself requires >= $100k).
Unfortunately I'm currently below these lower limits. :-(
But nevertheless very interesting.
I can only say: Beat It!

Yes earth_imperator, unfortunately, undercapitalization is a common problem. These are big instruments and some "space" and margin to maneuver and ride corrections (and consequent DD) is needed.

It may be possible in some conditions to work with less capital, but it becomes increasingly difficult and time-consuming.

 

[earth_imperator]

I need to write a similar system for listed US equity options (ie. stocks, indexes and ETFs).
My plan is to use only Put options (short and long).
Do you think this can work with Puts only?

Btw in your file there is a column named Volatility. It has some very big values (like 12161). Is that the IV?

Above you said it works only with future options, but the title of your journal says "equity options" ("Long-scalping equity options against time decay and market drift").

Thx

Order string    PermID    Action    FilledSoFar    AvgFillPrice    PNLBeforeFill    IsManual    Commissions    Bid    Ask    TimePlaced    FirstFillTime    LastFillTime    Volume    Volatility    $peed    Sdx_Lt    Sdx_St    WasEnqueued    IsInjectedCT    IsInjectedT    WasPresubmitted
"SPX OPT 20220617 2650 P CBOE SELL 1 @ 16 LMT DAY
[Id: 639330, pId: 373877276, status: Filled, 1/1 @ 16]"    373877276    SELL    1    16    0    False    1.62135    16    16.4    Mon 31 Jan 2022 11:38:40:442 edt    Mon 31 Jan 2022 11:38:51:733 edt    Mon 31 Jan 2022 11:38:51:733 edt    0    301.1955767945    0    -42.5682111908    -22.394306089    False    False    False    False
"SPX OPT 20220617 2200 P CBOE SELL 3 @ 8.6 LMT DAY
[Id: 639331, pId: 373877277, status: Filled, 3/3 @ 8.6]"    373877277    SELL    3    8.6    0    False    4.86405    8.6    8.9    Mon 31 Jan 2022 11:38:52:137 edt    Mon 31 Jan 2022 11:39:03:110 edt    Mon 31 Jan 2022 11:39:03:110 edt    0    470.1625462266    0    -19.8236394539    -9.2082402581    False    False    False    False
"NQ FOP 20220429 9000 P GLOBEX 20 SELL 5 @ 16 LMT DAY
[Id: 639332, pId: 373877278, status: Filled, 5/5 @ 16.5]"    373877278    SELL    5    16.5    0    False    7.1    16    18.75    Mon 31 Jan 2022 11:40:01:418 edt    Mon 31 Jan 2022 11:40:02:001 edt    Mon 31 Jan 2022 11:40:02:001 edt    69    2756.9348990502    0    14.9144852132    -16.9357240722    False    False    False    False
"ES FOP 20220617 2650 P GLOBEX 50 SELL 10 @ 15.75 LMT DAY
[Id: 639333, pId: 373877279, status: Filled, 10/10 @ 15.75]"    373877279    SELL    10    15.75    0    False    14.2    15.75    16    Mon 31 Jan 2022 11:49:26:674 edt    Mon 31 Jan 2022 11:49:56:868 edt    Mon 31 Jan 2022 11:49:56:868 edt    0    343.3849573108    0    -77.0104878331    -41.8655097614    False    False    False    False
"SPX OPT 20220408 3500 P CBOE SELL 20 @ 1.7 LMT DAY
[Id: 639334, pId: 373877280, status: Filled, 20/20 @ 1.7]"    373877280    SELL    20    1.7    0    False    32.427    1.7    1.85    Mon 31 Jan 2022 11:51:20:134 edt    Mon 31 Jan 2022 11:51:30:546 edt    Mon 31 Jan 2022 11:51:30:546 edt    0    272.1950281625    0    -90.9923998374    -89.7894534079    False    False    False    False
"ES FOP 20220429 2900 P GLOBEX 50 SELL 10 @ 8.25 LMT DAY
[Id: 639335, pId: 373877281, status: Filled, 10/10 @ 8.25]"    373877281    SELL    10    8.25    0    False    14.2    8.25    8.5    Mon 31 Jan 2022 11:55:16:103 edt    Mon 31 Jan 2022 11:55:46:317 edt    Mon 31 Jan 2022 11:55:46:317 edt    236    361.6801969777    0    -100    -18.2320441989    False    False    False    False
"SPX OPT 20220617 2300 P CBOE SELL 5 @ 4.4 LMT DAY
[Id: 639522, pId: 373877468, status: Filled, 5/5 @ 4.4]"    373877468    SELL    5    4.4    0    False    8.10675    4.4    4.7    Mon 31 Jan 2022 12:40:59:086 edt    Mon 31 Jan 2022 12:41:19:883 edt    Mon 31 Jan 2022 12:41:19:883 edt    0    4390.8677874692    0    -50.6572813144    -1.4738607411    False    False    False    False
"NQ FOP 20220429 9000 P GLOBEX 20 SELL 5 @ 13.5 LMT DAY
[Id: 639523, pId: 373877469, status: Filled, 5/5 @ 13.5]"    373877469    SELL    5    13.5    285.8    False    7.1    13.5    13.5    Mon 31 Jan 2022 14:50:09:188 edt    Mon 31 Jan 2022 14:50:10:690 edt    Mon 31 Jan 2022 14:50:10:690 edt    70    1861.0501620871    0    -100    -100    False    False    False    False
"NQ FOP 20220429 9000 P GLOBEX 20 BUY 5 @ 18.5 LMT DAY
[Id: 639524, pId: 373877470, status: Filled, 5/5 @ 17.25]"    373877470    BUY    5    17.25    -478.4    False    7.1    14.75    17.25    Mon 31 Jan 2022 14:57:31:957 edt    Mon 31 Jan 2022 14:57:32:157 edt    Mon 31 Jan 2022 14:57:32:157 edt    70    1861.0501620871    0    4.2520751695    15.1633890285    False    False    False    False
...

 

[fullautotrading]

I need to write a similar system for listed US equity options (ie. stocks, indexes and ETFs).
My plan is to use only Put options (short and long).
Do you think this can work with Puts only?

Btw in your file there is a column named Volatility. It has some very big values (like 12161). Is that the IV?

Above you said it works only with future options, but the title of your journal says "equity options" ("Long-scalping equity options against time decay and market drift").

Thx

> Above you said it works only with future options, but the title of your journal

You are right. When I started the thread, I was still exploring also other instruments to apply the strategy and the scalping engine. In fact, I also tested SPX among the others, as you noted. So the title of the thread should probably be fixed at this point to reflect better what we have been actually doing so far.

I am using only ES now because it proved on the field to be the most suitable for the algorithmic scalping-hedging engine (spread, tick data rate, smoothness and continuity of the price curve and quotes, etc.). If one is trading manually, other instruments might be probably usable. Even though I doubt there is much point in choosing something different from ES, if highly correlated. At most, if one has a relatively small account, one might try with MES fops, but it's not going to be as good as ES (we have seen that).


>your file there is a column named Volatility ... Is that the IV?

Nope. The IV is reported below each screenshot along with the greeks, for example in the following screenshot it is 42.08%:

That is just the volatility of the instrument price trajectory.

>My plan is to use only Put options (short and long). Do you think this can work with Puts only?

Well, maybe you did not notice, but I am using only PUT options in this illustration.
So yes, it is generally the right choice in this case imho (well, unless you have an existing long position in the underlying to cover).

(For commodities, it might make sense to use both PUT and CALL options.)

 

[earth_imperator]

fullautotrading, thank you very much. I appreciate the valuable info you gave, as it shows me that I'm on the right track

 

[Overnight]

Hmm, Overnight can you elaborate a bit on what you are suggesting?

What I mean is that IV should increase a great deal leading up to and at the moment of the print, with follow-through. So expect rapid changes in options values.

 

[fullautotrading]

Ok, thanks Overnight. In that case, we might create a new "protective" spread before Wed and leave it in place this time. Possibly "closer" than last time.

Then, if there is a significant rise in volatility, we might also additionally short some "far away" (say "on the left" of the spread) options to repay further for the defensive spread expenses and ride the future volatility decline.

Excellent tip! Let me know your personal ideas on how to protect our gains and mitigate DD

 

[Overnight]

...

Excellent tip! Let me know your personal ideas on how to protect our gains and mitigate DD

Mitigate DD? Hell, that is your domain through your use of options! I have no clue. Look at it this way. In your toolbox, you have ways to mitigate DD during high volatility events. I am sure you have employed them before. Be sure to employ them through Friday.

 

[fullautotrading]

Mitigate DD? Hell, that is your domain through your use of options! I have no clue. Look at it this way. In your toolbox, you have ways to mitigate DD during high volatility events. I am sure you have employed them before. Be sure to employ them through Friday.

lol, sure will do and discuss here the details