Prompted by Overnight's OCD 
, let's recap why prefer FOPs over FUTs.
You will probably remember from other public illustrations (decades ago) that I started working with futures (and actually, whatever instrument I could put my hands on).
And trading futures with this scalping/hedging approach can be done quite similarly (possibly with specific adjustments depending on the traded instruments.) We have seen that so many times and the general outcome is often the same.
Generally, you make money on instruments where and when there is, say, a prevalence of "horizontal development of volatility", over "vertical" movement. In fact, we have also seen that the best instruments are commodities (CL, GC, NG, ...).
We have also seen that the common problem can be the extension and duration of drawdowns, which not everybody, and not every fund, can handle, due to the huge range of some of the instruments.
For various reasons, FOPs allow the resolution of most concerns. For my purposes, I like to think intuitively of the FOP mostly just as a "modified version" (dampened) of the underlying, that I can choose from a bi-dimensional matrix, where I can freely select the level of risk (e.g. selecting expiration, delta and vega, etc.) which I cannot easily modulate with FUTs (apart from manipulating the position) and where there is also a constant "force" pushing towards zero (imagining an infinite rollover and "information transfer"), which along with the continuous "stop-loss recovery" mechanism is essentially what imprints a positive drift to the PNL curve.
There are also several other aspects, like ease to modulate margin usage, by switching expiration and strikes, and the short duration of DD, which make the use of FOPs instead of FUTs much more viable for any investor.
btw, today we have touched a new record high: 253K, right now about 242K:
, let's recap why prefer FOPs over FUTs.You will probably remember from other public illustrations (decades ago) that I started working with futures (and actually, whatever instrument I could put my hands on).
And trading futures with this scalping/hedging approach can be done quite similarly (possibly with specific adjustments depending on the traded instruments.) We have seen that so many times and the general outcome is often the same.
Generally, you make money on instruments where and when there is, say, a prevalence of "horizontal development of volatility", over "vertical" movement. In fact, we have also seen that the best instruments are commodities (CL, GC, NG, ...).
We have also seen that the common problem can be the extension and duration of drawdowns, which not everybody, and not every fund, can handle, due to the huge range of some of the instruments.
For various reasons, FOPs allow the resolution of most concerns. For my purposes, I like to think intuitively of the FOP mostly just as a "modified version" (dampened) of the underlying, that I can choose from a bi-dimensional matrix, where I can freely select the level of risk (e.g. selecting expiration, delta and vega, etc.) which I cannot easily modulate with FUTs (apart from manipulating the position) and where there is also a constant "force" pushing towards zero (imagining an infinite rollover and "information transfer"), which along with the continuous "stop-loss recovery" mechanism is essentially what imprints a positive drift to the PNL curve.
There are also several other aspects, like ease to modulate margin usage, by switching expiration and strikes, and the short duration of DD, which make the use of FOPs
instead of FUTs much more viable for any investor.btw, today we have touched a new record high: 253K, right now about 242K:
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