With 21-thousand posts, you're expecting him to be selective?
Low risk trading
- Thread starter the learner
- Start date
With 21-thousand posts, you're expecting him to be selective?
They do say it’s 4:1 (reward:risk), at current volatility. It will change with volatility changes. It may also reflect the odds of the market, because it’s a bearish trade on a major index that may be bullish most of the time.
They seem to treat this as bullish play and that's reflected in the higher profit area and closer break even point on the upside.
Here is specifically what they say:
“We have a max risk that is expected to be 250 EUR while our goal is a profit of 1,000 EUR if the markets declines as the models anticipate.”
(their max profit is when the market declines)
and:
“our current estimated max loss is about 250 EUR but should implied volatility drop 2 volatility points, say from 11% to 9%, that would add a loss of 166 EUR to what we expected. ”
(volatility declines in bullish market meaning their max risk/loss would increase in bullish market)
Lastly, their resulting/historical P&L chart shows that their strategies survive bear market the best but do not beat the bull market:
https://i2.wp.com/tradingmatex.com/wp-content/uploads/2021/07/SPY-4.png?w=828&ssl=1
(though the chart may be based on a mix of strategies)
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Yes sorry I was referring to the last strategy they show under the section "an example for the upside".
It's true that during a bullish market the strategy underperforms because they are not always fully invested but in risk-adjusted terms should be better.
But those results are based on trading SPY directly, not via this particular option strategy. So I guess the system gives the expected direction then one could use this option strategy to play the signal.
Don't mess. You haven't looked at scataphagos profile picture. That attack dog will eat you alive with 2 bites.
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Yes, that's just no longer the diagonal or diagonal backspread they initially proposed. Later they started selling calls and puts against their original strategy, and even selling some futures.
This makes this strategy no longer systematic and difficult to manage or reproduce.
But I agree that the approach isn't bad and can simply add to someone's library of strategies.
It may do better with some type of bullish/bearish signals, which they also specifically mention twice. So the main risk may be in those signals, because with the right signals everyone can make money. Their advantage may be aiming for a decent reward/risk.
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Really. I have not seen any statistical analysis that says that there exist a positive Alpha in entering long position on price touch of support level.
Matt_ORATS
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You can recreate this spread in FEZ in our Wheel online product.
If the strikes were about -1 call at 95.7% of euro stoxx and + 2 calls x 101.8% of the stock price that translates to about the 45/48 FEZ call backspread diagonal.
The $45 strike IV is 21.3% and has a 84 delta
$48 IV is 14.8% and 39 delta
The spread is short 6 delta.
In our Chain you can simulate the trade and get a payoff diagram. Since this has a calendar aspect, we value the terminal value as the Aug 20 date. At that point, the Sep 17 residual value of the calls are valued at their volatility and added to the terminal value of the expired Aug call giving the payoff below.
Detailing the value at the current stock price and the worst case for the spread at $48:
So the trade gets a credit of $110 and the trade break evens are $46.70 -1% and $49.1 +4.1% and max loss is stock at $48 or -$32.
We analyze the valuation from a few perspectives:
The trade benefits from a steep put-call skew, now in the 95th percentile.
The data API Monies endpoint shows the IV surface by delta and expiration.
The trade looks good from a payoff perspective, but the euro stoxx tends to stay within the range of stock price where the trade does not work, at least looking at the historical distribution.
If the strikes were about -1 call at 95.7% of euro stoxx and + 2 calls x 101.8% of the stock price that translates to about the 45/48 FEZ call backspread diagonal.
The $45 strike IV is 21.3% and has a 84 delta
$48 IV is 14.8% and 39 delta
The spread is short 6 delta.
In our Chain you can simulate the trade and get a payoff diagram. Since this has a calendar aspect, we value the terminal value as the Aug 20 date. At that point, the Sep 17 residual value of the calls are valued at their volatility and added to the terminal value of the expired Aug call giving the payoff below.
Detailing the value at the current stock price and the worst case for the spread at $48:
So the trade gets a credit of $110 and the trade break evens are $46.70 -1% and $49.1 +4.1% and max loss is stock at $48 or -$32.
We analyze the valuation from a few perspectives:
- Distribution % based on historical stock price movements times the terminal value at the shorter expiration give a valuation about equal to the price.
- Forecast % based on historical volatility and skew give a value of -12.3% against.
The trade benefits from a steep put-call skew, now in the 95th percentile.
The data API Monies endpoint shows the IV surface by delta and expiration.
The trade looks good from a payoff perspective, but the euro stoxx tends to stay within the range of stock price where the trade does not work, at least looking at the historical distribution.