Public call for developing a system

botpro,

I don't think you will find what you are looking for here not that folks are not willing to help but what you asked for is very complicated, not doable in my opinion. Also, firms spent years, a lifetime, billions, to find an edge but as soon as one is found, it will be copied and the edge goes away quickly.

My suggestion is since you claimed to be very skillful in programming, start like I did with BSM, it is very simple, though only a first order approximation does give you a sense of how things behave. After that you can go into more complex models and perhaps formulate your own strategy based on your own situation and objective.

I don't expect this site will find winning trades for you but for me it helps me understand a very complex topic.

Cheers.
 
botpro said:
Public call for developing a system

When selling options one gets a credit upfront.
The credit is the premium of the option.
But one can not say that the credit one got is a secure thing yet.
A secure thing it will be only after the expiration of the option
if the counterparty's buy option expires worthless.

Now, the interesting point is how to secure or hedge the credit
to always keep it fully or nearly fully regardless how the market moves.

Can there be such a system or hedging mechanism exist?
I think there should be a method available.
Let's collectively find a method or system to always earn the credit.

Let's take selling Call options for example.
More...
This has all the seduction of a perpetual motion machine and is just as unachievable. The question you really need to ask is if there is an entity out there that will perpetually buy options at a loss or the hedge at a loss so that the person with this system can lock in risk free profits. And a related question, are you able to find a holy grail system that 5,000 of the smartest people in the world are paid large sums of money to spend all day every day looking for can't?
There is alpha in the market but it's not in an obvious risk free hedging mechanism. It can be found in some pretty highly probabilistic relationships between securities, which is something you may well be mathematically equipped to uncover and programmatically equipped to exploit. It may be by market making, which again you may be programmatically equipped to exploit. These are the types of systems that don't yield 100% winning trades, they yield a small abnormal return that means over hundreds or thousands of trades you end up ahead. I'd focus my efforts in areas like that, not holy grails that are seductive but ultimately rabbit holes you'll waste your time chasing your tail with.
 
Botpro I have been asking myself that question ever since I began trading options over 24 years ago. I have created a system that does have some risk. 3% losers, 25% break even, 72% winners. Of the winners 58% are full winners 14% are partial winners. My losers approximately average 3 times one full winners. So every 100 trades look like this:
3 losers example $300 loss -$900
25 break even just pay commissions 0
14 partial winners example example $30 winners $420
58 max winners example $100 winners $5,800
This is using approximately $4,000 in capital per 1 lot making an average of 12 trades per year.
 
Thanks to everybody.
It seems I was hoping for too much from options selling with hedging.
Now I'm giving up both options selling and hedging.
It was an interesting new adventure, but practically IMO useless :(
Nevertheless I learnt something, like dynamic delta hedging, but I think it's not of much practical value.
I understand there cannot be any free lunch, not even with hedging :D
I go back to classical strategy&system design, that's my true field.
Ciao
 
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botpro,

I actually appreciate your posts. I did not agree with some of your positions but your posts kind of forced me to think very hard about the problems you posted and as a result obtained a much better understanding of options trading. I think that will make me a much better trader in the future.

What I found after 3 1/2 years trading options is that there is no free money laying around for us to pick up; if there is an edge, someone would have found it, especially trading mechanically (dynamic hedging) without judgement, and then the edge would disappear in no time; but I think there is money to be made if you don't follow the herd, i.e., if everyone tells me sell options can get extra returns, perhaps it is time I go buy options instead; if everyone says we should trade indices because it is liquid and lots of volume and we therefore can get a good price with thin spread, perhaps I should look hard at thinly traded options because high volume means I am competing with all the quants and pros and the chance of a small trader like me getting an upper hand is slim to none.....

Best wishes.
 
if you sell an option to get your credit, I was under the impression you could just buy to cover the next day and keep the credit. I asked something similar and the response I got was basically saying I can get out whenever I wanted.
 
Cyse said:
if you sell an option to get your credit, I was under the impression you could just buy to cover the next day and keep the credit. I asked something similar and the response I got was basically saying I can get out whenever I wanted.
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Sure you can close the position anytime, but then you have to give back the current market value of the credit.
This is similar to shorting a stock --> to close the position you have to buy it at current market price...
 
ironchef said:
botpro,

I actually appreciate your posts. I did not agree with some of your positions but your posts kind of forced me to think very hard about the problems you posted and as a result obtained a much better understanding of options trading. I think that will make me a much better trader in the future.

What I found after 3 1/2 years trading options is that there is no free money laying around for us to pick up; if there is an edge, someone would have found it, especially trading mechanically (dynamic hedging) without judgement, and then the edge would disappear in no time; but I think there is money to be made if you don't follow the herd, i.e., if everyone tells me sell options can get extra returns, perhaps it is time I go buy options instead; if everyone says we should trade indices because it is liquid and lots of volume and we therefore can get a good price with thin spread, perhaps I should look hard at thinly traded options because high volume means I am competing with all the quants and pros and the chance of a small trader like me getting an upper hand is slim to none.....

Best wishes.
More...
Thanks ironchef. It was just a short journey into options selling and hedging to extend my horizon.
But as said, in the end I came to the conclusion that options selling and hedging isn't for me.
I mean: it is IMO not worth the effort for such a retail guy like me. Simple spreads have hedging already built in, so IMO no need for the complicated delta-hedging stuff.
I'm back again to my long options, as these are IMO much easier and much more profitable.
 
botpro said:
Sure you can close the position anytime, but then you have to give back the current market value of the credit.
This is similar to shorting a stock --> to close the position you have to buy it at current market price...
More...

ooh, basically giving away your option premium. I get it. haha
 
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