Purely Mechanical Option Trading Part 2

Quote from OddTrader:

As you may occassionally have to hold an overnight position with both 1stBuy and 2ndBuy already fillled, however any overnight gap on the options prices and therefore the maximum risk/loss could be still beyond your control in reality.

That means, I would guess, go-fishing during day time is OK, but go-fishing (or sleeping peacefully) overnight for the 2ndBuy-mode positions can be risky!!!

Even all the 1stBuy-Only-mode (without any 2ndBuy) positions would also have the same issue.

A profitability relying too much on stop-loss or 2ndBuy is a kind of (over-)optimisation, not necessarily viable in long run, imo.

Just 2 cents!

UQ
More...

Oddtrader,

Your right! A mini-me size Black Swan (or the real thing} could occur at anytime while holding.
The fact is, the "mini-me size bird" actually occurs about once a year. It usually costs me roughly a -60% to -65% stop instead of the standard -30 to -40% stop, about once a year.
The "Big Event" has only hit once or twice per decade with a total wipe out (or near total wipe-out) of the open position.
But in the overall picture of things in a year's trading, it really a
non-factor to me. Usually (except on very rare occassions),
I only have 10% of my total account out there at one time.
If I loss 10% of my account, I just lost the average monthly profit for one month. So that means I had one net-zero month in a years trading (average 90-100 trades).
I don't like it but I look at it like part of the cost of doing business,
like in a produce market when they loss power for 24 hours (spoilage).


Jeff
 
Quote from jeffalvinson:

Oddtrader,

Your right! A mini-me size Black Swan (or the real thing} could occur at anytime while holding.
The fact is, the "mini-me size bird" actually occurs about once a year. It usually costs me roughly a -60% to -65% stop instead of the standard -30 to -40% stop, about once a year.
The "Big Event" has only hit once or twice per decade with a total wipe out (or near total wipe-out) of the open position.
But in the overall picture of things in a year's trading, it really a
non-factor to me. Usually (except on very rare occassions),
I only have 10% of my total account out there at one time.
If I loss 10% of my account, I just lost the average monthly profit for one month. So that means I had one net-zero month in a years trading (average 90-100 trades).
I don't like it but I look at it like part of the cost of doing business,
like in a produce market when they loss power for 24 hours (spoilage).


Jeff
More...

the max loss could be -20% (-10% for 1stBuy plus -10% for 2ndBuy), isn't it?
 
Quote from OddTrader:

the max loss could be -20% (-10% for 1stBuy plus -10% for 2ndBuy), isn't it?
More...

Yes and No (but mostly no). Here are the Yes or No sig. types:

No:
Most program trade output codes tell me up front if there is a
Buy 1 / Buy 2 (B1/B2).
On these type I only commit about 6% of my account to B1 and 4% of my account to B2 (same number of contracts but B2 is a lot cheaper).
Note 1: If I know I can't be around to watch for B2, I will sometimes create a one buy trade on these type by placing a bracket order using the "average cost of B1/B2" as a single Buy Limit / Sell Limit / Stop bracket order. Sometimes this works and sometimes I end up missing a winning trade because I didn't use B1.
Those single Mid-Buy entries only fill 50% of the time.
---------------------------------------------------------------------------------
No:
Some program output codes only have one buy and do not want a second buy to occur, usually due to an element of risk or uncertainty in the signal type and direction.

Yes:
There is a few exceptions where a trade starts out with only B1 but the signal type doesn't indicate unusual risk or uncertainty in the signal direction. Then, if a new confirming signal occurs while holding the older same direction trade, a B2 is justified.
Even in this situation I am hanging out there with about 17% of
my account because B2 has the same number of contracts as B1 but is roughly 30% cheaper.
----------------------------------------------------------------------------------
The last situation of 17% of my account out there overnight occurs about 10-12 times a year (out of a 90-100 trade year).
Usually one (rarely two) ugly gap down openings a year usually occur below my stop.
Again for me, I am not happy when it happens but I know after I look at a year's worth of trading (the big picture), it all works out fine.

Jeff
 
Opened new trade:
SPY Dec 141 Calls
Buy No. 1: 1.79 (filled)
Sell Limit: 2.29 (28%)
Buy No. 2: 1.43 (not filled)
Sell Limit: 1.90 (33% + 6%)
Stop: 1.25 (-30% + - 13%)
Maximum Potential Profit: 39%
Maximum Potential Loss: -43%

Note: The trading program's VIX input has hit the Low VIX Range
of 15 or less.
This low vix range creates smaller output parameters resulting in
smaller profits and stops.
This skews the R/R from neutral to slightly negative, but the system can only take from the market what its willing to give.
 
Quote from jeffalvinson:

Opened new trade:
SPY Dec 141 Calls
Buy No. 1: 1.79/1.80 (filled)
Sell Limit: 2.29 (28%)
Buy No. 2: 1.43 (not filled)
Sell Limit: 1.90 (33% + 6%)
Stop: 1.25 (-30% + - 13%)
Maximum Potential Profit: 39%
Maximum Potential Loss: -43%


Note: I had a split fill on Buy 1, only a few at 1.79 and the rest at
1.80 using a market order.
When there is the potential for 2 buys (Buy 1 / Buy 2), I can't use a bracket order, so I sit and wait for the entry price and then click "market."

Jeff
More...
 
[ Trade No. 2 ]

SPY Dec 140 Puts
Buy No. 1: 2.00 (filled)
Sell Limit: 2.50 (+25%)
Buy No. 2: 1.60 (not filled)
Sell Limit: 2.15 ( +34% +7%)
Stop: 1.40 (-30% + -13% )
Maximum Profit Potential: +41%
Maximum Loss Potential: - 43%
 
Update thru November 28, 2012:

11-01-12
SPY NOV 143 puts
Buy Limit: 1.85 (filled)
Sell Limit: 2.40
Stop: 1.30
This trade was closed at breakeven (1.85) on 11-02-12.
------------------------------------------------------------------
11-02-12
SPY DEC 145 Calls
Buy Limit: 1.85 (filled)
Sell Limit: 2.40
Stop: 1.30
A new confirming call signal on 11-05 mandated a second buy
on the 11-02-12 call trade and new trade parameters to accommodate Buy 2:
SPY DEC 145 Calls
Buy 1: 1.85 (filled)
Buy 2: 1.35 (filled)
Sell Limit: 1.95 (+44% + +5%)
Stop: 1.20
This trade closed at 1.95 on 11-06-12: +49%
-------------------------------------------------------------------
11-08-12
SPY DEC 141 Calls
Buy Limit: 1.85 (filled)
Sell Limit: 2.59 (+40%)
Stop: 1.20 (-35%)
if tanks before hitting profit,
Buy Limit No. 2: 1.26 (filled lower than 1.35 due to option gap down opening)
New Sell Limit: 1.85 (44%)
Stop: 1.20 (-35% + -11%)
This position was sold on time limit today (11-13-12) at
breakeven 1.56 (B1=1.85 + B2=1.26 = 3.11 divide by 2 = 1.56).
---------------------------------------------------------------------------------
11-16-12
SPY DEC 137 Calls ( in at SPY at 135.18)
Buy No. 1: 1.80 (filled)
Sell Limit: 2.35 (30%)
Buy No. 2: 1.35 (didn't fill)
Sell Limit: 1.95 (44% + 8%)
Stop: 1.15 (- 36% + -15%)
This trade sold within a few hours at the 2.35 (30%) sell limit.
(out at SPY at 136.55, roughly a 12-13 point SPX move)
----------------------------------------------------------------------------------
11-26-12
SPY Dec 141 Calls
Buy No. 1: 1.70 (filled)
Sell Limit: 2.25 (32%) (Sold at 1.65 -3% on 11-26-12)
Buy No. 2: 1.30 (not filled)
Sell Limit: 1.82 (40% + 7%)
Stop: 1.15 (-32% + - 12%)
I missed seeing a call warning indicator in the trading program,
so I sold this trade at 1.65 (-3%) the same day.
---------------------------------------------------------------------------------
11-27-12
SPY Dec 141 Calls
Buy No. 1: 1.79 (filled)
Sell Limit: 2.29 (28%)
Buy No. 2: 1.30 (filled lower than planned due to gap down open)
Sell Limit: 1.90 (33% + 6%)
Stop: 1.25 (-30% + - 4%) Stopped!
Trade stopped out on 11-28-12 at 1.25: -34% Loss
-----------------------------------------------------------------------------------
11-27-12 09:30 AM
SPY Dec 140 Puts
Buy No. 1: 2.00 (filled)
Sell Limit: 2.50 (+25%)
Buy No. 2: 1.60 (not filled)
Sell Limit: 2.15 ( +34% +7%)
Stop: 1.40 (-30% + -13% )
Sold put trade simultaneously as the 11-27-12 call trade stopped out on 11-28-12: 2.84 (+42%)
----------------------------------------------------------------------------------
November 2012 to date:
11/1/2012 put trade: breakeven
11/2/2012 call trade: +49%
11/8/2012 call trade: breakeven
11/16/2012 call trade: +30%
11/26/2012 call trade: -3%
11/27/2012 call trade: -34%
11/27/2012 put trade: +42%
Option gains for Nov 2012: +84%
3 winners
2 losers
2 breakeven
(W/L: 60%)
Net Account gain for Nov-2012: +5.8%
---------------------------------------------------------------------------------

Note to self: This has been a difficult month for the trading program. Its ironic that this very weak month follows one of the best months ever (Oct-2012).


Jeff
 
I use to wonder why one month trading is so good and the next month its not so good.
The answer I came up with through the years, is something I truly believe in. Its simple, here it is:
Open the attached 2 month chart of the VIX (Volatility Index).
Notice that in October 2012 the VIX was constantly rising.
Notice that in November 2012 the VIX is constantly falling.
Conclusion:
For my style of unbiased trading in both directions,
1: Rising VIX creates adequate whipsaws in both directions creating call and put profits in both directions.
2: Falling VIX doesn't have enough whipsaws in both directions,
making profits difficult for my style of trading.
Rising VIX = Good Month.
Falling VIX = Weak Month.

Note: This only relates to those unbiased traders trying to profit
in both directions using directional trade methods.

Jeff
 

Attachments

For the month of December I will be busy with Xmas shopping,
5 kids on vacation and the holiday festivities.
All trades will be "single buy only" trades controlled by automated
Bracket orders and OCA orders and I will be going out and about most of the time.
(December couldn't turn out any worse than this month, could it?)

Jeff
 
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