Purely Mechanical Option Trading Part 2

<<< Would it make sense to go long on the top performing sector, and short on the worst performing sector? >>>


Isn't that just another way of saying "should I buy a stock AFTER it's already gone up,...and short a stock AFTER it's already gone down???
 
Quote from Put_Master:


Isn't that just another way of saying "should I buy a stock AFTER it's already gone up,...and short a stock AFTER it's already gone down???
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On a relative basis yea, but not necessarily on an absolute basis (i.e. all financials have a negative return but you're buying the least negative financial stock).

You're right in that it's buying 'strong' things and selling 'weak' things and is more momentum vs. mean reversion. m2c.
 
<<< You're right in that it's buying 'strong' things and selling 'weak' things and is more momentum vs. mean reversion. m2c. >>>

Buying stong things, after it's already gone up, means potentially buying something over valued.
Selling weak things, after it's already gone down, means potentially selling something after it's become reasonably valued.

If all you are doing is following a trend, AFTER the trend has already been in place, that is a very risky strategy.
It signals that you have no idea what you are doing, but just want to be part of the herd, because you assume others know what they are doing.
In reality, all you know is, that they are doing it before you.

If you are merely following the crowd, you will generally be buying near the top and selling near the bottom, as you bounce from "story" to "story".
I just don't see how that can end well over time.
Investing is about price selection. Not story selection.
 
Quote from Put_Master:


It signals that you have no idea what you are doing, but just want to be part of the herd
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Thanks for pointing out the obvious, in case others couldn't tell. Do you have anything else to offer?

This may be for another thread, but for instance, Can we make a reasonable prediction, as to which sector/sectors may be on the move in the months to come. Christmas is coming up. Can we make any predictions about retail, or fast food sales?

My guess is companies like Visa and Mastercard should continue to do ok, as they make money every time a card is swiped, and I can't imagine inventory being much of a burden. If my prediction is correct, Is there a sector ETF within the financials, that separates the card companies from the savings and loan companies?

Now that the election is over, where will investors be looking to gain in the months/years to come?

Where will investors be likely to pull out?

Any thoughts?

Thanks-
bradson
 
Quote from jeffalvinson:

October 2012 Completed:

Updated October trades:

10-02-12
SPY OCT 146 Puts
Buy Limit = 2.05
Sell Limit = 2.56 (+25%)
Stop = 1.41
Closed trade on 10/2/2012: +25%
--------------------------------------------------------------------------------
10-03-12
SPY OCT 144 Call
Buy Limit = 1.74
Sell Limit = 2.24 (+28%)
Stop = 1.21
Closed Trade on 10/3/2012: +28%
----------------------------------------------------------------------------------
10-05-12
SPY OCT 148 Put
Buy Limit = 1.80
Sell Limit = 1.80 (0%)
Stop = 1.08
Closed trade on 10/5/2012: 0%
----------------------------------------------------------------------------------
10/9/2012
SPY NOV 146 CALL
BUY LIMIT = 2.05
SELL LIMIT = 2.70
STOP = 1.40 (-32%)
Closed trade on 10/10/2012: -32%
---------------------------------------------------------------------------------
10-10-12
SPY NOV 145 CALL
BUY LIMIT: 1.78
SELL LIMIT: 2.90 (+62%)
STOP: 1.07
Closed trade on 10/17/2012: +62%
----------------------------------------------------------------------------------
10-11-12
SPY NOV 144 CALL
BUY LIMIT: 1.98
SELL LIMIT: 3.60 (+81%)
STOP: 1.35
Closed trade on 10/17/2012: +81%
---------------------------------------------------------------------------------
10-18-12
SPY NOV146 PUT
Buy Limit: 2.06
Sell Limit: changed from 2.68 to 2.58 (+25%)
Stop: 1.24
Closed trade on 10/19/2012: +25%
---------------------------------------------------------------------------------
10-22-12
SPY 143 Nov Calls
Buy Limit: 2.05
Sell Limit: 2.70
Stop: 1.40 (-32%)
Closed trade on 10-24-2012: -32%
--------------------------------------------------------------------------------
10-31-12
SPY NOV 142 Puts
Buy Limit: 1.95
Sell Limit: 2.45 (+25%)
Stop: 1.17
Closed trade on 10-31-2012: +25%
--------------------------------------------------------------------------------
Summary:
6 wins at +246% option gains
2 losers at -64% option losses
1 breakeven 0%
+182% option gains
net account gain: +17.7% (10% invested per trade)
Win/Loss: 75%


Note to self:
Best month on record for this system.



Jeff
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new to the forum... awesome trades - will take a look more closely and figure out how you do it ;)

Thanks,
Steve
 
Bracket order just filled:
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: 1.35
New Sell Limit: 1.95 (44% + 5%)
Stop: 1.20 (-35% + -11%)
Highest potential win: +49% with B1 & B2 fills
Highest potential loss: -46% if both buys fill and stop
 
Quote from jeffalvinson:

Put trend is getting old and tired, I can't believe the trading program spit out another put trade.
This is a late day fill.

Bracket order placed:

SPY NOV 143 puts
Buy Limit: 1.85 (filled)
Sell Limit: 2.40
Stop: 1.30



Jeff
More...

his one is a looser.....................hahahaha
 
November 2012 mid-month trade update:

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).
---------------------------------------------------------------------------------
November 2012 to date:
1 win / 2 breakevens
---------------------------------------------------------------------------------

"A word about option trade 2nd Buys" (buying down...averaging down...etc...)

Interesting data for those considering buying down an option trade that is going south.
2nd Buy Statistics for my last 100 trades:
20 trades out of 100 needed a 2nd Buy to bail it out of trouble. That's 20% requiring buy down help.
Of those 20 trades that needed Buy No. 2 help, 13 (65%) of those trades won, 7 (35%) lost.
How does that actually effect the overall performance for the 100 trades?
For myself, 2nd buys improve overall account gain by roughly 40% over the course of a year.

Some of the trade outputs from my program automatically have 2 Buys (Buy No. 1 / Buy No. 2) and this
usually indicates weakness in that trade direction.
But some program trade outputs only have 1 Buy. However my trading program mandates a 2nd buy if a
new confirming signal in the same direction occurs while holding an older trade in that same direction.


Note to self: So far, this is a "tough month" for the trading system. Thank goodness for 2nd Buys or I would
be sitting on 2 Losers & 1 Breakeven.



Jeff
 
Quote from jeffalvinson:

Bracket order just filled:
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: 1.35
New Sell Limit: 1.95 (44% + 5%)
Stop: 1.20 (-35% + -11%)
Highest potential win: +49% with B1 & B2 fills
Highest potential loss: -46% if both buys fill and stop
More...

Great thread!

Would it be possible to let us know the ATM strike or at what current price each time when entering blanket orders? Thanks!
 
hmmm...

11-02-12
SPY DEC 145 Calls
Buy Limit: 1.85 (filled)
Sell Limit: 2.40
Stop: 1.30

This one went below the stop.

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:

We believe you !
 
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