Purely Mechanical Option Trading

J

jeffalvinson

Hi, my name is Jeff Alvinson and I have been trading options for 10 years.
Throughout those 10 years I have tried countless option advisories and newsletter, spending 10's of thousands of dollars. There was some success with a few of them, but all in all, I never found the kind of success that I was looking for.

My studies, research, testing and real trade experiences have lead me to a complex hybrid mathematical mechanical trading system I call the ^Triad^.
The ^Triad^ is comprised of 3 types of mathematical logic:
1: Simple Trending Logic.
2: Intuitive Logic.
3: Market Monitor Logic.
 
Quote from jeffalvinson:

Hi, my name is Jeff Alvinson and I have been trading options for 10 years.
Throughout those 10 years I have tried countless option advisories and newsletter, spending 10's of thousands of dollars. There was some success with a few of them, but all in all, I never found the kind of success that I was looking for.

My studies, research, testing and real trade experiences have lead me to a complex hybrid mathematical mechanical trading system I call the ^Triad^.
The ^Triad^ is comprised of 3 types of mathematical logic:
1: Simple Trending Logic.
2: Intuitive Logic.
3: Market Monitor Logic.
More...


Sorry about that,
for some reason the rest of my post didn't display, so please let me continue on and write it again:

The combined logic in this mathematical mechanical system is extremely complex and produces from 6 to 12 trade signals a month.
These signals are designed to be traded in a purely mechanical fashion.
Initially an automated bracket order (buy limit order, sell limit order & stop order) controls the trade on day 1.
If the buy limit order excecuted on day 1, but the sell limit or stop orders didn't execute, then on day 2, a "One Cancels All" order is used on day 2 for the sell limit order and stop order.
If no executions on day 2 (rare), I sell at the day 3 open.

With this trading method, once the Bracket or OCA orders are placed, the "individual trader is out of the picture" and "eliminated from screwing up" the trade.
Go play golf....mow the lawn....clean the grease off the driveway...."anything but sitting and watching the damn trade!"

After 9 years, I finally got this particular system working decently in the late summer of 2007.

I will post my trades on this thread within a minute or two after my entry is filled and I will also post the results as each trade concludes.

My reason for this thread is to show beginning option traders a purely mechanical option trading system with semi-automated executions can produce steady account gain.
I hope it continues to work as it has the past several months.

Jeff
 
Quote from jeffalvinson:


The ^Triad^ is comprised of 3 types of mathematical logic:
1: Simple Trending Logic.
2: Intuitive Logic.
3: Market Monitor Logic.
More...

What do any of those have to do with actual math?

You sound like you’re implying that you’ve figured out some mathematical edge in the market. Then you list trends, intuition and monitoring in the context of math which really has nothing to do with the three.

What delta and time frame options do you generally trade? Sounds like you only buy options to leverage your directional speculations too. That being the case you’re trying to time the market and pick direction, history is not on your side.
 
Quote from xflat2186:

What do any of those have to do with actual math?

You sound like you’re implying that you’ve figured out some mathematical edge in the market. Then you list trends, intuition and monitoring in the context of math which really has nothing to do with the three.

What delta and time frame options do you generally trade? Sounds like you only buy options to leverage your directional speculations too. That being the case you’re trying to time the market and pick direction, history is not on your side.
More...


Its a 100% mathematical based system.
Each evening I record the open, high, low and close of specific SPY call and put options.
I then plug this data into a 3 completely different computer programs.
The Trending program is a math formula than looks for numeric
trend changes (or trend continuous) in the data. It simply outputs there is a call trend, or a put trend.
The Intuitive program is a formula looking for numeric "changes" in the data sums with respect to decades of historic comparitors
with the ultimate intent of outputting a reversal, or confirming the current trend.
The Market Monitor program is a formula looking at the overall "Big Picture" of the data. It compares short term (3 day) trend changes in the data sums with long term (9 day) trend changes in the data sums. It then confirms either the Trending program's output or the Intuitive's program's output, or it confirms both for bi-directional trades, or it blocks both.

Its that simply and it only took 9 years (30,000 hours) to develop.

I buys calls or puts (or both) using SPY options.
The options can be ATM or slightly OTM depending on remaining time before expiration and volatility.
30% profit goal. -25% stop. 2 day time limit.
Prior to July 2007, The system used OEX options.
Since switching to SPY options in July 2007, the success ratio has more than doubled.
 
Quote from jeffalvinson:

I then plug this data into a 3 completely different computer programs.

Its that simply and it only took 9 years (30,000 hours) to develop.

Prior to July 2007, The system used OEX options.
Since switching to SPY options in July 2007, the success ratio has more than doubled.
More...

hey, thanks for posting this.

did you code all 3 programs? or are these purchased programs you have tweaked for your system?

why do you think SPY is working better than OEX?

can you give us the abridged version of your 30,000 hour journey?
 
Quote from driverdave:

hey, thanks for posting this.

did you code all 3 programs? or are these purchased programs you have tweaked for your system?

why do you think SPY is working better than OEX?

can you give us the abridged version of your 30,000 hour journey?
More...


I had a systems architect create the programs and code.
I feed him the information, data and logic and he would program it a step at a time.
Then I would critique each step until it worked and we would move on.
After refinements, enhancements, upgrades and updates it took him 2 years.
His fee was the complete knowledge of all the systems.


The reason SPY options are working better than OEX options is simple.
[1] bid to ask spreads:
.01 to .05 penny bid to ask SPY spreads versus .50 to 1.00 OEX spreads.
[2] Cost and Fair Value:
You can usually buy At the Money (or near) with SPY options
in the $200-$300 range.
ATM (or near) OEX options are in $900-$1700.
[3] Manipulation:
SPY options move in a linear fashion with respect to the S&P500. Roughly every favorable 5 point move in the SPX creates a 10%
profit on an ATM or slightly OTM SPY option.
With an SPX average daily range of 15-20 points, you can see why a 30% profit goal is achieveable.
OEX options sometimes barely move at all even when the market is screaming in your direction.
OEX options are not electronic and usually have low volume and that explains most of the problems with them.
SPY options are electonically filled and have high volume and that explains why they work.

Abridged version of a 9 year journey:
Bought a bunch of trading systems.
None of them worked that well.
Begun enhancing and tweaking each system's logic with hundreds of hours of testing and trading per system. Some improvement.
Begun integrating systems with each other with thousands of
hours of testing and trading. Even better.
Begun creating enhanced Hybrids of the original systems and tested numerous integrated combinations over several years of testing and trading 10's of thousands of hours. Yahtzee!
 
Is there any reason you would not use your systems on options on the ES (the SP500 mini futures)? (You could get greater leverage).

Richard
 
<i>"With an SPX average daily range of 15-20 points, you can see why a 30% profit goal is achieveable.
OEX options sometimes barely move at all even when the market is screaming in your direction.
OEX options are not electronic and usually have low volume and that explains most of the problems with them.
SPY options are electonically filled and have high volume and that explains why they work."</i>

OEX and SPX options seemed to plummet in popularity when QQQ options were rising and also the surge in eminis back in early 2000 ~ 2002. SPY options were another huge boon to retail traders, sucked the life out of big index options and their wide spreads.

Have you tested your systems on QQQQ options? I would imagine you have, just curious about results.

SPY and Q options are both excellent trading vehicles for the reasons you noted. It looks like you should expect to enjoy same relative success going forward as you have in the recent past.
 
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