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Purely Mechanical Option Trading
- Thread starter jeffalvinson
- Start date
No one said anything about the Stone Age. The volume in the OEX options has been dropping for a decade and the reason is well known. The plethora of new products that compete with the OEX are geared more to the retail trader. Since the OEX is a single listed option and its an American style cash settled index there is additional risk of early exercise for the holder of short options. If assigned on an OEX option early over night you have significant delta risk over night and users of the product have migrated to other products. Its well documented and written about endlessly. The SPY is a much much smaller contract and it settles into the SPY ETF which makes it more user friendly.
Puts and calls by themselves have NO trend simply because their price ( and fair value ) is calculated from other variables. Those other variables which I have listed several times on this thread themselves have trends.
Thanks for the offer but I will have to decline on your calls.
On the other hand I you have stated that you will post those market calls in near real time, that would do wonders for the merits of your system.
Puts and calls by themselves have NO trend simply because their price ( and fair value ) is calculated from other variables. Those other variables which I have listed several times on this thread themselves have trends.
Thanks for the offer but I will have to decline on your calls.
On the other hand I you have stated that you will post those market calls in near real time, that would do wonders for the merits of your system.
Quote from dipper17:
So coming off a fall from the 635 area in the OEX down to the 612 area and then having a single small up day where many of the OEX calls actually fell in value that day your system says to buy OEX calls, and you didnt tell us till after the OEX was up over 8 bucks?
This thread hasn't been a discussion about OEX options.
Its been about a programmed mathematical mechanical trade system that is currently trading SPY options in 2008 (as well as the latter part of 2007).
Since I believe OEX options are unfairly priced and manipulated, why would I display the system's output result for OEX options?
Ok,
if anyone wants the program ouput decision for OEX option data, let me know and I will P.M. it to you in advance each evening before the next trade day.
I will warn you that a -25% to -30% stop can be blown in minutes on an OEX trade, where as the same trade with SPY options will usually not trigger the stop and go on to win 75% of the time.
Quote from jeffalvinson:
Atticus,
Your right, don't buy puts should have outputted =buy calls
from the system programs, but it didn't because it didn't see any call trend with SPY option data inputted.
When I inputted OEX option data, there was a call signal to trade OEX call options. However, I haven't traded OEX options since last year and this thread has been about SPY option trades.
A put trend is basically derived from a series of mathematical algorithms and formulas that are programmed to look at trends (up,down, none) in option data.
Wow, you're really off-base. I don't know where to begin. You remind me of the guy who scoured the volume data. He'd find OI jumping in an issue and trade direction based-upon the volume data and the short-term trend. The problem being that the volume was related to large-volume financing arbs; conversions-reversals, boxes and rolls. His wins were attributed to the volume, which if course was erroneous. He blew-out as a member on long-vol in First Chicago ops. He sells audiophile-gear now.
Quote from atticus:
Unfair pricing and manipulation. I thought it was clear when I quoted you.
Your asking a person who hasn't traded OEX options since last summer to remember examples?
I am an older person and can hardly remember my address each day.
But here's what I remember when I was trading the OEX daily for several years (based on roughly 800-1000 actual OEX option trades):
[1] Bid/ask spread and MM's chasing stops:
Example No. 1
Buy an OEX option for 2.50 with a bid of 2.00 and ask of 2.60.
Your immediate problem is, your underwater -20% right out of the starting gate!
If you place a reasonable -25% stop at 1.90 the live trade station almost always drops the bid to 1.90 immediately and triggers the stop.
Even CBOE market maker Jon Narjarian said they are not suppose to go after your stops like that, but some of them do it regularly.
[2] MM's have manual control that overrides any reasonable
programmed movement in the options delta with respect to the movement in the underlying. (my Midwest friend the former CBOE market maker told me that). (Some of this is lack of volume in my opinion):
Example No. 2
You bought an option for 2.50 and the OEX index then moves several points (5 to 8 points) in your trade direction, but the bid remains deadpan at 2.00.
Is that manual manipulation? or lack of volume?
I believe both.
Quote from jeffalvinson:
Your asking a person who hasn't traded OEX options since last summer to remember examples?
I am an older person and can hardly remember my address each day.
But here's what I remember when I was trading the OEX daily for several years (based on roughly 800-1000 actual OEX option trades):
[1] Bid/ask spread and MM's chasing stops:
Example No. 1
Buy an OEX option for 2.50 with a bid of 2.00 and ask of 2.60.
Your immediate problem is, your underwater -20% right out of the starting gate!
If you place a reasonable -25% stop at 1.90 the live trade station almost always drops the bid to 1.90 immediately and triggers the stop.
Even CBOE market maker Jon Narjarian said they are not suppose to go after your stops like that, but some of them do it regularly.
[2] MM's have manual control that overrides any reasonable
programmed movement in the options delta with respect to the movement in the underlying. (my Midwest friend the former CBOE market maker told me that). (Some of this is lack of volume in my opinion):
Example No. 2
You bought an option for 2.50 and the OEX index then moves several points (5 to 8 points) in your trade direction, but the bid remains deadpan at 2.00.
Is that manual manipulation? or lack of volume?
I believe both.
Just going to chime in here...
In case 1 you site, The offer would have to drop to 1.90 and then the stop would be triggered by hitting the next bid. If the offer dropped to 1.90, then they filled you and then they took the market back to where it was before that would be a violation and easily busted. If the OEX index had not moved they could not do it.
On the second case if the index moved 5 to 8 dollars there is almost not way for the bid to remian unchanged becasue there is a maximum width they can make the spread. If the bid didnt move the offer could only be so high and then the mm's would have to sell under theoretical value and lose money.
Najarian would never make a public statement like that.
Interesting thread going here thank you. I posted yesterday I am in the camp where the options value is priced like most of the world believes