Purely Mechanical Option Trading

Well Atti,

As you can imagine I dont agree at all with his premis. I am firmly in the camp with virtually all of the rest of the world who says options are priced off the underlying et al, and dont have a life of their own, so to speak. On the other hand he has made two real time calls where his entry points were the extreme low print of the day in those series. If he can really do that consistantly he deserves credit.
 
Quote from xflat2186:

If he can really do that consistently he deserves credit.
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Absolutely. I am of the opinion that any relevance to OI is purely coincidental.
 
Thank all of you who are interested in this thread,
and for those highly critical and don't see the purpose, its Ok, I can respect that.

My purpose here:
1: is to show its possible to trade a system that doesn't use charts, market fundamentals or new events.
2: to show its possible to determine the next day or two's
market direction using the price data of calls and puts the evening before a trade with mathematics and computer programmed formula's.
3: To enter and exit trades mechanically using semi-automated bracket and OCA orders.

I of course wish that trade signals had a more frequent fill rate (roughly 6 to 12 filled trades per month); that would make the thread more interesting and benefit my account, but that is primarily a product of each month's volatility:
Higher volatility = higher fill rate.
Sharp whipsaws in a month = decent fill rate.
Steadily declining volatility in a month (like April) = low fill rate.

If volatility continues to decline month after month, I will probably end up having to make an adjustment to this system. So far in 2008, I haven't monkeyed with anything.
 
Quote from jeffalvinson:

2: to show its possible to determine the next day or two's
market direction using the price data of calls and puts the evening before a trade with mathematics and computer programmed formula's.
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I thought volume data was of primary importance? Now it is price data? I can certainly understand a system based upon movement in strips; long index on a drop in VIX, short on a VIX rally. I understand if you'd like to remain vague.
 
Quote from panzerman:

The problem is that so many people make claims, performance or otherwise, without providing any objective scientific evidence. No independently reviewed statistical data.

Of course, why should they? This is an anonymous board and if they did reveal a system with a true statistical edge, it would get arbed away very quickly. Believe none of what you hear, and half of what you read (or even less.)
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Jeff's calls are his proof, doesn't need to prove anything else.

Jeff is posting because he has (in his opinion) a great system and he is just busting to tell the world how happy he is.
I can relate to that, I would feel the same after 10 years of work and now beginning to pull in good coin as a result.
 
REVERSION TO MEAN. This has absolutely nothing to do with OI, P/C ratios or any related option volume. You've faded every large move. Let's at least be honest about what we're seeing here. Any criticism on this site is construed as jealousy or flaming. I am simply disputing Jeff's volume pretext. The volume BS is a smokescreen. Nobody wants to be the guy that simply fades the market.
 
Not to be a harsh skeptic but you started with talking about trends in options prices and now in your third trade ( the other two were very successful ) you've again entered on the dead low print of the day and your bet is the counter trend.

Lets see how it works! Good luck.
 
Quote from atticus:

REVERSION TO MEAN. This has absolutely nothing to do with OI, p/c ratios or any related option volume. You've faded every large move. Let's at least be honest about what we're seeing here. Any criticism on this site is construed as jealousy or flaming. I am simply disputing the context. The volume BS is a smokescreen. Nobody wants to be the guy that simply fades the market.
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Atticus,

I dont use O.I. (open interest), P/C ratios (put/call ratios), or option volume in this system. (I do however have a manual input adjustment for volatility which hasn't been changed yet in 2008.)
There is two parts of the equation in this system:
1: "Option price movement" trend formations that create signals
of various strengths and historic reliabilites ranging from 67% to 90%. There is three different programs generating these signals.
Two of the programs are singular in logic. The third program is all incompassing and makes the final trade decision.
For instance today's put signal was classified as: "Weak B" with a historic reliability of 73%.

2: "Programmed entry and exit" is the other part of the equation.
Entries are programmed internally based on signal type:
Strong A & B Signals:
A: Strong Signal and a new trend direction.
B: Strong but multiple same direction sequences have occurred.
Weak A & B Signals:
A: Weak Signal in a new trend direction.
B: Weak and multiple same direction sequences have occurred.
Today's signal is Weak B. That places it at the "highest risk level" which creates the largest programmed percentage off the closing price.
25% of these trades lose and since this signal is the weakest of the weak (Weak B), it stands the greatest chance of losing.

So Atticus you comment about reversion to mean is simply the computer programs doing there job.
 
Counter-trend. You mention option-trends, but you're buying weakness and selling strength. I stand corrected on the volume component. I don't see the logic of using the term "trend" in this context, nor does it seem logical to utilize a volatility derivative to determine counter-trend signals. Good luck.
 
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