I've got a lot of experience but bottom line is I'm not making money yet.
EOD prices are just fine for me at the moment. That's one snapshot per underlier per day but with 10-20 strikes and 3-4 maturities and some 5000 underliers, that's a lot of data to go through in backtests. And in a live scenario I'm anyways limited by Interactive's Brokers 100 simultaneous marketdata subscriptions (or up to 1000 of I pay for them), even with a round-robin rotation algorithm I can't cover that many quotes.
About the option pricing models, they aren't worth much... until they're worth a lot
Actually this looks like a good conversation to have, as we’re all working on similar problems. So let me explain why models seem worthless to me:
In terms of my own arbitrage, I had to keep placing 10,000 orders (maximum allowed by IB) on two accounts, just to observe which orders may get fills and at what prices. In such case models didn’t matter as I could use basic math (only sometimes basic BS) to validate that I’m not going to lose money, as arbitrage had to work somewhat similarly to buying debit spreads or butterflies at credit where you wouldn’t need any models. I’d use more precise model (still BS) only when taking some risk.
While the issue with any type of truly riskless arbitrage is that someone else instantly loses money, usually market makers, and they quickly analyze why/how they’re losing, and then plug leaks in their system. I was still able to catch some arbitraged deals last week, worth around $2k but that’s not much unless I could do this every day (and even then not scalable, unless possibly I'd gain an additional advantage by becoming an actual market maker). While I could observe how those leaks stopped couple days later.
But if you do something longer term that isn’t instantly profitable (and therefore likely not riskless arbitrage) then you have a chance of getting away with it.
Though even then, once someone loses money then they’ll adjust their models too. Also, if you do anything at scale then your own trades will affect options pricing, so if you buy some options and sell others then the ones you’ll start buying will quickly get more expensive, and vice-versa for the ones you’re selling. So the more you want to scale the more risk you’d need to take, while affecting your own and everyone else's models, and basically trade like everyone else.
However, I never understood how people may use various models. I saw some gigs where clients wanted to use different option/vol models to project future options prices, but I didn’t understand how that could work.
For example if I use an exotic model to predict that a combo should be priced $X at time A, then my model won’t really matter if everyone else will simply decide that the same combo should cost $Y at time A. Even just for kicks, if I imagine that the whole world will conspire and agree that from now on everyone uses a model that prices all options exactly $10 at time A. Then if at time A everything worked as planned, I may come in and say “hey, I’ve used a better model and this option is worth $20”. But everyone else will say “so what, our models say $10 and that’s how much it is, go play somewhere else.” This actually already happens as I see some people arguing how much their flys should be worth while nobody else cares because they’re worth whatever the market decides.
That’s why all models are worthless to me, except for the actual model used in the market. And I would even love to know what is the actual model used by the market at the current time and that’s difficult enough. I can’t even buy/sell too many combos with better than $0.05-$0.20 slippage, unless I place tons of actual orders and see what I can “catch”.
But I simply don't know if I'm not missing something by not looking into using various models.
Other than that I can consistently make money “arbitraging” volatility smile (not riskless), but margin requirements are too high to make much more than 5%-10% per year, while taking more risk than I’d like.
So just my conclusion would be to change focus from doing something too complex and trying to crack the market, while going back to basics. For example I heard quite a few times about pro traders making 20%-40% per year using iron condors like in the video I posted earlier. I haven’t focused on such basic strats yet, but it seems possible, maybe with some aid of TA. Have you considered that and would 30%/year be enough for you?
