Quick Trade - Options Buying Methodology

[stevegee58]

I would only consider buying an option in a low IV environment.
When you're long options, you're also long IV. So if IV is high, say after a big move down in the market you're risking a decrease in IV. Exactly the situation you talked about earlier where you're right on underlying direction but lose money anyway.

Buy low IV, sell high IV. IV charts are easily available on the interwebs.

 

[OddTrader]

Quote from stevegee58:

I would only consider buying an option in a low IV environment.
When you're long options, you're also long IV. So if IV is high, say after a big move down in the market you're risking a decrease in IV. Exactly the situation you talked about earlier where you're right on underlying direction but lose money anyway.

Buy low IV, sell high IV. IV charts are easily available on the interwebs.

I am not going to say whether my signals are based on IV measurement or not. Integrating two (or more) sets of signals can be a fairly complex issue.

imo the yearly total returns on average would be (more) important (than the decision making approach/criteria for individual trades).

I think, perhaps all my signals might produce x% returns, including some losing trades buying at high IV while closing at low low IV. And, perhaps you signals relying on IV measurement would produce y% returns.

As long as I feel the x% returns are good enough for me, whether p < q or p > q would be probably an non-issue to me.

 

[sle]

For what it's worth, I have a couple strategies that are long gamma only, but in single stock options. The idea is to use a plethora of information to identify stocks that might move a lot, either during the earnings season or based on some semi-fundamental reasons.

 

[OddTrader]

Quote from sle:

For what it's worth, I have a couple strategies that are long gamma only, but in single stock options. The idea is to use a plethora of information to identify stocks that might move a lot, either during the earnings season or based on some semi-fundamental reasons.

imo, for good returns, technical timing is important for QT, as you may have 10 targets (all near earnings season and with good fundamental reasons) to pick the best ones for QT.

Your risk capital still can be used for other style of trades when it is not employed for doing QT.

 

[OddTrader]

http://www.elitetrader.com/vb/showthread.php?s=&threadid=140849&highlight=money+management

Quote from Johno:

Something you need to remember, the markets can and at times will exhibit any behavior. Here you're betting not only on picking the bottom, but also the speed of the anticipated bull reversal whilst in a strong bear move. All I can say is good luck with that and please post your results to let us know how it worked out!

IV is high - it can go higher = IV losses
Oversold - it can go lower = Deta losses
Extremely Oversold so should rebound - it can stay flat or move down for months. = Theta losses

All for limited upside potential!

Best Regards

Johno

I found the above options thread on ET is about money management of long options.

Quote from OddTrader:

I am not going to say whether my signals are based on IV measurement or not. Integrating two (or more) sets of signals can be a fairly complex issue.

imo the yearly total returns on average would be (more) important (than the decision making approach/criteria for individual trades).

I think, perhaps all my signals might produce x% returns, including some losing trades buying at high IV while closing at low low IV. And, perhaps you signals relying on IV measurement would produce y% returns.

As long as I feel the x% returns are good enough for me, whether p < q or p > q would be probably an non-issue to me.

 

[OddTrader]

This is my last post on this thread. Bye for now!

 

[OddTrader]

http://www.elitetrader.com/vb/showthread.php?s=&threadid=79684&highlight=*correlat*

Quote from horribilicus:

Why not just count the dots?

Figure out what timeframe interests you for correlation studies; in my own case, I'm interested in monthly correlation. Make a scatterplot of System A monthly returns on the horizontal axis, and system B monthly returns on the vertical axis. Now count the dots in each of the four quadrants:

1. sysA pos, sysB pos
2. sysA neg, sysB pos
3. sysA neg, sysB neg
4. sysA pos, sysB pos

Quadrants 2 and 4 are "good" (returns of opposite sign), Quadrant 3 is "especially bad" (both returns negative), and Quadrant 1 is "ho hum" (both returns positive).

Figure out what's important to you and make a "Important2Me Ratio", perhaps (Count(3)/Count(1+2+3+4)) or possibly (Count(2+4)/Count(1+3)). Use your imagination.

In order to provide the best desired correlation against the Equity Hedging system ( http://www.elitetrader.com/vb/showthread.php?s=&threadid=233773 ), I have now decided All the trades of this Quick Trade system are limited to buying Long Calls options only.

That means the Equity Hedging system trades only Puts options (every week; week after week), and the Quick Trade system trades only Calls options (occassionally; high-probability expectancy).

 

[Quickless]

You can get bogged down in all the details, but the gist of Odd Trades thread is good.

You can get a big bang for your buck with options.

All of the old stuff holds - know your market, know something about options, and all that stuff.

The real key and differences and the hardest thing to do is not to trade to often. Hold that powder dry.

I blows my mind to hear about people making hundreds or thousands of trades a day and making a few hundred bucks. Their claim to fame is that they do it day in and day out. Great - blow your mind out watching a computer screen 8-10 hours a day, day after day after day. If you don't have anything better to do it's sad.

For a few big hit plays - options are an interesting vehicle. Can you take a meg hit - yes. But minimizing this is the edge.

 

[OddTrader]

Agree. In trading/owning options, minimising the total number of trades focusing on a minimum number of markets is a calculated edge indeed.

Also a matter of lifestyle!

 

[spindr0]

Quote from Quickless:

The real key and differences and the hardest thing to do is not to trade to often. Hold that powder dry.

I blows my mind to hear about people making hundreds or thousands of trades a day and making a few hundred bucks. Their claim to fame is that they do it day in and day out. Great - blow your mind out watching a computer screen 8-10 hours a day, day after day after day. If you don't have anything better to do it's sad.

The number of trades you do per day is irrelevant when you are making money. The key is recognizing when opportunity is there not limiting yourself with some preset notion.