I used to trade the OEX...That being said, I quit trading the OEX, once I saw the volume drop out, the spreads widen and the volume pour into the ES futures and other equity options...This used to be a great trading vehicle back when you had 1/8th spreads across almost every strike, however the index has lost alot since the introduction of the QQQ, the increased competition and spread tightening of the equity options and the ability to put on 1:1 hedges instead of trying to hedge an entire basket of stocks, when in fact, the OEX does not have a perfect correlation to the SPX anyway...
Anyway, I have always "monkeyed around" with the idea of trading the volatility cycle in the OEX and the seasonal tendencies where there are volatility troughs and peaks...This is not as difficult as it would seem...However, the real difficulty is in adjusting the position so as not to be annihilated when you thought you were a low volatility buyer only to find out low volatility begets even lower volatility...This appears to have happened between February and March of this year...
Over the years, there is almost always a volatility contraction in the summer months which set up the biggest volatility explosions going into September and October...The statistics tell the full story...There is also a tendency for volatility to contract going into the final months of the calendar year only to make short term peaks in January...These things can be quantified...
The idea would be to trade a variety of deferred month options in a balanced net long/net short spreading technique, using wingspreads and directional exposure only when the reward and probability of x event happening outweighs the potential of y event destroying the spreads...Spreads would be legged into and rolled into deferred months, etc, etc...
I have seen many people dibble and dabble with concepts and theories and use certain "popular" techniques to trade options, but rarely if ever have I seen anything that addressed the near constant management of positions(ala Cottle in "Options Perception and Deception)...Alot of people understand what a butterfly, condor, jelly roll is, but few can figure out how to "layer" spreads appropriately to take advantage of the underlying volatility and directional considerations...
I wanted to start a thread that explored these considerations...i.e. trading into and out of a variety of spreads, when to do this or that and when to take on directional positions...
Anyway, I have always "monkeyed around" with the idea of trading the volatility cycle in the OEX and the seasonal tendencies where there are volatility troughs and peaks...This is not as difficult as it would seem...However, the real difficulty is in adjusting the position so as not to be annihilated when you thought you were a low volatility buyer only to find out low volatility begets even lower volatility...This appears to have happened between February and March of this year...
Over the years, there is almost always a volatility contraction in the summer months which set up the biggest volatility explosions going into September and October...The statistics tell the full story...There is also a tendency for volatility to contract going into the final months of the calendar year only to make short term peaks in January...These things can be quantified...
The idea would be to trade a variety of deferred month options in a balanced net long/net short spreading technique, using wingspreads and directional exposure only when the reward and probability of x event happening outweighs the potential of y event destroying the spreads...Spreads would be legged into and rolled into deferred months, etc, etc...
I have seen many people dibble and dabble with concepts and theories and use certain "popular" techniques to trade options, but rarely if ever have I seen anything that addressed the near constant management of positions(ala Cottle in "Options Perception and Deception)...Alot of people understand what a butterfly, condor, jelly roll is, but few can figure out how to "layer" spreads appropriately to take advantage of the underlying volatility and directional considerations...
I wanted to start a thread that explored these considerations...i.e. trading into and out of a variety of spreads, when to do this or that and when to take on directional positions...
. Good luck with the house.