Rookie Question

[commiebat]

Quote from Abbadon21:

My main question now is how should I trade the predictions of my system for maximum profit.

What MTE said. It's your system, and only you know what exactly it predicts.

Assuming that:

1. your system makes accurate predictions, or at least accurate enough that you are confident trading them, and
2. your system predicts the relative price of a particular security at two different times,

your trading strategy can only be to buy as close as possible to when you predict the lower price and sell as close as possible to when you predict the higher price. (One obvious adjustment would be, for example, to close out the position on Thursday afternoon if you see a better price than you predict on Friday morning)

You can do it with either stocks or options, but if you want to trade the opening bell the bid/ask spreads on options at that hour will probably eat all the profits from a short-term trade. That's why I suggested trading the underlying straight. But I don't trade index options, so ask someone else for more nuanced strategies.

Also, if your system can accurately predict the price action following news announcements, I'd like to buy your system. Would every last penny I have be enough?

 

[lindq]

Quote from Abbadon21:

If you were sure the S&P 500 would open higher on Friday than it does on Thursday, how would you make the maximum profit off that knowledge?

Aside from the issue of your 'system', which doesn't sound like a great one....the WORST way to play it would be with options. Highly unlikely that with the small moves you will get in the underlying, you will overcome spreads, decay and commission.

The best way is to buy/sell the ES. (Essentially futures on the S&P.) Highly leveraged and very liquid. But be very careful and begin with a single contract.

For paper trading, forget trying to game the options, and just track the S&P. Or simply SPY. It it works there, you can use the futures when ready to trade.

 

[Abbadon21]

Thank you for the responses... I'm going to read more about delta ratios for options and also start paper trading S&P futures.

I got an account with ThinkorSwim so I could use their paper trading program. Should make things a little easier and more realistic.