Spread Trading Strategies

Quote from cdcaveman:



anyone do this?

"If returns on two assets share common volatility components, the prices of options on the assets should be interdependent and the implied volatility spread should mean revert. We, first demonstrate, using the canonical correlation method, that there is a common component among the volatilities of the returns on S&P 100 and S&P 500 indexes. We then exploit this commonality by trading on the volatility spread between tick-by-tick OEX and SPX call options listed on the CBOE. Our vega-delta-neutral strategies generated significant profits, even after transaction costs are taken into account. The results suggest that the two options markets are not jointly efficient. "
More...

Where did you find that quote?

The reason I ask is the chap can't write a sentence in simple clear English, so I want to stay as far away from it as possible. LOL
 
Quote from justrading:

Where did you find that quote?

The reason I ask is the chap can't write a sentence in simple clear English, so I want to stay as far away from it as possible. LOL
More...

dude you know how quacky quant people probably talk.. they love combining big words and trying to talk in ways that only thier little sub circles understand.. i tell everyone to tell me like i'm a fourth grader so when i get to that fourth grade level i'll know what the fuck they are talking about haha..
 
Ok folks.

Updated chart on nicely and quickly performing trade (re-trade, actually)

Short HOT
Long HST

all over again.

It had mostly retraced (80%) from the closing out of the Aug trade's starting point of that trade three weeks earlier which of course is why I called to start accumulating shares a few days ago (posted twice to accumulate).

The train has left the station in the last few days, making a nice move almost overnight. In the big scheme of things, it has a lot more to go, but why I got out flat by 22 August was that it appeared to be rolling over, which it did, moving toward the point of origin of the original trade. Many times, wonderfully looking potential trades for long distance moves in a trader's favor do these "re-visits" before finishing the long trip to the final, excellent destination.

Chart posted on top of page for Forums: Trading / Charts of Note

or if link works: http://www.elitetrader.com/vb/editpost.php?s=&action=editpost&postid=3619574
 
Charts will be posted on TRADING / Charts of Note without too much follow up commentary about a chart in subsequent posts

Commentary, should there be follow up, will be posted on JOURNALS / Pair Trading Strategy Journal (Johnny Sharp's thread).
 
I was asked--considering my enthusiasm for this trade starting Aug 1-- by what manner does the HOT HST pair trade exceed anything more than a "normal" one because it appeared to him to be just a normal spread.

The response I made on the chart itself included three points, and I think is luminative:

http://www.elitetrader.com/vb/showthread.php?s=&postid=3626832#post3626832

1. The probability of this trade, started Aug 1, was so very high that it would be a gainer that I tripled my normal shares for an initial opening trade. The probability was based on its unusual series of CHART HISTORY, top down. I start with very long term charts and examine from there sequentially shorter term charts. This was one of the best, if not the best I have seen in 4 years. Understand, I have done little trading the last 2 years.

2. The maximum potential of gain was higher than normal;

3. The time I estimated that the previous two described advantages would materialize would be quicker than normal.

The intra-day spread today went favorably very nicely, and I believe there is a 60% chance of 40% more gain. I have closed out this trade, because I do not enter new trades with 60% odds in my favor for a gain. I attempt to find potential trades that suggest 100% probability for gain. It happens, however, that some 100%-ers are much better than others. When trading in my 100 per cent probability world, there IS diversity.

Unfortunately this deserves more time in research to find trades that with my current projects in life, I don't have the time to prospect now. Anyone wishing to nominate trades, please post and we can examine them. A trade for me is examined Top Down. I look at long term charts and work my way down to days. It has to make sense all the way across its history.
 
You must log in or register to reply here.
Back
Top