System development and trading

[RockMachine]

Sharpe ratio of 2.3 sounds too good to be true (for annual Sharpe). For monthly, implying annual Sharpe ratio of about 8, it's a fantasy. And having 10 of those, uncorrelated, makes it even less believable.

The 2.3 Mod Sharpe was an average of 10,15,20 month periods.

I expanded this out to 40 months and got an avg. 2.18 Mod Sharpe.

Most of the strategies are negatively skewed due to mean reversion in the short term - medium term. Screenshot above "QQQ" is a trend system that balances out neg skew. This was what was tested. In realtime, the trend based strategy "QQQ" is hedged with a put (not tested). Knowing this, I wouldn't expect ANY of these numbers to be precise. My main goal here is to keep correlation to a minimum and to aim for consistency via Mod Sharpe.

 

[test_user]

I suspected that there's negative skew involved somewhere in there. You don't get these numbers with positive skew strategies. I don't know the details of your strategies, but I would be extremely cautious of risk warehousing and risk of blow up.

 

[Mel Chizedek]

I will not give out my positions as doing so would be a disservice as I could be exiting some or all by the end of that day.

You must be quite a heavy hitter!

 

[traider]

I suspected that there's negative skew involved somewhere in there. You don't get these numbers with positive skew strategies. I don't know the details of your strategies, but I would be extremely cautious of risk warehousing and risk of blow up.

You do get them with really unique alphas but most people do not find these

 

[RockMachine]

Today is a good wake-up call as we see several outside reversal bars in market leaders QQQ,SPY, NVDA, TSLA etc.

I mentioned earlier that in my longer term strategy QQQ, that I wanted to buy an insurance policy for my long position via Puts. It made sense in my head and on paper, that if I was correct on my initial purchase, I could subsidize the hedge via the unrealized PNL of the 1st leg. Realizing that most option buyers lose and that EVERYONE loves to sell premium, I had to take the other side.

Here is my current risk profile (untested) with a long biased trend position(tested). This is the the 1st roll of an already realized spread. The max loss here per contract is less than the initial subsidized realized PNL. So no stops required, it cannot lose and I would hope for a major event in either direction. Options can be the most conservative investment/trading tool in your Quiver.

 

[maler]

RockMachine, may I ask what fill assumptions you use in your backtest for the option positions in your strategies: do you cross the spread (lift ask for buys, hit bid for sells) on each leg when you get in and out?

That would be quite conservative and it may be possible to get better fills in live trading.

 

[RockMachine]

RockMachine, may I ask what fill assumptions you use in your backtest for the option positions in your strategies: do you cross the spread (lift ask for buys, hit bid for sells) on each leg when you get in and out?

That would be quite conservative and it may be possible to get better fills in live trading.

All strategies were backtested on underlying shares NOT options. All entries and exits were based on the 2 most accurate data points, the open and close of the day. Real time results are ONLY options and I always bid or offer mid point, then i cancel if not filled > then midpoint with less contracts (try this) and get a fill 30% of the time (fookin algo's). Generally the contracts i'm stalking have small spreads and are liquid.

 

[maler]

All strategies were backtested on underlying shares NOT options. All entries and exits were based on the 2 most accurate data points, the open and close of the day. Real time results are ONLY options and I always bid or offer mid point, then i cancel if not filled > then midpoint with less contracts (try this) and get a fill 30% of the time (fookin algo's). Generally the contracts i'm stalking have small spreads and are liquid.

Thanks, appreciate clarifying this.

 

[Slow Learning Elf]

How curve-fit do you think your strategies are? Are all your signals purely price-based?

 

[poopy]

Today is a good wake-up call as we see several outside reversal bars in market leaders QQQ,SPY, NVDA, TSLA etc.

I mentioned earlier that in my longer term strategy QQQ, that I wanted to buy an insurance policy for my long position via Puts. It made sense in my head and on paper, that if I was correct on my initial purchase, I could subsidize the hedge via the unrealized PNL of the 1st leg. Realizing that most option buyers lose and that EVERYONE loves to sell premium, I had to take the other side.

Here is my current risk profile (untested) with a long biased trend position(tested). This is the the 1st roll of an already realized spread. The max loss here per contract is less than the initial subsidized realized PNL. So no stops required, it cannot lose and I would hope for a major event in either direction. Options can be the most conservative investment/trading tool in your Quiver.

View attachment 343840

Are you using marked PNL to buy the insurance or are you buying puts at the outset (synthetic call)?