Options have the added factor of volatility built into it that stocks do not have. Like apples vs oranges. Two different things. Also, options have leverage providing higher percentage returns relative to stocks assuming ABC stock is trending up. ABC stock could be up $5.00 and it is a $50 stock giving you a 10% gain, the option on the same ABC stock could be up 80% or more easily. When you enter a trade matters too especially, with options.
vastly inferior performance in positions in options versus positions in shares.
- Thread starter rtw
- Start date
Options have the added factor of volatility built into it that stocks do not have. Like apples vs oranges. Two different things. Also, options have leverage providing higher percentage returns relative to stocks assuming ABC stock is trending up. ABC stock could be up $5.00 and it is a $50 stock giving you a 10% gain, the option on the same ABC stock could be up 80% or more easily. When you enter a trade matters too especially, with options.
ok, so here is the trade list for twtr from september 6th to the 13th, which is the period that roughly corresponds to the results i shared initially.
the list is too big to include in one single image, so i concentrated on the first and last several trades for illustration purposes. the total profit from executing these trades on positions in shares, assuming zero slippage (i did that to get a lot of trades so that the system could be better evaluated) is something like 180 usd (a commission cost of .01 per share per side has already been deducted from this value). slippage in twtr is minuscule, so even assuming a worst case value of .02 per side for these trades, the net profit would have been at least 20 usd.
https://cdn1.imggmi.com/uploads/2019/10/7/5c514f3a6d58fb4445df4af23a6311dc-full.jpg
https://cdn1.imggmi.com/uploads/2019/10/7/a4d46e249a9a8fa4d25bcdc74c222368-full.jpg
https://cdn1.imggmi.com/uploads/2019/9/13/7b2e338043fdb66c94c2088e8017b908-full.jpg
at least 20 usd in profit while keeping risk to a minimum compared to more than 1,000 usd in losses when executing the same trades in what should be supposed to be fairly equivalent positions in options. and it's pretty much the same story with all the other symbols i included initially. it is this massive difference that i want to understand, correctly measure and anticipate so that i can do the necessary adjustments and also generate profits when trading my strategies in options.
the list is too big to include in one single image, so i concentrated on the first and last several trades for illustration purposes. the total profit from executing these trades on positions in shares, assuming zero slippage (i did that to get a lot of trades so that the system could be better evaluated) is something like 180 usd (a commission cost of .01 per share per side has already been deducted from this value). slippage in twtr is minuscule, so even assuming a worst case value of .02 per side for these trades, the net profit would have been at least 20 usd.
https://cdn1.imggmi.com/uploads/2019/10/7/5c514f3a6d58fb4445df4af23a6311dc-full.jpg
https://cdn1.imggmi.com/uploads/2019/10/7/a4d46e249a9a8fa4d25bcdc74c222368-full.jpg
https://cdn1.imggmi.com/uploads/2019/9/13/7b2e338043fdb66c94c2088e8017b908-full.jpg
at least 20 usd in profit while keeping risk to a minimum compared to more than 1,000 usd in losses when executing the same trades in what should be supposed to be fairly equivalent positions in options. and it's pretty much the same story with all the other symbols i included initially. it is this massive difference that i want to understand, correctly measure and anticipate so that i can do the necessary adjustments and also generate profits when trading my strategies in options.
In such short term trading you will never gain equivalency. Why would you think otherwise?
Assuming that you always get efficient fills on your options market orders (bad assumption), basic high school math should tell you that paying a 2 penny spread on TWTR stock is far less than paying a 2 penny spread on an option.
Your system needs to be such that you can overcome the drag, and take advantage of what long options have to offer.
Assuming that you always get efficient fills on your options market orders (bad assumption), basic high school math should tell you that paying a 2 penny spread on TWTR stock is far less than paying a 2 penny spread on an option.
Your system needs to be such that you can overcome the drag, and take advantage of what long options have to offer.
fortunately those last images i shared were much better to illustrate the phenomenon i have encountered and cleared a lot of misinterpretations.
now, this is the options chain for twtr for the front contract today:
https://cdn1.imggmi.com/uploads/2019/10/7/d444ffac299462f77102ec0592ef125c-full.jpg
it is plainly evident that the value of the entire bid - ask spread, even for +/-99 delta contracts is 20 usd at most.
it is therefore impossible for cumulative slippage over all the trades that the system executed to be substantially higher than something like 800 usd for 41 round trips, and this in turn means that slippage alone cannot account for this massive differential of more than 1200 usd.
so, ¿what else could be going on? ¿and how could i keep anticipate this kind of divergence and keep it under control?
now, this is the options chain for twtr for the front contract today:
https://cdn1.imggmi.com/uploads/2019/10/7/d444ffac299462f77102ec0592ef125c-full.jpg
it is plainly evident that the value of the entire bid - ask spread, even for +/-99 delta contracts is 20 usd at most.
it is therefore impossible for cumulative slippage over all the trades that the system executed to be substantially higher than something like 800 usd for 41 round trips, and this in turn means that slippage alone cannot account for this massive differential of more than 1200 usd.
so, ¿what else could be going on? ¿and how could i keep anticipate this kind of divergence and keep it under control?
fortunately those last images i shared were much better to illustrate the phenomenon i have encountered and cleared a lot of misinterpretations.
now, this is the options chain for twtr for the front contract today:
https://cdn1.imggmi.com/uploads/2019/10/7/d444ffac299462f77102ec0592ef125c-full.jpg
it is plainly evident that the value of the entire bid - ask spread, even for +/-99 delta contracts is 20 usd at most.
it is therefore impossible for cumulative slippage over all the trades that the system executed to be substantially higher than something like 800 usd for 41 round trips, and this in turn means that slippage alone cannot account for this massive differential of more than 1200 usd.
so, ¿what else could be going on? ¿and how could i keep anticipate this kind of divergence and keep it under control?
Your results show you're day-trading so why trade options with a $20-30 spread and no volume when you can trade near-the-money options with a $1-3 spread and decent volume?
Delta is lower so adjust position size accordingly.
Example: 40.5C has $1 spread and .49 Delta so trade 2 calls as replacement for every 100 stock shares. Total option position value = $128 compared to more than $4,000 to trade 100 stock shares.
(***33.5C bid/ask spread is $30x41= $1,230 in spread costs alone. Now add commission costs for 41 trades. Seems very likely to have >$1,200 in difference btwn stock & option trades.)
valuable and knowledgeable members with et,
this is just a quick update:
this past week the automated options trading system i have been contributing for over the last several months was successfully augmented with limit orders for entries. so, this past friday i traded my strategies automated with real funds. the results were the following:
https://cdn1.imggmi.com/uploads/2019/10/27/501c7fa3774ddce5b06dcd25f95f6792-full.jpg
https://cdn1.imggmi.com/uploads/2019/10/27/9efd0eb62757f4a65f367076fbcce5ba-full.jpg
https://cdn1.imggmi.com/uploads/2019/10/27/f87cb6c9288e3ba3ce7613b5e5863fff-full.jpg
my principal objective was to evaluate how the system would perform and it was therefore indispensable to execute these trades in the real world as limit orders for options on simulator are useless. the system performed impeccably, and the returns were very nice and unexpected if i'm completely honest. i consider that these winnings were mainly an artifact of prices being stupidly inflated in dramatic fashion this past friday (it is unbelievable that financial markets are nothing but manipulation and fraud, i know) and i still need to do a lot of work to correctly measure and adjust for the massive under-performance that positions in options suffer from (stupid ib won't make this kind of reports available for simulated accounts and i'm still looking for some way to generate this very information). all exit orders for these trades were market orders but now the system has also been augmented with limit orders for exits, so i will be testing how these orders perform this coming week. market makers are abusive, predatory pieces of crap so from all my experience i'm convinced that i could never consistently have this kind of profits trading options this fast, but if the evidence ends up showing the contrary that will be a very pleasant and lucrative surprise.
this is just a quick update:
this past week the automated options trading system i have been contributing for over the last several months was successfully augmented with limit orders for entries. so, this past friday i traded my strategies automated with real funds. the results were the following:
https://cdn1.imggmi.com/uploads/2019/10/27/501c7fa3774ddce5b06dcd25f95f6792-full.jpg
https://cdn1.imggmi.com/uploads/2019/10/27/9efd0eb62757f4a65f367076fbcce5ba-full.jpg
https://cdn1.imggmi.com/uploads/2019/10/27/f87cb6c9288e3ba3ce7613b5e5863fff-full.jpg
my principal objective was to evaluate how the system would perform and it was therefore indispensable to execute these trades in the real world as limit orders for options on simulator are useless. the system performed impeccably, and the returns were very nice and unexpected if i'm completely honest. i consider that these winnings were mainly an artifact of prices being stupidly inflated in dramatic fashion this past friday (it is unbelievable that financial markets are nothing but manipulation and fraud, i know) and i still need to do a lot of work to correctly measure and adjust for the massive under-performance that positions in options suffer from (stupid ib won't make this kind of reports available for simulated accounts and i'm still looking for some way to generate this very information). all exit orders for these trades were market orders but now the system has also been augmented with limit orders for exits, so i will be testing how these orders perform this coming week. market makers are abusive, predatory pieces of crap so from all my experience i'm convinced that i could never consistently have this kind of profits trading options this fast, but if the evidence ends up showing the contrary that will be a very pleasant and lucrative surprise.
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qlai, you are right.
it is crucially important to calculate if there existed any divergence between these trades in 50 delta options versus what these trades would have returned in positions in 100 shares.
these are the trades that my strategies would have generated as reported by tradestation. all these trades assume slippage of .01 usd per share both for every entry and exit and commissions of .01 usd also for both entries and exits.
amat
Buy 25-Oct-19 10:12 Buy $55.11 $0.00 100 $60.00 1.16% $70.00 88.61% $1.00 $1.00
Sell 25-Oct-19 15:58 Sell#2 $55.75 $64.00 $1,938.00 ($9.00) 92.41% 81.01% $1.00 $1.00
this amat trade under performed significantly (19 usd versus 60 usd in profit, this should have been much closer to a 30 usd profit), but i have to point out that some trades were executed with delays as the stupid tws platform had several restrictions in place when the first orders were sent and it only processed orders correctly after i was able to remove all restrictions.
intc
Buy 25-Oct-19 09:31 Buy $54.83 $0.00 100 $44.00 0.88% $66.00 86.84% $1.00 $1.00
Sell 25-Oct-19 09:38 Sell $55.31 $48.00 $1,860.00 ($10.00) 76.32% 63.16% $1.00 $1.00
Buy 25-Oct-19 09:42 Buy $55.47 $0.00 100 ($9.00) -0.09% $11.00 47.83% $1.00 $1.00
Sell 25-Oct-19 09:43 Sell $55.42 ($5.00) $1,851.00 ($12.00) 30.43% -21.74% $1.00 $1.00
Buy 25-Oct-19 09:44 Buy $55.45 $0.00 100 $33.00 0.67% $62.00 88.57% $1.00 $1.00
Sell 25-Oct-19 10:28 Sell $55.82 $37.00 $1,884.00 ($8.00) 64.29% 52.86% $1.00 $1.00
Buy 25-Oct-19 11:08 Buy $55.99 $0.00 100 $16.00 0.36% $48.00 72.73% $1.00 $1.00
Sell 25-Oct-19 11:47 Sell $56.19 $20.00 $1,900.00 ($18.00) 57.58% 30.30% $1.00 $1.00
Buy 25-Oct-19 12:29 Buy $56.23 $0.00 100 ($20.00) -0.28% $9.00 32.14% $1.00 $1.00
Sell 25-Oct-19 12:57 Sell $56.07 ($16.00) $1,880.00 ($19.00) 10.71% -57.14% $1.00 $1.00
Buy 25-Oct-19 13:40 Buy $56.25 $0.00 100 $6.00 0.18% $13.00 46.43% $1.00 $1.00
Sell 25-Oct-19 15:14 Sell#2 $56.35 $10.00 $1,886.00 ($15.00) 89.29% 35.71% $1.00 $1.00
intc was a mess. the first two trades are missing entirely because the api restrictions were still in place. the third trade more or less corresponds proportionately to what a trade in shares would have returned (15 usd versus 33 usd), i duplicated this position accidentally.
the other trades make it harder to match the positions in options that were traded in the real world and what tradestation reports in this trade list. in the case of the trade at 11:08 the delay was caused because i used a limit order between the bid and mid price and it took some minutes before it was executed. the other two trades are missing entirely but the text files to send the respective orders to ib were generated correctly, so i assume that using limit orders below mid price kept me from buying excessively high and ending up with losing trades as my orders ended up being canceled before they every were executed - filled. i will have to analyze this in much more detail.
mu
Buy 25-Oct-19 09:31 Buy $54.83 $0.00 100 $44.00 0.88% $66.00 86.84% $1.00 $1.00
Sell 25-Oct-19 09:38 Sell $55.31 $48.00 $1,860.00 ($10.00) 76.32% 63.16% $1.00 $1.00
Buy 25-Oct-19 09:42 Buy $55.47 $0.00 100 ($9.00) -0.09% $11.00 47.83% $1.00 $1.00
Sell 25-Oct-19 09:43 Sell $55.42 ($5.00) $1,851.00 ($12.00) 30.43% -21.74% $1.00 $1.00
Buy 25-Oct-19 09:44 Buy $55.45 $0.00 100 $33.00 0.67% $62.00 88.57% $1.00 $1.00
Sell 25-Oct-19 10:28 Sell $55.82 $37.00 $1,884.00 ($8.00) 64.29% 52.86% $1.00 $1.00
Buy 25-Oct-19 11:08 Buy $55.99 $0.00 100 $16.00 0.36% $48.00 72.73% $1.00 $1.00
Sell 25-Oct-19 11:47 Sell $56.19 $20.00 $1,900.00 ($18.00) 57.58% 30.30% $1.00 $1.00
Buy 25-Oct-19 12:29 Buy $56.23 $0.00 100 ($20.00) -0.28% $9.00 32.14% $1.00 $1.00
Sell 25-Oct-19 12:57 Sell $56.07 ($16.00) $1,880.00 ($19.00) 10.71% -57.14% $1.00 $1.00
Buy 25-Oct-19 13:40 Buy $56.25 $0.00 100 $6.00 0.18% $13.00 46.43% $1.00 $1.00
Sell 25-Oct-19 15:14 Sell#2 $56.35 $10.00 $1,886.00 ($15.00) 89.29% 35.71% $1.00 $1.00
with mu it was a similar story. all orders before 9:45 were never processed and then there are some trades where returns are roughly appropriate and there are also others where limit entry orders were cancelled before they were ever executed.
twtr
Sell Short 25-Oct-19 09:34 Short $30.67 $0.00 100 $39.00 1.40% $75.00 86.21% $1.00 $1.00
Buy to Cover 25-Oct-19 11:19 Cover $30.24 $43.00 $2,679.00 ($12.00) 63.22% 49.43% $1.00 $1.00
Sell Short 25-Oct-19 13:31 Short $30.33 $0.00 100 ($4.00) 0.00% $30.00 93.75% $1.00 $1.00
Buy to Cover 25-Oct-19 15:46 Cover $30.33 $0.00 $2,675.00 ($2.00) 6.25% 0.00% $1.00 $1.00
the trades in twtr derivatives are roughly in line with what would be expected for 50 something delta options using limit entry orders and market exit orders. the first trade i duplicated accidentally and the second one must have been cancelled before it was ever executed.
using very cautious limit orders for entries could be a smart policy to follow, i will have to test this more extensively. i will now use limit orders for exits as well but in that case i will have to jump to the other side of mid price to make sure my orders always are executed. anyway, i don't think i will ever have to use limit orders all the way at the bid which would be an equivalent situation to using market orders. i will have to continue testing and evaluating how to refine and adjust my system so it can make it as profitable as it can be but it is not looking bad at the moment.
it is crucially important to calculate if there existed any divergence between these trades in 50 delta options versus what these trades would have returned in positions in 100 shares.
these are the trades that my strategies would have generated as reported by tradestation. all these trades assume slippage of .01 usd per share both for every entry and exit and commissions of .01 usd also for both entries and exits.
amat
Buy 25-Oct-19 10:12 Buy $55.11 $0.00 100 $60.00 1.16% $70.00 88.61% $1.00 $1.00
Sell 25-Oct-19 15:58 Sell#2 $55.75 $64.00 $1,938.00 ($9.00) 92.41% 81.01% $1.00 $1.00
this amat trade under performed significantly (19 usd versus 60 usd in profit, this should have been much closer to a 30 usd profit), but i have to point out that some trades were executed with delays as the stupid tws platform had several restrictions in place when the first orders were sent and it only processed orders correctly after i was able to remove all restrictions.
intc
Buy 25-Oct-19 09:31 Buy $54.83 $0.00 100 $44.00 0.88% $66.00 86.84% $1.00 $1.00
Sell 25-Oct-19 09:38 Sell $55.31 $48.00 $1,860.00 ($10.00) 76.32% 63.16% $1.00 $1.00
Buy 25-Oct-19 09:42 Buy $55.47 $0.00 100 ($9.00) -0.09% $11.00 47.83% $1.00 $1.00
Sell 25-Oct-19 09:43 Sell $55.42 ($5.00) $1,851.00 ($12.00) 30.43% -21.74% $1.00 $1.00
Buy 25-Oct-19 09:44 Buy $55.45 $0.00 100 $33.00 0.67% $62.00 88.57% $1.00 $1.00
Sell 25-Oct-19 10:28 Sell $55.82 $37.00 $1,884.00 ($8.00) 64.29% 52.86% $1.00 $1.00
Buy 25-Oct-19 11:08 Buy $55.99 $0.00 100 $16.00 0.36% $48.00 72.73% $1.00 $1.00
Sell 25-Oct-19 11:47 Sell $56.19 $20.00 $1,900.00 ($18.00) 57.58% 30.30% $1.00 $1.00
Buy 25-Oct-19 12:29 Buy $56.23 $0.00 100 ($20.00) -0.28% $9.00 32.14% $1.00 $1.00
Sell 25-Oct-19 12:57 Sell $56.07 ($16.00) $1,880.00 ($19.00) 10.71% -57.14% $1.00 $1.00
Buy 25-Oct-19 13:40 Buy $56.25 $0.00 100 $6.00 0.18% $13.00 46.43% $1.00 $1.00
Sell 25-Oct-19 15:14 Sell#2 $56.35 $10.00 $1,886.00 ($15.00) 89.29% 35.71% $1.00 $1.00
intc was a mess. the first two trades are missing entirely because the api restrictions were still in place. the third trade more or less corresponds proportionately to what a trade in shares would have returned (15 usd versus 33 usd), i duplicated this position accidentally.
the other trades make it harder to match the positions in options that were traded in the real world and what tradestation reports in this trade list. in the case of the trade at 11:08 the delay was caused because i used a limit order between the bid and mid price and it took some minutes before it was executed. the other two trades are missing entirely but the text files to send the respective orders to ib were generated correctly, so i assume that using limit orders below mid price kept me from buying excessively high and ending up with losing trades as my orders ended up being canceled before they every were executed - filled. i will have to analyze this in much more detail.
mu
Buy 25-Oct-19 09:31 Buy $54.83 $0.00 100 $44.00 0.88% $66.00 86.84% $1.00 $1.00
Sell 25-Oct-19 09:38 Sell $55.31 $48.00 $1,860.00 ($10.00) 76.32% 63.16% $1.00 $1.00
Buy 25-Oct-19 09:42 Buy $55.47 $0.00 100 ($9.00) -0.09% $11.00 47.83% $1.00 $1.00
Sell 25-Oct-19 09:43 Sell $55.42 ($5.00) $1,851.00 ($12.00) 30.43% -21.74% $1.00 $1.00
Buy 25-Oct-19 09:44 Buy $55.45 $0.00 100 $33.00 0.67% $62.00 88.57% $1.00 $1.00
Sell 25-Oct-19 10:28 Sell $55.82 $37.00 $1,884.00 ($8.00) 64.29% 52.86% $1.00 $1.00
Buy 25-Oct-19 11:08 Buy $55.99 $0.00 100 $16.00 0.36% $48.00 72.73% $1.00 $1.00
Sell 25-Oct-19 11:47 Sell $56.19 $20.00 $1,900.00 ($18.00) 57.58% 30.30% $1.00 $1.00
Buy 25-Oct-19 12:29 Buy $56.23 $0.00 100 ($20.00) -0.28% $9.00 32.14% $1.00 $1.00
Sell 25-Oct-19 12:57 Sell $56.07 ($16.00) $1,880.00 ($19.00) 10.71% -57.14% $1.00 $1.00
Buy 25-Oct-19 13:40 Buy $56.25 $0.00 100 $6.00 0.18% $13.00 46.43% $1.00 $1.00
Sell 25-Oct-19 15:14 Sell#2 $56.35 $10.00 $1,886.00 ($15.00) 89.29% 35.71% $1.00 $1.00
with mu it was a similar story. all orders before 9:45 were never processed and then there are some trades where returns are roughly appropriate and there are also others where limit entry orders were cancelled before they were ever executed.
twtr
Sell Short 25-Oct-19 09:34 Short $30.67 $0.00 100 $39.00 1.40% $75.00 86.21% $1.00 $1.00
Buy to Cover 25-Oct-19 11:19 Cover $30.24 $43.00 $2,679.00 ($12.00) 63.22% 49.43% $1.00 $1.00
Sell Short 25-Oct-19 13:31 Short $30.33 $0.00 100 ($4.00) 0.00% $30.00 93.75% $1.00 $1.00
Buy to Cover 25-Oct-19 15:46 Cover $30.33 $0.00 $2,675.00 ($2.00) 6.25% 0.00% $1.00 $1.00
the trades in twtr derivatives are roughly in line with what would be expected for 50 something delta options using limit entry orders and market exit orders. the first trade i duplicated accidentally and the second one must have been cancelled before it was ever executed.
using very cautious limit orders for entries could be a smart policy to follow, i will have to test this more extensively. i will now use limit orders for exits as well but in that case i will have to jump to the other side of mid price to make sure my orders always are executed. anyway, i don't think i will ever have to use limit orders all the way at the bid which would be an equivalent situation to using market orders. i will have to continue testing and evaluating how to refine and adjust my system so it can make it as profitable as it can be but it is not looking bad at the moment.