After 10 years in trading and analyzing the markets, a light bulb moment finally clicked. This game is much easier than I ever imagined. I have come up with a very simple strategy which I execute each Friday afternoon - takes less than 20 minutes. It appears I will make in the neighborhood of 2% (account value) return per week (which I would have said is impossible if you asked me 6 months ago). Here is the kicker. I am fearful this strategy will cease to exist at some point in the future. Its based on what I perceive as a systemic miss-pricing of options. Appears to be this way nearly every week, however I have seen a few weeks where the miss-pricing does not exist and I simply sit out for a week. At 2% return per week, I will quickly accumulate a large sum of money. However, I am starting with an account size of under 200k. Therefore, if I am right and this strategy has a short life < 2 years. I will make a good bit of money in that time frame, but not a fortune. What are my options for maximizing this strategy's return? I have thought about taking on other peoples money, but my fear there is on the reporting side. If at any point I have to disclose the actual trades (through an audit or something) then the strategy will be "out there". All someone would have to do is see my trades for 2 or 3 weeks and quickly realize exactly what I am doing. Is there a way to ensure the trades are never disclosed when managing other people's money? I have traded this strategy live with real money over the past 5 weeks. I have only used roughly $50k of my account thus far. Plan to start scaling up now that I have confidence its real and not just something that exists on paper. Week1: +$2,095 Week2: +$2,885 Week3: +$215 Week4: +$3,080 Week5: +$4,370 Thoughts on how to best maximize this strategy over whatever timeframe it will remain valid?
1) Don't tell people about it 2) 2% per week compounding on 200k is ....ends up with about $360k in PROFIT per year... is that not enough?
Why do the execution on Friday and not on Monday? I would not have a great weekend with an open position in the weekend.
Will tell you the same thing I tell all people who forecast out some amazing strategy after paper trading it or testing it for a few weeks. Rather than speculate on thousands of possibilities...TRADE IT. See what happens in 52 weeks...was this a short-term anomoly (my opinion it is) or something you can truly do long-term to grow your account so amazingly big as you claim. The IRS will tax you on actual trading profits, not what you think you can make. And no one is looking over your shoulder stealing your strategy.
This may be the reason the strategy works. The "systemic mis-pricing" might be the OP not accounting for the risk. Regardless, trade it till it dies. Just do your best to protect what you gain.
The strategy is held over the weekend because it benefits from theta decay. As my profits continue to grow (and I get a bigger cushion of gains) I will keep scaling up until my full account size is reflected. This week is my biggest size yet. I tend to believe what I am seeing is a temporary abnormality that will eventually disappear. Hence the reason I want to try and capture as much of it as I can before its gone. Before setting up the trade, I can "tell" if the edge is gone for that week or not. So, I should not get caught blindsided one day. Thats not to say there wont be any losing weeks though, there are a few places prices can end up which would result in losses. Not many places though.
What is it with these theta zombies on this message board? The fact that you even say it benefits from theta immediately removes the mispricing element. All you are doing is leveraging risk. Good luck.