I actually use the closing price of a SPY call and Put option which is approximately 2.00 to 2.50 (+ or - .50). It doesn't matter if those options are OTM, ATM, or ITM, "but" I do look for high volume (aprox. 10k or >) options. When there is less than 10 days left before expiration, I switch the options to 2nd month expiring third Friday of each month (no weeklies).
I maintain a Risk to Reward of 1:1. So if an option closes at 2.50, my entry is Closing Price -25%( 2.50 -25%=1.90)
Buy Limit=1.90 / Sell Limit=2.40 / Stop=1.40
(+.50 Profit or -.50 Loss)
I do use a mean-reversion strategy within a defined trend. 2 trade elements are working for you.
Fill rates are not great (7 per month average), but this strategy creates a higher W/L ratio (70% or >). When 3 consecutive trade days do not fill, I add +.10 to the entry formula.
If a trend is predominantly strong and nothing is filling, I use options with a lower closing price (1.50 to 2.00), because the entry formula for cheaper priced options is as follows: Close > 2.05= -25% / Close > 1.70 to 2.05 = -20% / Close 1.70 and under = -17%.
2nd buys do not occur often, only about 9% of the time. 2nd buys require that I watch the TWS all day looking for them; versus a single buy only requires setting up a semi automated Bracket Order and walking away. So entering 2nd buys are dependent upon, "do I have the time today to watch the TWS all day?"
The formula for 2nd Buys is:
Buy 1 is > 1.70, Buy 2 is -20% less than Buy 1.
Buy 1 is 1.70 or less, Buy 2 is -17% less than Buy 1.
Sell Limit: +.20 above Buy 1.
Stop: -.20 below Buy 2.
I missed 2 questions: Position Sizing / and or Hedge.
I use approximately 10% of my account for each trade, but only -2.5% of my account is at risk because of the Stop. I do not Hedge.
Per 100 trades: Sell or Stop in how many trade days?
1st Day = 44 / 2nd Day = 45 / 3rd Day = 11
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