botpro, let me restate what you said: Consider a case with a buy-write where the stock price will always stay above the price when purchased. It should then have a profit equal to the call premium minus all the transaction costs. The challenge is how to ensure the stock will always stay above or equal to the initial purchased price? Your solution is to sell the stocks and be in cash as soon as the stock goes below the initial price and as soon as it rises back to the initial price, buy it back. I for one think it should work in principle but real life maybe different. The devil is in the details: 1. Stocks price changes are not always continuous. You will find gap ups and gap downs. 2. When the stock jumps back and forth around the initial price, how often should one adjust or the transaction costs will quickly eat up the premium, or have an exit strategy when transaction costs approach premium. 3. Next day opening and previous day closing prices are not the same almost every time. Maybe this is why you refer to needing 24/7 market? I commend you for being creative and try to think out of the box. Best wishes.
God, i hate...these long threads. -- why tease us with this bs....Put up or Shut up....if it's so awesome...show us the Results. in a real account.
Yes, big gaps are the main problem --> cf. 3 I think a small bands of say about +10 cents and -10 cents or so around the entry should do the trick to avoid too many hedging trades. An early exit strategy would be good, but I'm afraid this won't be cheap with shorted options... :-( Yes, exactly. That's the problem, and the solution is to emulate a 24/7 market by monitoring the stock 24/7 by using multiple exchanges around the globe. So, the underlying stock should trade at multiple exchanges around the world, and best would be to have just one broker like IB from where one can access domestic and all the foreign exchanges of interest to emulate the said 24/7 market... This has some other implications, but they are solvable IMO. Thx.
Keep up the good work botpro. You obviously "get it" when it comes to option trading. Ignore the naysayers.
Thx, this is encouraging I'm putting all the naysayers into my ignore list (too bad, should have done much earlier).
I feel this shouldn't even warrant a response, but ok say you enter and let it move 10 cents against you, you close it out. Price moves back up to your initial entry, you get back in, then price moves back down again. And you stop out with another 10 cents. So now you are down 20-24 cents plus commission for 4 trades. This could be just day one. I once came up with an always in moving average type strategy that had insane returns the first month I tested it. So I was all excited I'd be rich. Then I sim tested it on month two and lost like $5,000. Almost every dollar was lost flipping back and forth in the position as the moving averages and price bounced back and forth. You can't neglect commission and the spread. It gets very expensive very quickly. You should try testing this on something like crude oil and post the results. Should have the volatility you are looking for.
I think this problem is solvable: one just needs to apply a substrategy like this: if the stock is in plus then when it bounces back then close the position at a slightly higher level above entry (only if predictable that it will fall below the entry). By this you secured a cushion, ie. small profit that can be used for the commissions... and it can also serve as an additional profit mechanism, but only small profits. The same mechanism can also be used before re-opening the stock position: open some ticks below the entry level (only if predictable that it will cross the entry...) --> another small profit... As said in the text, the stock position should be not too big, then the exit and re-entry will be easier.
What liquid Euro-style are 40% IV? Most stay in the 10-15% range for extended periods. SPX, DJX, NDX, don't see 40% much the last few years.
OP: There are many flaws in your strategy. Not only do you incur gap risk, which was already identified, but you incur the potential for death by a thousand cuts selling 100% of the underlying stock every tick < entry price, buying it back every tick over. Throw in you will be giving up the bid/ask spread each time and paying commissions and its probably a break even strategy at best. No different than delta hedging imo.
If any of his stuff was any good, big brokers be handing you billions, but you like stirring up the pot of the greedy and dumb.