So what's the Bottom Line to all of this? What kind of annual (or daily, weekly, monthly) % gains are you generally expecting from your strategy/skill? What's the time frequency and % gain for each typical trade? You sound very vague. Most vague, maybe complicated, trading systems turns out to be false or bs. Just look at LTCM of the mid/late 90's, they blew up by selling options for premium...then a big storm hit, and they couldn't afford to pay out. Occam's razor...the simplest way or explanation turns out to be the one that works or explains something correctly. I personally like my ideology/strategy of trading. The Holy Grail skill of trading...is basically being able to make a lot of money, quickly, in a short amount of time. You have to trade something that's very liquid...and you can't get more liquid than the broad market, the S&P SPX/SPY. And you need leverage/options for that explosive nuclear return potential. And you need a high frequency multiple, so it has to be day trades for that exponential return, compound factor. Most people will laugh...but you can turn $1,000 into a million in less than a month -- assuming, of course, you can capture the S&P's major, daily, chart line movement.
Great examples of why it’s not possible for me to discuss this for now, and there will be much more to it than just “systems”. Everyone continually asks which is the best call to buy to make a bet on a stock before earnings or after earnings or whether to not buy any calls, or sell calls, or puts, or trade some combo, or which put(s) to buy to best hedge their portfolio, etc, and literally thousands of other questions. And there are no clear answers except everyone having their bs opinion. The Holy Grail means getting the actual, clear, scientific answers, no bs, with all the data showing why the answer is the right answer. No one is talking about selling some risky options here, but people who choose to do so also need to clearly understand the risks and ways to hedge themselves if they do decide to sell “almost naked” options even against my or your advice. Having an opinion is exactly the bs that I will solve. As for performance, many funds and investors want to make 10%/year with max 10% drawdown (over x years), and that’s the holy grail for them (they gave their money to Madoff), but this can be scaled to 40%/year with max 40% once-a-decade drawdown, and that’s the holy grail for others. I’ll let them do much better (RoMaD) though some methodologies may be less liquid or more tricky than others so it’s still their choice, but no one is talking about 100+%/month. That’s the real bs not even worth addressing…
BTW, imagine how many $billions Melvin Capital could've saved, or potentially made, if they only knew how to best use options to hedge their short bets. Or how many $millions some people could've made by using options to "properly" bet on AMC & GME, basically for max reward-to-risk. So yes, even making 1000%/year is possible with the right opportunities, though such approach would need some risk taking and discretionary trading. I've had some great 10x winners on options on smaller stocks, but this requires daily chasing after big movers and thinking on your feet, which I'm not as good as some big time traders. The right people will make $millions just with the right approach and knowledge of highest reward-to-risk options setups. There is a guy on FB that I showed a few sample trades couple years ago and he basically ran with it, honed his skills, and then thanked me several times for turning him into a $millionaire: (fast forward to 2 weeks ago) The approach I've showed him requires more risk taking and margin than I'd be willing to take (and vastly higher margin requirements at IB so I'd be able to make only small trades unless I'd move to TDA), and it's not a part of The Holy Grail, but some people can definitely use the right knowledge to excel and trade anything better than myself. While I'm not even an educator and don't plan on selling some training and educational stuff. The Holy Grail is the vast knowledge that cannot be contained in some books, signals, trading style, or even a single portfolio or strategy. In tangible form it will be the world’s most powerful options strategy discovery, analysis & research platform, and with research already done for you (vs having to come up with some ideas, do research, and then backtest stuff).
I learned, realized, early on in my studying of the markets that there is no automatic, set it and forget it, Holy Grail formula for market riches. If you want to make serious money, that process will require part art, part science, judgement intuition by the trader to make. And a healthy appetite and soul and spirit and mind for risk/reward. You can either be an academic trader, or a real world trader.
Guru, in those multi leg methods, do you have any short diagonals combo? Short single or double diagonals, that maybe need wings rolled/adjusted over when front month/week expires?
Agree, in most of the cases. But plenty of people automate options strategies if they’re not chasing huge profit but want “only” 10%+/year. There are such options strategies running right now on C2 (and one I’ve seen working really great), but aren’t optimal. Also, I believe that Rentech may be trading options and I don’t see a reason why they couldn't be making 40%+/year from those, while being automated. They stated in one of the lawsuits that an employee who’s left them for a competitor could’ve easily make $millions within one year, which I don’t see feasible if trying to setup a new HFT shop trading stocks. Repeatable options strategies are every rare, and even those that are automated may not enter trades every day.
I definitely do, though this type of trade is difficult to automate, so it may not show up as a tested/proven strategy, but rather an opportunistic trade based on current IV and volatility shape. And rather than rolling it, I’d either exit or use an automated way of finding the best adjustment or hedge to stay in / extend such trade. In some cases you could also hedge it with small number of shares before the wings kick in. Due to difficulty of automating and managing such trades I’d consider it better for manual trading than automation. Though “having” such or any other types of trades does not mean much because I may have all kinds of types of trades and just let you review their performance and ways to improve them. Some may be better than others, while some may not show up if aren’t easily repeatable. Others may be just suggestions based on current vol surface, and different trades would show up at different times. (I’m currently using several ways of discovering options trades internally, as well as hedges, but don’t have much GUI yet and just using sql to review results)
I've spent a few hours simplifying one of the better performing SPX/SPY options strategies to the simplest variant possible, with only 1 initial trade in January 2017 (oldest available in the backtest chart in ThinkOrSwim) and 1 adjustment per year, so basically 5 trades. Here is how it looks with an initial $1M investment: Look at the smooth sailing through 2020, and $3.5M total profit (ending with $4.5M on $1M initial investment) over 4.5 years. And this isn't an optimal variant due to removing smaller/detailed adjustments through each year that could further smooth out volatility, but at the cost of smaller profit. This could be the basis of a potential strategy, rather than a complete solution. And I wouldn't scale it up, but it could be scaled down for less volatility and risk. (the main risk is in hedges being expensive and losing value when IV decreases or doesn't offset the actual volatility)
Multiple pages of 'I've got a strategy but I won't tell you'. Username guru. Lol. This thread has gone on 11 pages too long.
What specifically are you expecting? Specific instructions, strategies, algorithms, and code that will make you rich? Can you provide any other people's blogs and journal(s) that provide all that, so that I can get rich too, not have to work too hard and maybe learn something. And, in all honesty, you're free to not read my personal journal, regardless how many pages I decide to write.