It reads as if it was adapted from the anonymous "I Am Your Customer" primer that has been floating around for decades... ----- I am your Customer. Satisfy my wants, add personal attention and a friendly touch, and I will become a walking advertisement for your products and services. Ignore my wants, show carelessness, inattention and poor manners, and I will simply cease to exist as far as you are concerned. I am sophisticated much more so than I was a few years ago.My needs are more complex. I have grown accustomed to better things. I have money to spend. My ego needs the nourishment of a friendly, personal greeting from you. It is important to me that you appreciate my business. After all, when I buy your products and services, my money is feeding you. I am a perfectionist. I want the best I can get for the money I spend. When I am dissatisfied, then take heed. The source of my discontent lies in something you, or the products you sell, have failed to do. Find that source and eliminate it, or you will lose my business and that of all my friends as well; for when I criticize your products or services, I will talk to anyone who will listen. I am fickle. Other businesses continually beckon to me with offers of “more for my money.” To keep my business, you must prove to me again and again that I have made a wise choice in selecting you and your products and services above all others. -----
Thanks guru. I've thought about monitoring changes in open interest on options for clues about how big institutions are positioning, but seems that would only work for individual stocks. One idea would be to build a sort of universal market delta indicator (there is or at least was a service called market delta that tracks how much volume trades on the bid vs ask for clues about order flow), but I don't think doing that would give a complete picture. I think a better indicator would also build in option volume for a more complete picture. For example, if 100 shares trade at the ask, that looks bullish, but if at the same time, the buyer also sells a deep in the money call such that the entire position becomes synthetically equivalent to a deep OTM put, then the overall positioning appears far less bullish. Effectively you could just track the overall net change in delta across all strikes and ignore the underlying sick transactions since for every buyer, there's a seller. About a decade ago there was a guy on another forum who went by the classy name "Urmablume". He would post cherry picked snapshots of his indicators, but would not disclose how they worked and claimed they were not for sale until one day he announced that he would be offering a service and then shortly after apparently died. In any case, I suspected that he had a similar indicator given that one of his clues was that he was using multiple data feeds. I suspect he was trying to use an order flow indicator for S&P that combined total future, options on futures, and etf equity options volume for the s&p to track total order flow.
Interesting. It can be simpler, or more complex, I guess depending on point of view and experience. For me just the shape of the IV smile already indicates dealer positioning, simply because the dealer’s inventory simply gets shaped by buying/selling activity, while option pricing and IV are a function of MMs’ inventory. I think there are papers written on that. And then you can see someone bidding above the MM bids, therefore trying to buy hedges. Finally you can look at volume for confirmation, or even make a test trade to see if demand is there. Some of my orders sit unfilled for hours, or get partial fills throughout a day, or even at next market open when iv and prices may be a bit chaotic in the first minute. Though still, it took me a lot of practice to improve my fills by placing orders with better chance of execution then just randomly trying everything. 3-4 years ago I was even able to get fills on obvious arbs like calendars at credit, while later I just had to adapt and take some risk. Though a few days ago I just bought calendars at credit on $LOAN and probably lost money by immediately being assigned the short calls the same night. I still have to figure out what went wrong and how much I may lose, but likely I misjudged the dividend risk.
Just a quick update, pretty much nothing happened for me in January, which was generally horrible for the market. My scanner usually looks for vol skews forming when bullish stocks have strong hedging activity, but recently all the hedging is due to bearish sentiment, which forms different types of skews that I don't trade yet. In the meantime I was a bit busy backtesting options and I'm now past 1 billion backtests of option strategies. Finding some interesting stuff that may allow me to trade with much lower margin at IBKR (lower than my previous strategies, not lower than at TDA), which is generally a better broker for automation.
By breaking even for the last 2 months youve beaten 95 percent of traders! Very telling statistic about the billion backtests. The high grading process must be multi leveled and quite key!
Not sure because my scanner doesn’t look specifically for how far the OTM hedges are. Just the shape of IV smile looks different during bearish sentiment because everyone is trying to buy variety of puts, and it’s too late to buy them (or the combinations I’m trading). While when a stock is bullish then some puts can have demand and be expensive, but others may not be, so I can hedge one with the other, especially knowing how the IV smile may change when the stock starts dropping. (this is generalized summary, as I trade multi-legged combos and not only puts)
Guru, have you found vol skew to be a reliable indicator for future price movement? If the vol of the underlying tends to be skewed to the call side, does that tend to indicate a rise in prices more often than a fall? I haven't studied it, just curious.
Possibly, but it may not be reliable enough, so I'm not sure yet if/how it could be turned into a directional strategy. Basically my scanner finds stocks that seem bullish and are being continually bought up while being hedged, which may be unearthing some type of hedge fund activity. Or it may be my biased assumption based on the shape of IV surface, which is the main thing I'm scanning. And during recent rout some of those stocks started falling, so there was risk. Not for my current strategy, and I mostly got out of those by then anyway, but that could be coincidence and I'm not sure I could reliably get out in time if trading purely directionally. Earnings or strong market forces could also easily change the direction. Here are stocks that currently show up on my options scanner in order of number of highest occurrences, though I'd still need to validate each specific trade, so this is just a rough list with some potential duds or just perpetually high IV like on MSTR and SOXL, which I don't have any edge for. My scanner also finds stocks with high IV pre-earnings, which I also need to filter out manually. XLY,AZO,TTWO,UNP,PANW,DIG,TMO,AMZN,TSLA,ECL,SOXX,DWAC,DE,NOW,SYK,BKNG, MDB,ULTA,LMT,NXPI,SVXY,BHVN,XLV,SAVA,GRMN,WHR,NEWR,REGN,DPZ,CBOE, PEP,GKOS,MSTR,EWT,FIVE,AAP,IDT,IYR,ANTM,TEAM,LULU,WDAY,UCO,CVS,MSGS, GOOGL,FAS,SOXL,TYL,NFLX Let's see how they'll do directionally and purely as stocks, within the next couple weeks? And maybe they could be good candidates for selling puts or put spreads? (unless some have upcoming earnings, which I don't think can be predicted). And maybe I'll try placing some orders for next week since now I see some potential setups. There is just a lot of stuff to go through and validate. Half of them can't even get executed/filled due to wide bid/ask spreads, so I manually pick most reasonable ones. While I'm busy with other stuff as well, so sometimes not attending to this strategy/account.
Just a quick update because my account/P&L looks nice today. 1 year: 6 months: However, there are some serious issues with TDA miscalculating my option values, so my account may actually be $20K-$40K lower than it shows... Here are my top positions by profit: However, profit on both of my two top positions (GOOG and ISRG) seems totally false. For example I have plenty of DOTM put combos @285 DTE on GOOG that are showing large profit, even though I value them at ~$0 (as combos, not individual puts). Even when occasional profit shows up in there, those options are illiquid and I cannot get out. And that was supposed to be a temporary hedge, not even a part of my strategies. Currently I'm building a lot of new LEAP positions that have very poor liquidity. In a way I may be making money by providing liquidity to others in the times of need, but I can't get liquidity myself when I'm in profit. And that's not necessarily related to the above GOOG position. An example may be a put/hedge structure on $COST where my profit & edge is eroding while I was trying but unable to get out of these: But I also did have some nice wins that I may be able to close soon, but at smaller profit than it shows: I was actually up ~$10K on TSLA (on $66 investment) but it started dropping the day I was planning to exit, so I decided to wait, and I'm still waiting for it to recover. Those positions are time-sensitive so I may need to close it with small profit or even a loss. That's where I'm still learning and hoping to improve. Though my account would actually be a few $K higher if I exited in time, so the returns I'm showing are reasonably possible. I just suck at regular trading (in terms of quick decision making, focus, dedicated time, etc). I also have decent profit on SBAC, realistically probably close to $4K, which I'm trying to close but having some issues with liquidity and trying to decide how to hedge or how much profit to give up in exchange for getting my orders filled. Recently I've also made about $5K profit on QQQ options, which I closed due to better liquidity, though still have quite a few puts remaining as hedges. Generally I now believe the P&L as I'm showing above is, or should be, doable, and I'm continually learning, analyzing and improving my approach. I've also exceeded 1 billion option backtests, to the point they've became so repetitive that I've stopped running my backtesting system until I come up with more ideas for features and improvements. Just at this point I've already found & learnt enough to understand what works, and to be able to trade and improve it further through experience, more than through backtests.