To clarify I'm working on a strategy for selling 2-6 days DTE option strangles in equity index, SPX, NDX, R2K. What I'm looking for is to identify change from trending mode or momentum mode into consolidation mode. Yes, it's related to volatility. Tools/methods that can identify "stalling" "slow down" of strong trend momentum is of interest. Average True Range, Bollinger bands, MACD, what else there is out there. I have a found a method which is discretionary where I can visually identify a stall of momentum on the chart. Would be nice to have something which is rule based/mechanical that can send me an alert by email or direct message. Don't have to watch and monitor the index chart every day.
If you are hell bent on shorting strangled,why don't you run backtests on VIX/HV (as opposed to price)using whatever voodoo you like to see if you can come up with anything??? FWIW,2-6 day short strangles are a pure gamma bet,and being somewhat right on direction and managing the short gamma are far more important than predicting what mode you are in... What's your plan when wrong??
@taowave may I ask what's your experience with ARCH/GARCH models? I occasionally check some online models (https://vlab.stern.nyu.edu/volatility) but I can't shake that feeling that it's not much better than a monkey throwing darts at a board..
Good Morning Mr. volpri, I LOVE what you wrote. Love it. I have found my life much easier just being a complete slave to price behavior and do whatever price is doing whenever I see price doing whatever it is doing. And "Grab_them_damn_profits" Thank you,
Hello bln, I do not have a suggestion for you. But for the sake of keep-it-simple, why not just trade whatever you see on the chart.
I use the models more for a safety check/confirming indicator.I dont like to shoot against them..Similar to how I incorporate fundamentals/Discounted Cash Flow models. Its also a bit helpful if trading term structure and longer dated options. I find Volatilty Cones more helpful... Hoadley is fun to play around with
Valid points. In reality both the legs of the short strangle are covered. The upper Call leg is covered by long term position in the index and the lower Put leg is covered by portfolio margin buying power. I will hold the strangle until expiration/cash settlement. If need to defend a leg I may do delta hedging of that side. Why I'm attracted to the strangle is because it provides uncorrelated/anti-correlated returns and that is something I want as it will smooth out long term portfolio volatility and lower over all risk.