Hi Matt, Interesting analysis. Can you do the same for the last strategy of the article, i.e. the one they consider as bullish play? It would be interesting to see the conclusions.
many people work this way, because the lower the risk, the safer you can conduct transactions, this is a very good option for work
I personally haven't traded these strategies before mostly because I haven't read much material or seen examples beyond simple calendar spreads. And since I never liked the normal calendar spreads I have always focused my attention to simple strategies like vertical spreads. But good to know that the strategies in the article are quite popular. That somehow gives them more credit.
@Matt_ORATS I was wondering if you had the chance to run your analysis on the last strategy presented here: https://tradingmatex.com/diagonal-strategies/ The strategy is presented as bullish play but has a protection for at least a 12% drop in the underlying. Given the Vega flips to negative after a 3/5% drop the authors suggest to close and reposition, likely at no (or minimal) loss. It would be great to see how your software value such strategy and how it performed in backtest assuming also the exit rules that the authors suggest. Thank you.
Trying to replicate the bullish strategy discussed in the article. Here I am using micro ES future options. The original strategy has a short put OTM on the first expiry which partly finances a bull call spread OTM on the second expiry. On top of this, a negative 0.5 Delta is added via futures. So in my case I use 1 short MES and double the quantities on the option legs. Another change I made is adding a long put deep OTM to limit max risk on the downside. The images attached show the strategy over a 10% and 30% range move for the underlying.
Here's our order analytics (beta). We do not have the ability yet to show fractional underlying with the options strategy. I used the FEZ in place of ESTX and converted the strikes and days to expiration based on current markets. Our theoretical values for each of the options make for a trade spread price of about $0.15. This strategy does not fit into a backtest structure. I suppose you could observe a delta neutral call spread and combine it with a short put. I will have to think about how to test this strategy.
Thank you Matt, when you say "we do not have the ability yet to show fractional underlying with the options strategy" what do you mean exactly? Because for example I simply doubled the quantity of options so that I could work with one single micro future. In their strategy they are using 5 micro Eurostoxx to get the 0.5 delta given 1 micro is 1/10th of the notional controlled by the options. But with micro ES given there is nothing smaller we canonly double the quantity of options and use 1 micro.
Love this strategy! The positive Vega has helped a lot compensating the slightly positive delta during this market drop. Closed everything and will reposition at lower strikes and next expiry. I believe this strategy has a nice hedged nature that is really helpful. I feel quite comfortable playing the same to attempt profiting from a rebound.
Hello, I didn't have time to do much trading in the past few months but was interested to know if anyone is trading the strategies discussed in the article I linked earlier. Given the higher volatility we have seen recently, it would be great to learn from the experience you had trading these option structures in these markets.