Purely Mechanical Option Trading

If I read his initial comments correctly, his programs look at a lot of parameters, and sometimes go with the trend, and sometimes fades a trend (reversals). Since his programs appear robust enough, he sometimes does go both directions (put and call) based on both bullish trends and bearish trend signals appearing. We can say his signals are quantitatively derived, but not necessarily "simple trend" or "trend fading".

 

Atticus,

Your totally correct for today.
The system output was the "Weak"(Weak B) direction of the market today and playing the weak direction was definitely the
"counter-trend" direction today.
But it also equally outputs the "Strong" direction of the market at least half of the time, which usually turns out to be the "Trending" direction.
So your right, it outputs the counter-trend as well as the Trend.

Note: The "volatility component" in the programs isn't used to determine option trend or counter-trend.
Volatility is simply used to determine the potential SPX daily range and from that daily range, determine the percentage of drop under the closing price necessary for an entry price (combined with signal strength or weakness and sequence of consecutive signals in the same direction).

 

Thanks neke,

That's a better explaination of the system then my last reply to atticus!

 

Trade complete. Stop limit of 1.60 had a split fill:
5 @ 1.60
5 @ 1.61
Attached results updated to reflect current completed trade.

 

jeff are all of your orders placed below the previous days close?

it seems like even when your system has you following a trend in the underlying spy, lets say it is an uptrend, you might be entering a long call position on a pull back the next morning. then if trend continues your call goes up rather nicely.

maybe i'm oversimplifying.

your system is interesting. it seems a little like what chartists say. "it's in there- i don't need to know the fundamentals, i just need my charts". so even if you aren't looking at the underlying or calculating the greeks the market is still tipping its hand in the option market.

hope things continue to woek well for you.

 

Yes, most trade signal entries are placed below the closing price.
The entry price the programs select for a particular signal is dependant upon:
1: strength of signal level;
2: strong or weak direction (trend or counter-trend);
3: first signal in a new direction;
4: signal is following a sequence of same direction signals.

The entries can vary from -.30 under the closing price to -40%
under the closing price, depending on the 4 factors above plus several other key logic elements.

There is a rare exception when the programs will pay the closing price for an entry:
When all 3 trend logic programs (simple, intuitive, all incompassing) agree on market direction and that market direction is a change of direction (potential new short term trend).

The programs have an entry price (buy limit) and a profit goal (sell limit),
but they do not provide stops or stop limits. That is simply something that I personally believe in.

 

Just bought SPY May 140 calls @1.60
Bracket set at:
2.00 sell limit
1.20 stop

 

Jeff,

I just wanted to say thank you for sharing all this information. I'm new to options and this helps me to further my education before I start trading.

Thanks again!
SR

 

Good luck, Jeff. Does your method ever trade with the prevailing trend?

 

When you consider that today the SPX is above its rising 10dma, 20dma and 50dma, I would have to say that today's call trade is in the direction of the short term (20dma) and intermediate term (50dma) uptrend, wouldn't you?