What are some Basic Strategies that have Worked for You?

taowave · Feb 17, 2020

Like what you wrote,but the OP basically blew up trading basic shit and overleveraged..

Hes a white belt...he needs to get the basics down

TommyR said:
options are extremely popular with hedgefunds to take directional bets. they are the worst possible way to do this. the more exotic the combination of options used the worse they become particularly cheap exotics like knockouts.
it is usually very easy to make a lot of money in very volatile times with most strategies so options should be used to make you indifferent to market vol. vix can't do this because the 1m forward variance swap doesnt lose vega (decay) as the days pass becuase it has a constant length, it decays because the number of expected shocks before settlemt decrease . the only way on a day like today to not make less than on a coronavirus day is to use options. options should be sold to manage the return profile during prologned low vol periods because they print money as time passes. they need to be algorithmically executed with delta risks removed then optimised to maximise theta bleed. id first write the code, including how to get the delta from the price and strike, the vol you use as the black sholes vol and for pnl should be you own function of the prices, realised vols, average implied vols and probably dampened versus market. It is important it is a useful accouting metric though so should be better than the market prices at predicting realised vol so you can mark of it and use it to choose overvalued options to sell as hedges. decide how you will hedge the delta to keep it zero (use options) and set up the initial short option positions. Try weighted strikes which will minimise how often you will need to hedge delta (consider all the calls and all the puts with weightings to give you constant theta. If you aim to keep theta constant everywhere you minimise gamma and so how often you need to rehedge. Hedge using options to the same expiry. Try 1month on expensive index vols or basket of single stocks is even better. If you use it as your primary strategy you will earn enough theta over the year to make 100% easily with a draw down of less than 5% (this will only be mark to market vega so will quickly be gone before expiry) It will compliment you other strategies which cant do a lot when nothing moves and vix is at 11 for 4 months. you can be indifferent to the vol at inception becuase it has most notional in the 1m wings which are always 21-25 vols independent of the atm vol level (10 -15 vols expensive) and if it goes up you will be hedging more so will sell the more elevated closer the money vol and closer to expiry so will get the benefit. even if you put this on at all time low vol levels and there is a blowup you will make money, just a bit less than the other way around. advise using your own vol marks which you are optimizing for not the black sholes vol to calculate delta and the delta of options. black sholes delta is easily calculated from the price of the call and put of the same strike by using the inverse tangent equations for their time values and intrinsic value (which you get from the price) but is less good at predicting the change in pnl and makes you trade short vol gamma. fine to use though at the start if easier
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ironchef · Feb 17, 2020

TommyR said:
options are extremely popular with hedgefunds to take directional bets. they are the worst possible way to do this. the more exotic the combination of options used the worse they become particularly cheap exotics like knockouts.
it is usually very easy to make a lot of money in very volatile times with most strategies so options should be used to make you indifferent to market vol. vix can't do this because the 1m forward variance swap doesnt lose vega (decay) as the days pass becuase it has a constant length, it decays because the number of expected shocks before settlemt decrease . the only way on a day like today to not make less than on a coronavirus day is to use options. options should be sold to manage the return profile during prologned low vol periods because they print money as time passes. they need to be algorithmically executed with delta risks removed then optimised to maximise theta bleed. id first write the code, including how to get the delta from the price and strike, the vol you use as the black sholes vol and for pnl should be you own function of the prices, realised vols, average implied vols and probably dampened versus market. It is important it is a useful accouting metric though so should be better than the market prices at predicting realised vol so you can mark of it and use it to choose overvalued options to sell as hedges. decide how you will hedge the delta to keep it zero (use options) and set up the initial short option positions. Try weighted strikes which will minimise how often you will need to hedge delta (consider all the calls and all the puts with weightings to give you constant theta. If you aim to keep theta constant everywhere you minimise gamma and so how often you need to rehedge. Hedge using options to the same expiry. Try 1month on expensive index vols or basket of single stocks is even better. If you use it as your primary strategy you will earn enough theta over the year to make 100% easily with a draw down of less than 5% (this will only be mark to market vega so will quickly be gone before expiry) It will compliment you other strategies which cant do a lot when nothing moves and vix is at 11 for 4 months. you can be indifferent to the vol at inception becuase it has most notional in the 1m wings which are always 21-25 vols independent of the atm vol level (10 -15 vols expensive) and if it goes up you will be hedging more so will sell the more elevated closer the money vol and closer to expiry so will get the benefit. even if you put this on at all time low vol levels and there is a blowup you will make money, just a bit less than the other way around. advise using your own vol marks which you are optimizing for not the black sholes vol to calculate delta and the delta of options. black sholes delta is easily calculated from the price of the call and put of the same strike by using the inverse tangent equations for their time values and intrinsic value (which you get from the price) but is less good at predicting the change in pnl and makes you trade short vol gamma. fine to use though at the start if easier
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Please kindly run that by me one more time, in language a layperson can understand.

As an amateur retail, I have a hard time understanding what you wrote and what you were trying to tell us.

Perhaps @taowave can help translate it for us?

Best to you.

traider · Feb 18, 2020

Nothing basic about trading options. Just as tough as trading everything else.
If you want to have a different return profile while still being exposed to the equity risk factor, you can read this
http://optionsoffice.ru/wp-content/uploads/2016/03/Goldman-Sachs_The-art-of-put-selling.pdf

taowave · Feb 18, 2020

That was in a higher vol enviorment.I haven't checked,but I can't imagine the strategy has faired that well vs buy and hold.

Hard to outperform a runaway bull market by selling puts non leveraged.

traider said:
Nothing basic about trading options. Just as tough as trading everything else.
If you want to have a different return profile while still being exposed to the equity risk factor, you can read this
http://optionsoffice.ru/wp-content/uploads/2016/03/Goldman-Sachs_The-art-of-put-selling.pdf
More...

ChrisDouthit · Feb 18, 2020

The strategy that works the best for me is highly researching a company, establishing an opinion about where the stock is going to go, then sell premium against the position with about 45 days to go till expiration. This is a sweet spot when options decay quickly.

Here we want to rack up many small wins that at a big over time.

themickey · Feb 18, 2020

ChrisDouthit said:
The strategy that works the best for me is highly researching a company, establishing an opinion about where the stock is going to go, then sell premium against the position with about 45 days to go till expiration. This is a sweet spot when options decay quickly.

Here we want to rack up many small wins that at a big over time.
More...

How much time do you spend researching a particular company?
Where do you go for such information?

zghorner · Feb 18, 2020

ChrisDouthit said:
The strategy that works the best for me is highly researching a company, establishing an opinion about where the stock is going to go, then sell premium against the position with about 45 days to go till expiration. This is a sweet spot when options decay quickly.

Here we want to rack up many small wins that at a big over time.
More...

Do you simply sell naked options or do you define your risk with some type of hedging position? I feel that selling like you described will give the most consistent wins but like you mentioned they are small...and From what I have read what ends up happening is a long series of wins gets wiped out with a single big loss. since people typically short OTM options when it swings against you holy shit how the losses stack up quick. Classic “pennies in front of steam roller” type of deal.

ChrisDouthit · Feb 18, 2020

themickey said:
How much time do you spend researching a particular company?
Where do you go for such information?
More...

My team and I spend about 4 to 8 hours a day researching companies, but that's what I do for living. We then post our research reports on Option Strategies Insider.

ChrisDouthit · Feb 18, 2020

zghorner said:
Do you simply sell naked options or do you define your risk with some type of hedging position? I feel that selling like you described will give the most consistent wins but like you mentioned they are small...and From what I have read what ends up happening is a long series of wins gets wiped out with a single big loss. since people typically short OTM options when it swings against you holy shit how the losses stack up quick. Classic “pennies in front of steam roller” type of deal.
More...

I never sell naked options as a recommendation, all my recommended trades have defined limited risk. I do a lot of vertical spreads, butterflies, and iron condors. However, in my personal account, I do sell short-term straddles and strangles, but I definitely would not recommend anyone do that without having a firm grasp on what you're doing.

traider · Feb 18, 2020

ChrisDouthit said:
I never sell naked options as a recommendation, all my recommended trades have defined limited risk. I do a lot of vertical spreads, butterflies, and iron condors. However, in my personal account, I do sell short-term straddles and strangles, but I definitely would not recommend anyone do that without having a firm grasp on what you're doing.
More...

Are you trading or investing? Why only 50 trades a year for someone doing it full time? It will take forever to know if your edge is statistically significant.