What is best option on trend-following strategy

Discussion in 'Options' started by pollock, May 18, 2010.

  1. pollock



    To prevent being wiped out using futures only, I want to use options on my trend following strategy. At the very end, I have posted quick stats based on past performance of my strategy. Looking fwd to suggestions and insults! Assume I have access to floor options and no slippage.

    Here is my strategy:
    When I see a buy signal, I buy 10-15% OTM calls with 40days to go. Once I see my sell signal I liquidate these calls.

    Initially this OTM, short-dated option has small time value and vega. Once the mkt moves in my favor, the option gets close to AtM, so I gain on delta as well as time value. I choose 40days so by the time i get out around 20days remaining, the massive theta decay hasnt started yet. I remain exposed to vega and lose theta for 20 days but by my calcs this is small.

    Some Stats on my trend following method:

    I capture 10% (of flat price) trends and take 20days on avg. On false signals, I am able to cut losses at 2% and this takes 3 days on avg starting from the day I entered. Implied vol on this commodity = 30% roughly.

  2. are you using a break out (donchian) theory to get your signals? i find that it is more successful to buy options once a trend has clearly started,because of the short term nature of options.the most important two things you need to consider are:

    diversification,several different positions to offset risk,and..

    the state of the market vs. your strategy.it may seem simple,but the most important part of options is maintaining long positions in a gaining market and puts in a declining market.simple,but if the market is choppy,very very difficult to apply
  3. taowave


    Don't like the strategy. .

    I am assuming you are trading an option position with a delta of 1. Why trade the otm as opposed to itm.

    Where is historical vol,above or below 30.
    Do you trade with a specific risk reward ratio,or only exit on sell signsls.

    What's the slippage on the options?

    What's your edge by trading otm as opposed to the underlying,other than the sleep factor?
  4. xandman


    this a dead thread from 2010. i recommend you contact the admin using the "report" function. asj them to close this thread for that reason and your intent to change threads. then, continue the dialogue from the oct 2014 thread which is much better.