I am going through your feedback and will be logging the
suggestions. The problem I still see with a table is when the
trade is pending. I am concerned someone will see it in the
table and take it as a signal. Maybe not, but I could tell
you some stories. We could highlight the line say yellow when
its pending or something but I don't know coding wise what
headache's that causes.
I did bring up the sticky comment to Matt and I like it but I
would then think that we should then use less sticky's overall to
make it clear and not have other notices clogging up the
space. I was even saying that we could leave a sticky up with
the current trade until the trade is closed. As for
integrating the Current Trade tab or page into here I just think
that's a headache and will cause more work than its worth. It
would basically be a very complexly coded sticky so why not just do
a sticky. Since Matt generally posts the trade on the blog it
shouldn't be a big deal to make it a sticky and keep it there.
Frankly the more I thought about it last night I think there
needs to be: a little better wording on BPT's part, a little better
delivery, a little less member whining and hand holding and
everything would likely work pretty well the way it is.
Let's maybe slow down on the ideas during the day here so the
board can get back to any system discussion/questions and
announcements.
Thank you everyone for your help and I will continue to work
through the posts and PMs.
Need some help here ... I went ahead and converted an excel
spreadsheet to a google doc (successful), but have no idea how to
upload it and share it here. Help! Thanks.
tumbler did a great job showing us the options trade of the SPY
system. I am wondering if anyone has access to historical options
prices to research a potential profit target. The cheapest rate I
can find for such data is $250 (for one month's access) and I want
to avoid that right now!
Instead of a draw down, I would look for the max profit level
the options traded at every day during the trade. For example, if
we could see that in 70% of the trades the options got to at least
a profit of 50%, then we could use that as a profit target and
either sell or at least put a mental stop in to lock in profits
should the SPY and option position begin to deteriorate
significantly.
On this first trade for example, at one point, the options
were up at least 30% and may have been higher, I wasn't watching
that closely. So if 30% was the profit 'draw up' for lack of a
better term, and you took that profit there instead of a loss you
would have locked in profits.
Also, there was a time the other day you could have re-entered
at the same initial price or lower and traded again....that one
would have ended up closing for a small loss.
Anyone have the data and want to crunch the numbers? Time
intensive, I know. Or you can give me access, I will run them this
weekend. End of day data, high and low is all that is really
needed.
I went through all of the multi-entry trades using SPY options.
I think the results are compelling. As expected, subsequent entries
had a higher win %. I haven't compiled all of the stats, but the
win/loss ratio on entries 2-4 appear to be higher. In other words,
with option leverage you get more bang for the buck.
Keep in mind SPY options started trading in Jan. 2005. If you
had bought 10 SPY contracts, using at the money strikes, 50-80 days
from expiration, for EVERY trading signal (multi-entry) the results
are impressive. The backtesting data I use isn't precise, so the
results are directional.
In my backetesting, the multi-entry system using options with
the criteria listed above had a gross P/L of $285K (since 2005).
That compares to the multi-entry system result of $347K since
1995.
Needless to say, at the very least, options are worth looking
into. If you don't have experience trading options remember to
paper trade before you put real money at risk.
Here's the link to the google doc.
https://spreadsheets.google.com/ccc?key=0Aozz_o09dO3mdEpVcC1lNzY4cEU1MnEwWkVNYzBzcFE&hl=en&authkey=CN3ZlJEJ#gid=0
You can adjust the number of contracts per trade in the upper
right corner.
When I have time I'll dig deeper into the results and post more
findings. Good trading everyone!
The first trade of any series on the traditional spy equity side
of the spreadsheet seems to be based on a purchase
amount $100,000. Shouldn't this be only $40,000 for the
1st buy? (if you are following Matt's multi entry spreadsheet?)
Your ideas and work really get my brain pondering so many
different possibilities.
tj6p - thanks for bringing this up. You are right. I manipulated
the spreadsheet to do the options analysis. The stock portion is a
mix of single and multi-entry - a jumbled mess. I will try to get
that straightened out. Thanks again.
Posted by falcon5678 on 18th of May 2011 at 01:12 pm
Tumbler, what assumptions are you making for the
implied volatility levels you are paying. Over the years
we've seen VIX levels anywhere from 15 to 70, with the S&P
implied ranges accordingly wide. In particular,
near month vols can move around very rapidly so it's pretty
tough to assume a given vol level for your at-the-moneys.
Perhaps if you followed a chart of implied vols for the S&P
over the time period used you would get a more accurate estimate of
profit/loss (not to mention say an average slippage of a nickel to
trade in and out of the options). You can find something like
this at
www.ivolatility.com.
It would be a lot more work but would be much more accurate
in the end. It sounds nitpicky but vol levels are paramount
to option trading and will make a big difference to returns.
falcon - not sure I understand your question. I didn't make
assumptions for vols. Just back tested based on the entry/exit
signals. Since the entry/exit times are fixed the only variable
with regard to volatility would be skew. Granted skews will vary
based on market conditions, but given the trade's time horizon and
investment constraints not sure it would change your selection
criteria (near month vs. farther out).
Posted by falcon5678 on 18th of May 2011 at 04:06 pm
Tumbler, how did you derive your profit or loss number for a
given option? For example what were the prices you
chose at those entry/exit points and how did you arrive at those
prices? Look at the chart below. The yellow
line represents SPY implied volatility (the actual price you pay)
over the past year. In June of 2010 an at the money with 50
days to go might have cost you $3. In Feb of this year the
same call might have cost you $1.75, all else being equal. In
Jan of 2009 it might have cost $5. While holding the option,
the implied levels would have dropped at certain times in the
year (most of the time in fact) and cost you (Vega risk-the risk in
general volatility levels dropping). Also, are you including
time erosion in the mix? I read your assumptions list but I
don't see these issues addressed, and they are incredibly important
to the final profit/loss. In fact, I would generally
disuade folks from using options with this system unless they
are very well versed in option greeks and the associated
risks.
The skew will matter to some extent as an option goes from at
the money to in the money - in fact it will likely cost you in
extra slippage since market makers will want to buy deep calls at a
discount to intrinsic value. This would be an added cost to
playing options in the system.
Falcon, profit and loss for a given option was the difference
between the price paid for the option at the close of the session
(per entry rules) and the price of the option sold at the open of
the session (or close of the session for a put - again per exit
rules). I bought ATM strikes which I believe are the best fit for
this system. Discretion then comes with time value - how far out in
time do you want to buy?
The assumption for options purchased was a minimum of 50 days to
expiration and a max of approx 80 days. I did not buy near month
options to reduce affects of theta decay. The tradeoff is vega, and
in periods of high volatility there is vega risk to the position.
If you look at a volatility chart for SPY, the period of high vols
was relatively brief. Therefore, I would prefer to account for
theta decay. One could argue both are moot points based on an
average trade length of 12 days.
Bottom line in my opinion is how high is high? Based on this
crude analysis the results show positive expectancy - like the SPY
system. To your point there are many ways to optimize the use of
options with the system.
Posted by falcon5678 on 19th of May 2011 at 11:29 am
Tumbler, how did you generate the option prices. Did
you get actual end of day and opening bid/ask prices for all of
them? The would have been a lot of work!
Falcon, yes I got actual prices for each day/trade (closing and
opening prices). Yes, alot of work but worth it.
By the way, I updated the google doc. It has multi-entry data
for stock and options trades. The stock trades are a lift from
Matt's data. The last trade is included.
Posted by falcon5678 on 19th of May 2011 at 12:36 pm
Well my apologies then! I assumed you generated prices
based on a ramdom pricing model but if you based the trades on
actual bid/ask prices that is fantastic work! The vol
levels don't matter then for your results. I
suppose they matter in a general sense since anyone trading
options should be aware of those risks but as far as your results
are concerned - great work! Thanks for doing this. You
are right that the risks are mitigated by the average trade
length. Bottom line is - when a system is correct on 9 out of
10 directional trades you're going to make money trading options,
no matter how much the vols are moving.
Falcon, if you see the worksheet it is a clean entry exit set up
with each trade averaging around $4400....so to make the profit
numbers using less than 5% of the capital of the SPY normal $100k
system, well now THAT is good leveraging !!!
My question earlier, about the max profit or "draw UP " % value
I think would benefit from some type of volatility study but even
there it is not necessary.
If you have the time, could you compare the single entry and the
multiple entry strategies using options, say over the period that
you've tested.
Also, Tom and I were talking about the folloiwng strategy using
the multiple entry system: Signal 1: Buy SPY; Signal 2:
Buy SSO; Signal 3: Buy SPY options; Signal 4: Buy
more SPY options or futures. If it's not asking too much
(which it almost always is), could you plug these values into your
spreadsheet to see how they compare to the single entry options and
multiple entry options strategies?
Just to clarify, are the statistics you just posted for the same
investment (in other words, are your calculations based on
something like this: invest X dollars in the single entry
system with each signal; divide X into some percentage, such as 40,
20, 20, 20 and invest that percentage of X in the multi-entry
system with each signal)?
The stats assume the same number of contracts per trade using
consistent trade criteria. So for the stats I posted the
assumptions are 10 contracts per trade (single and multi entry), at
the money strike with 50-80 days before expiration.
You could also run a model assuming a fixed investment - say
$10K per trade - but you would have to adjust each trade as they
would have a different number of option contracts. Unfortunately my
crude excel skills make it easier and more timely to use a fixed
number of contracts.
What I am trying to show is the risk/reward using options for
the SPY System is outstanding (regardless of using fixed investment
vs. contracts). My hunch is it's better than buying stock, though
you'd need a quant to really crunch the numbers. What I find
particularly appealing is limited risk - especially if your short
and concerned about black swan events. I'd rather have $10K at risk
vs. $100K.
So, to get it straight, in your calculations, if the multi-entry
system has four trades, it invests four times as much as the single
entry system. Is this correct?
Posted by lessarda on 18th of May 2011 at 12:00 pm
If you happen to be on page 3, for example, of the Community
Posts tab and click the SPY tab, you will be in page 3 of this
blog. Since I can't see why that would be intentional -- especially
since they don't run parallel in terms of posts/times/etc. -- I
bring it up as a potential fix. I know always using the "Recent"
link in the left column will avoid this, but if the SPY tab is
there for convenience, the parallelism works against it.
Thanks.
Also, the SPY channel isn't in the choices today if you are
using "Make a New Post", so I'm replying to Tom to be sure this
ends up in the right place. Has the mechanism for new posts in the
SPY channel changed? Thanks again.
I think after you save the Document in Gdocs you can then go
through the "Share" options which I believe you can then set the
link so everyone can view. I will try and check that out in a
bit when things calm down.
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Feedback
Posted by tom on 18th of May 2011 at 08:29 am
I am going through your feedback and will be logging the suggestions. The problem I still see with a table is when the trade is pending. I am concerned someone will see it in the table and take it as a signal. Maybe not, but I could tell you some stories. We could highlight the line say yellow when its pending or something but I don't know coding wise what headache's that causes.
I did bring up the sticky comment to Matt and I like it but I would then think that we should then use less sticky's overall to make it clear and not have other notices clogging up the space. I was even saying that we could leave a sticky up with the current trade until the trade is closed. As for integrating the Current Trade tab or page into here I just think that's a headache and will cause more work than its worth. It would basically be a very complexly coded sticky so why not just do a sticky. Since Matt generally posts the trade on the blog it shouldn't be a big deal to make it a sticky and keep it there.
Frankly the more I thought about it last night I think there needs to be: a little better wording on BPT's part, a little better delivery, a little less member whining and hand holding and everything would likely work pretty well the way it is.
Let's maybe slow down on the ideas during the day here so the board can get back to any system discussion/questions and announcements.
Thank you everyone for your help and I will continue to work through the posts and PMs.
Tom, paragraph #3 gets my
Posted by tj6p on 18th of May 2011 at 09:08 am
Tom, paragraph #3 gets my vote!
How do you upload a google doc?
Posted by tumbler on 18th of May 2011 at 08:32 am
Need some help here ... I went ahead and converted an excel spreadsheet to a google doc (successful), but have no idea how to upload it and share it here. Help! Thanks.
Hey tumbler, I think you
Posted by jambo1 on 18th of May 2011 at 10:35 am
Hey tumbler, I think you need to post the links rather than upload the sheets.
options trading
Posted by perthx on 18th of May 2011 at 11:22 am
tumbler did a great job showing us the options trade of the SPY system. I am wondering if anyone has access to historical options prices to research a potential profit target. The cheapest rate I can find for such data is $250 (for one month's access) and I want to avoid that right now!
Instead of a draw down, I would look for the max profit level the options traded at every day during the trade. For example, if we could see that in 70% of the trades the options got to at least a profit of 50%, then we could use that as a profit target and either sell or at least put a mental stop in to lock in profits should the SPY and option position begin to deteriorate significantly.
On this first trade for example, at one point, the options were up at least 30% and may have been higher, I wasn't watching that closely. So if 30% was the profit 'draw up' for lack of a better term, and you took that profit there instead of a loss you would have locked in profits.
Also, there was a time the other day you could have re-entered at the same initial price or lower and traded again....that one would have ended up closing for a small loss.
Anyone have the data and want to crunch the numbers? Time intensive, I know. Or you can give me access, I will run them this weekend. End of day data, high and low is all that is really needed.
ThinkorSwim has a back-tester that
Posted by tom on 18th of May 2011 at 11:44 am
ThinkorSwim has a back-tester that published the closing prices of options but I am not sure if there is a data export feature to get a range of dates
Multi-entry system using SPY options
Posted by tumbler on 18th of May 2011 at 12:05 pm
I went through all of the multi-entry trades using SPY options. I think the results are compelling. As expected, subsequent entries had a higher win %. I haven't compiled all of the stats, but the win/loss ratio on entries 2-4 appear to be higher. In other words, with option leverage you get more bang for the buck.
Keep in mind SPY options started trading in Jan. 2005. If you had bought 10 SPY contracts, using at the money strikes, 50-80 days from expiration, for EVERY trading signal (multi-entry) the results are impressive. The backtesting data I use isn't precise, so the results are directional.
In my backetesting, the multi-entry system using options with the criteria listed above had a gross P/L of $285K (since 2005). That compares to the multi-entry system result of $347K since 1995.
Needless to say, at the very least, options are worth looking into. If you don't have experience trading options remember to paper trade before you put real money at risk.
Here's the link to the google doc. https://spreadsheets.google.com/ccc?key=0Aozz_o09dO3mdEpVcC1lNzY4cEU1MnEwWkVNYzBzcFE&hl=en&authkey=CN3ZlJEJ#gid=0
You can adjust the number of contracts per trade in the upper right corner.
When I have time I'll dig deeper into the results and post more findings. Good trading everyone!
Great job, tumbler. The first
Posted by tj6p on 18th of May 2011 at 02:19 pm
Great job, tumbler.
The first trade of any series on the traditional spy equity side of the spreadsheet seems to be based on a purchase amount $100,000. Shouldn't this be only $40,000 for the 1st buy? (if you are following Matt's multi entry spreadsheet?)
Your ideas and work really get my brain pondering so many different possibilities.
Thanks!
tj6p - thanks for bringing
Posted by tumbler on 18th of May 2011 at 03:12 pm
tj6p - thanks for bringing this up. You are right. I manipulated the spreadsheet to do the options analysis. The stock portion is a mix of single and multi-entry - a jumbled mess. I will try to get that straightened out. Thanks again.
Tumbler, what assumptions are you
Posted by falcon5678 on 18th of May 2011 at 01:12 pm
Tumbler, what assumptions are you making for the implied volatility levels you are paying. Over the years we've seen VIX levels anywhere from 15 to 70, with the S&P implied ranges accordingly wide. In particular, near month vols can move around very rapidly so it's pretty tough to assume a given vol level for your at-the-moneys. Perhaps if you followed a chart of implied vols for the S&P over the time period used you would get a more accurate estimate of profit/loss (not to mention say an average slippage of a nickel to trade in and out of the options). You can find something like this at www.ivolatility.com. It would be a lot more work but would be much more accurate in the end. It sounds nitpicky but vol levels are paramount to option trading and will make a big difference to returns.
falcon - not sure I
Posted by tumbler on 18th of May 2011 at 01:39 pm
falcon - not sure I understand your question. I didn't make assumptions for vols. Just back tested based on the entry/exit signals. Since the entry/exit times are fixed the only variable with regard to volatility would be skew. Granted skews will vary based on market conditions, but given the trade's time horizon and investment constraints not sure it would change your selection criteria (near month vs. farther out).
Tumbler, how did you derive
Posted by falcon5678 on 18th of May 2011 at 04:06 pm
Tumbler, how did you derive your profit or loss number for a given option? For example what were the prices you chose at those entry/exit points and how did you arrive at those prices? Look at the chart below. The yellow line represents SPY implied volatility (the actual price you pay) over the past year. In June of 2010 an at the money with 50 days to go might have cost you $3. In Feb of this year the same call might have cost you $1.75, all else being equal. In Jan of 2009 it might have cost $5. While holding the option, the implied levels would have dropped at certain times in the year (most of the time in fact) and cost you (Vega risk-the risk in general volatility levels dropping). Also, are you including time erosion in the mix? I read your assumptions list but I don't see these issues addressed, and they are incredibly important to the final profit/loss. In fact, I would generally disuade folks from using options with this system unless they are very well versed in option greeks and the associated risks.
The skew will matter to some extent as an option goes from at the money to in the money - in fact it will likely cost you in extra slippage since market makers will want to buy deep calls at a discount to intrinsic value. This would be an added cost to playing options in the system.
Falcon, profit and loss for
Posted by tumbler on 18th of May 2011 at 05:28 pm
Falcon, profit and loss for a given option was the difference between the price paid for the option at the close of the session (per entry rules) and the price of the option sold at the open of the session (or close of the session for a put - again per exit rules). I bought ATM strikes which I believe are the best fit for this system. Discretion then comes with time value - how far out in time do you want to buy?
The assumption for options purchased was a minimum of 50 days to expiration and a max of approx 80 days. I did not buy near month options to reduce affects of theta decay. The tradeoff is vega, and in periods of high volatility there is vega risk to the position. If you look at a volatility chart for SPY, the period of high vols was relatively brief. Therefore, I would prefer to account for theta decay. One could argue both are moot points based on an average trade length of 12 days.
Bottom line in my opinion is how high is high? Based on this crude analysis the results show positive expectancy - like the SPY system. To your point there are many ways to optimize the use of options with the system.
Tumbler, how did you generate
Posted by falcon5678 on 19th of May 2011 at 11:29 am
Tumbler, how did you generate the option prices. Did you get actual end of day and opening bid/ask prices for all of them? The would have been a lot of work!
Falcon, yes I got actual
Posted by tumbler on 19th of May 2011 at 11:58 am
Falcon, yes I got actual prices for each day/trade (closing and opening prices). Yes, alot of work but worth it.
By the way, I updated the google doc. It has multi-entry data for stock and options trades. The stock trades are a lift from Matt's data. The last trade is included.
https://spreadsheets.google.com/ccc?key=0Aozz_o09dO3mdEpVcC1lNzY4cEU1MnEwWkVNYzBzcFE&hl=en&authkey=CN3ZlJEJ#gid=0
tumbler , does your historical data
Posted by perthx on 19th of May 2011 at 12:47 pm
does your historical data give you the high and low for an option each day too?
perthx, unfortunately it doesn't. I
Posted by tumbler on 19th of May 2011 at 01:54 pm
perthx, unfortunately it doesn't. I know that would make your project much easier.
thx tumbler
Posted by perthx on 19th of May 2011 at 02:16 pm
yeah i my just have to go ahead and pay the $250 for a single month for such data.
Tom-think or swim appears to offer closing data only.
I think it has Open,
Posted by tom on 19th of May 2011 at 03:18 pm
I think it has Open, High, Low, Close
Well my apologies then! I
Posted by falcon5678 on 19th of May 2011 at 12:36 pm
Well my apologies then! I assumed you generated prices based on a ramdom pricing model but if you based the trades on actual bid/ask prices that is fantastic work! The vol levels don't matter then for your results. I suppose they matter in a general sense since anyone trading options should be aware of those risks but as far as your results are concerned - great work! Thanks for doing this. You are right that the risks are mitigated by the average trade length. Bottom line is - when a system is correct on 9 out of 10 directional trades you're going to make money trading options, no matter how much the vols are moving.
volatility? we dont need no stinking.....
Posted by perthx on 18th of May 2011 at 03:07 pm
Falcon, if you see the worksheet it is a clean entry exit set up with each trade averaging around $4400....so to make the profit numbers using less than 5% of the capital of the SPY normal $100k system, well now THAT is good leveraging !!!
My question earlier, about the max profit or "draw UP " % value I think would benefit from some type of volatility study but even there it is not necessary.
tumbler -- again, thanks so
Posted by Michael on 18th of May 2011 at 03:00 pm
tumbler -- again, thanks so much for this work.
Thank you for the work
Posted by algyros on 18th of May 2011 at 12:18 pm
Thank you for the work that you've done.
If you have the time, could you compare the single entry and the multiple entry strategies using options, say over the period that you've tested.
Also, Tom and I were talking about the folloiwng strategy using the multiple entry system: Signal 1: Buy SPY; Signal 2: Buy SSO; Signal 3: Buy SPY options; Signal 4: Buy more SPY options or futures. If it's not asking too much (which it almost always is), could you plug these values into your spreadsheet to see how they compare to the single entry options and multiple entry options strategies?
Again, many thanks.
Comparing single entry to multi-entry
Posted by tumbler on 18th of May 2011 at 12:37 pm
Comparing single entry to multi-entry since 2005:
single entry: 97 trades, 85 wins, gross P/L $150K
multi entry: 156 trades, 138 wins, gross P/L $285K
I'll crunch the scenario you outlined - will take some time.
Again, many thanks. Just to clarify,
Posted by algyros on 18th of May 2011 at 12:47 pm
Again, many thanks.
Just to clarify, are the statistics you just posted for the same investment (in other words, are your calculations based on something like this: invest X dollars in the single entry system with each signal; divide X into some percentage, such as 40, 20, 20, 20 and invest that percentage of X in the multi-entry system with each signal)?
The stats assume the same
Posted by tumbler on 18th of May 2011 at 12:59 pm
The stats assume the same number of contracts per trade using consistent trade criteria. So for the stats I posted the assumptions are 10 contracts per trade (single and multi entry), at the money strike with 50-80 days before expiration.
You could also run a model assuming a fixed investment - say $10K per trade - but you would have to adjust each trade as they would have a different number of option contracts. Unfortunately my crude excel skills make it easier and more timely to use a fixed number of contracts.
What I am trying to show is the risk/reward using options for the SPY System is outstanding (regardless of using fixed investment vs. contracts). My hunch is it's better than buying stock, though you'd need a quant to really crunch the numbers. What I find particularly appealing is limited risk - especially if your short and concerned about black swan events. I'd rather have $10K at risk vs. $100K.
So, to get it straight,
Posted by algyros on 19th of May 2011 at 07:42 am
So, to get it straight, in your calculations, if the multi-entry system has four trades, it invests four times as much as the single entry system. Is this correct?
SPY blog tab pages run parallel to Community Posts tab pages...
Posted by lessarda on 18th of May 2011 at 12:00 pm
If you happen to be on page 3, for example, of the Community Posts tab and click the SPY tab, you will be in page 3 of this blog. Since I can't see why that would be intentional -- especially since they don't run parallel in terms of posts/times/etc. -- I bring it up as a potential fix. I know always using the "Recent" link in the left column will avoid this, but if the SPY tab is there for convenience, the parallelism works against it. Thanks.
Also, the SPY channel isn't in the choices today if you are using "Make a New Post", so I'm replying to Tom to be sure this ends up in the right place. Has the mechanism for new posts in the SPY channel changed? Thanks again.
I think after you save
Posted by tom on 18th of May 2011 at 09:50 am
I think after you save the Document in Gdocs you can then go through the "Share" options which I believe you can then set the link so everyone can view. I will try and check that out in a bit when things calm down.