Just to clarify on the

    Posted by shecar on 27th of Jun 2019 at 02:58 pm

    Just to clarify on the SPY system around the leverage employed in each trade type.  Obviously the leveraged ETFs are easy to understand (no leverage, 2x, 3x), but am I correct that that on this latest SPY Sep 20 266 Call that the effective leverage is about 10x?

    IDK, I'm an option novice

    Posted by matt on 27th of Jun 2019 at 03:02 pm

    IDK, I'm an option novice honestly, best to ask others. the SpY system could probably be traded via a better option strategy than what I'm doing. Otherwise it's also about how good is the trade signal, my thought is that as long as the system trade signals are good, the option trades will all work out in the end anyway, and gives a bit more bang for the buck not having to tie up as much capital with them. Clearly there's a huge amount of options (pun intended) that one could do.  

    I think there's probably a formula you could use regarding the delta. For example an option with a delta of 1 means that for every dollar the stock moves, the option moves 1 dollar. A 0.85 delta means that for every dollar the ETF moves, the option moves 85 cents, and 0.5 delta would be 50 cent move for every dollar the option moves basically. Higher delta options cost a lot more because they are deep in the money, vs low delta options. Yes the options move a lot more % vs the ETF, but one uses a lot less capital to account for that. 

    I trade alot of options

    Posted by sonofrebel on 27th of Jun 2019 at 03:42 pm

    I trade alot of options - let me illustrate how I make the choice with SPY Pro.
    I use OptionVue as an analytical platform; there is a feature called TradeFinder.  I set a target (in this case SPY up 5% in 20 calendar days) to look for optins that will have the highest return.  In this case the scan came up with a 4:1 return for optins around 305/306 strike.  These are only delta 20 as it turns out (for most stocks the program selects delta 30 or so).  I also assume no change in volatility - it may fall with an increase in price.  In any event, this owuld change the numbers to be a little less, but will make littel differnce in ranking.
    The issue with going out of the money as far is you suffer time decay; the 85 delta options Matt picks are really a stock substitute and have little theta.
    For the same dollar investment though, you can have 25 contracts and, if right, htte upside is quite a bit more.  If you are doing this, I would suggest you assume a complete loss of premium to set you risk level.
    Attached are three screen shots as of close of day on Tuesday (OptionVue can go back in time to the prices at that time).
    1. The run of option returns for a $1,000 investment ranked by expected return if SPY gains 5% in 15 days.
    2. The risk graph of 1 option at 266; differnet timeframes are very close as there is little theta.
    3. The risk graph of 25 options at 305; timeframes are widely spaced relfecting the theta.
    The solid vertical line is the target - I have highlighted the 27 day line in these graphs - the reward from 1 option is 50% and from 25 OTM options it is over 300%.

    Dont be seduced by the extra returns - you risk losing money a lot faster as well!  Hence my comment on sizing risk above.

    nice! thx for the post.

    Posted by matt on 27th of Jun 2019 at 03:50 pm

    nice! thx for the post.  some things to model: as I said generally mode 2 - 2 1/2 months out even though the average trade is only about 17 days. And I tend to use options at a 0.90 - 0.85 delta for 1st entries, 0.8 for 2nd entries, and 0.7 - 0.6 delta for 3rd entries.  I think personally going out to a 0.90 delta is too deep for the high probability systems since they are very high probable already.  For the original system that had more draw down the 0.90 delta options made more sense, so I'm thinking the first entries might be better to go 0.8 delta.  I've also been told that going out 2 plus months is too far, I should only go out 1 month, but I'm not sure about that.  anyway if you have thoughts on that or could model some things I'd really appreciate it.

    SPY

    Posted by sonofrebel on 28th of Jun 2019 at 08:24 am
    Title: SPY

    I posted a detailed follow

    Posted by sonofrebel on 28th of Jun 2019 at 09:10 am

    I posted a detailed follow up here with screen shots but seems tohave disapeared?  If so, can repost later - if it re-appears, it would be nice

    Thanks for you post -

    Posted by steve on 28th of Jun 2019 at 09:17 am

    Thanks for you post - just click on the "Title:SPY" to expand your post.  Since it was so detailed and long it was condensed.

    guys I edited that last

    Posted by matt on 27th of Jun 2019 at 03:19 pm

    guys I edited that last post of mine, when I edit it, the auto refresh doesn't catch it, so make sure to hard refresh the blog by clicking on the Chronological button at the upper left to see my new added comments to the options question post

    thanks for all this, any

    Posted by shecar on 27th of Jun 2019 at 07:02 pm

    thanks for all this, any further developments on best ways to execute is appreciated.

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