High Profit EOD based option Strategy for Advanced Traders

[pannalal]

Dear Pannalalji,
I never checked the probability of a strike price reaching or not...for me any number you say is reachable in markets. I wont go with probability for that reason. However your way of analysing makes sense but only problem i feel is how many of us have patience to hold on to the trade even if its in loss?
If you trade with real money in market, you will exit when you see a huge loss but it may come to profit in later stage but I feel its more about mental strength rather than the strategy itself. So whether you use software or algo doesn't matter much.

I know people may get offended by this post but truth is one has to try the strategy with REAL money in market to get to know how he behaves when market goes against him and test for min 1 year!!!!:thumb:

Dear Ananthji,

That is the exact point. We need to reduce loss to minimum. As soon as market starts going against you, either close the trade or hedge your position.

 

[DanPickUp]

Dear Pannalalji,
I never checked the probability of a strike price reaching or not...for me any number you say is reachable in markets. I wont go with probability for that reason. However your way of analysing makes sense but only problem i feel is how many of us have patience to hold on to the trade even if its in loss?
If you trade with real money in market, you will exit when you see a huge loss but it may come to profit in later stage but I feel its more about mental strength rather than the strategy itself. So whether you use software or algo doesn't matter much.

I know people may get offended by this post but truth is one has to try the strategy with REAL money in market to get to know how he behaves when market goes against him and test for min 1 year!!!!:thumb:

Who told that we have to hold on to a trade when in loss?? As the BE is clear or must be clear when trading according with this strategy, we act when market touches them. That is called: Adjustment strategies/ in other cases Repair Strategy and a must know in advance when thinking to trade such kind of option strategies. We know what we do when market will touch our BE. Mental strength is a nice word and comes to its full power when we are able to make a decision and in this case: Market want or is touching our BE, so we act now. Here we show mental strength by taking action. We roll over our leg/s one strike up or down or what ever is needed or convert into an other strategy. My friend: That is called: Option strategy trading.

 

[ananths]

Dear Ananthji,

That is the exact point. We need to reduce loss to minimum. As soon as market starts going against you, either close the trade or hedge your position.

Who told that we have to hold on to a trade when in loss?? As the BE is clear or must be clear when trading according with this strategy, we act when market touches them. That is called: Adjustment strategies/ in other cases Repair Strategy and a must know in advance when thinking to trade such kind of option strategies. We know what we do when market will touch our BE. Mental strength is a nice word and comes to its full power when we are able to make a decision and in this case: Market want or is touching our BE, so we act now. Here we show mental strength by taking action. We roll over our leg/s one strike up or down or what ever is needed or convert into an other strategy. My friend: That is called: Option strategy trading.

I agree with both of you. One needs to have a plan to trade such a strategy. What I feel is the repair strategy itself can go against you. That's the reason one needs to have live experience in trading such a strategy.
For example on 18th sept market gap up +140 and close +200, next day gives up all gain.
In Dec market saw new highs(6400+) on election result day...if one had taken a hedging leg that day would have lost in that hedge.

So one needs to have real money in market to see how he does.

Please don't think i'm criticising the strategy. My point is its the individual who trades it makes the difference. may be with experience he would be able to manage it well.:thumb:

 

[DanPickUp]

I agree with both of you. One needs to have a plan to trade such a strategy. What I feel is the repair strategy itself can go against you. That's the reason one needs to have live experience in trading such a strategy.
For example on 18th sept market gap up +140 and close +200, next day gives up all gain.
In Nov market saw new highs(6400+) on election result day...if one had taken a hedging leg that day would have lost in that hedge.

So one needs to have real money in market to see how he does.

Please don't think i'm criticising the strategy. My point is its the individual who trades it makes the difference. may be with experience he would be able to manage it well.:thumb:

@Ananths: Never mind. Do not worry about that. To help out here a little bit:

What ever option strategy you trade in your live, you will face events which will bring exactly that strategy to its absolute limits and you even can face losses. That is a fact and if some body searches for the perfect option strategy> You know what: That does not exist. The clue is to act at the needed time in a way which means to reduce loss for that certain moment. As the whole strategy is based on probability, odds are already in the favor of the user of that tool. One point to consider: Time frame which is used for such kind of option strategy trading. As shorter, as more professional and experienced the user of that strategy must be. So starting with such kind of strategy and having little experience in option trading is best done when doing it with far out of the month options and closing the trade before option expiring month starts. This just an add on you may can not or can trade in your market.

 

[pannalal]

Dear Pannalalji,
I never checked the probability of a strike price reaching or not...for me any number you say is reachable in markets. I wont go with probability for that reason. However your way of analysing makes sense but only problem i feel is how many of us have patience to hold on to the trade even if its in loss?
If you trade with real money in market, you will exit when you see a huge loss but it may come to profit in later stage but I feel its more about mental strength rather than the strategy itself. So whether you use software or algo doesn't matter much.

I know people may get offended by this post but truth is one has to try the strategy with REAL money in market to get to know how he behaves when market goes against him and test for min 1 year!!!!:thumb:

Dear Ananthji,

We are all novice here. You are far more experienced. We won't listen to professors of top class universities of the world. We also won't listen to fund managers who are managing funds of hundreds of billions. They gave these useless theories about probabilities and valuations of options. Please give your theories. We are all ready to listen. It will be great if you give your own theorem on valuation of options. If not, please start with the basics:

(1) Assumptions behind the PDE of Black-Scholes Model
(2) How to derive closed form solution from PDE?
(3) How to compute greeks?
(4) What are the advantages and disadvantages of Binomial Tree pricing?
(5) When we should use finite difference methods for option pricing?
(6) How to compute IV when strike price and premium is given?

I shall be glad to have answers of the above from Ananthji.:clap:

 

[pannalal]

@Ananths: Never mind. Do not worry about that. To help out here a little bit:

What ever option strategy you trade in your live, you will face events which will bring exactly that strategy to its absolute limits and you even can face losses. That is a fact and if some body searches for the perfect option strategy> You know what: That does not exist. The clue is to act at the needed time in a way which means to reduce loss for that certain moment. As the whole strategy is based on probability, odds are already in the favor of the user of that tool. One point to consider: Time frame which is used for such kind of option strategy trading. As shorter, as more professional and experienced the user of that strategy must be. So starting with such kind of strategy and having little experience in option trading is best done when doing it with far out of the month options and closing the trade before option expiring month starts. This just an add on you may can not or can trade in your market.

Danji,

The basic idea of computing probability on day to day basis is to know exactly where you stand. As soon as you find that probability of loss is increasing, you can either exit the trade or hedge it (repair strategy or whatever you call it). In 99% of cases, market gives enough opportunity to exit the trade with lesser profit (or in some cases with loss). The key problem is Ananthji does not believe in probability. The concept of probability has come from best professors of top class universities. We can either learn from them or outright reject them, it is our choice. At the end of it, if we do not learn from them, we are losing the money.

What you said is 100% true. Perfect option strategy does not exist. I am not able to find any strategy where loss percentage is zero. If anybody wants to earn money, he/she has to take calculated risk.:thumb:

 

[ananths]

Dear Ananthji,

We are all novice here. You are far more experienced. We won't listen to professors of top class universities of the world. We also won't listen to fund managers who are managing funds of hundreds of billions. They gave these useless theories about probabilities and valuations of options. Please give your theories. We are all ready to listen. It will be great if you give your own theorem on valuation of options. If not, please start with the basics:

(1) Assumptions behind the PDE of Black-Scholes Model
(2) How to derive closed form solution from PDE?
(3) How to compute greeks?
(4) What are the advantages and disadvantages of Binomial Tree pricing?
(5) When we should use finite difference methods for option pricing?
(6) How to compute IV when strike price and premium is given?

I shall be glad to have answers of the above from Ananthji.:clap:

Dear Pannalalji,

To be frank, I don't have that much theoretical knowledge, I have only practical knowledge in trading them and facing issues when trade goes against and the adjustments and the stress.

I'm politely saying No to your request above because I don't have knowledge or time to research on them. You have better knowledge than me in theory, so I will leave this topic to you to explain rather than me.

 

[DanPickUp]

Here some help to the ongoing discussion: A free probability calculator: http://www.nondirectionaltrading.com/options-probability-calculator.htm It is very useful when understood how to use it. I by myself use proba calculation regularly, even in future trading. I was many years ago introduced to probability trading by my mentor. In todays professional option software like OpVue7, there are probability calculators included. I work with OpVue6. I also use the Monte Carlo calculator for straddles and strangles. Here an other free tool for you guys and girls: http://www.volatilitytrading.net/monte_carlo_option_calculator.htm An other tool is within Excel. If you are lucky to find one of the first very old Excels, there you will have a calculator for Standard Deviation. In the newer Excel files it no more exist. When you Google for such files be careful before you use them. Open them first only Sandboxed. A friend of mine did download such a free file and after that we found out that his system has become infected with a Root-kit Trojan. So be aware about that.

Now let me say this: Some of us prefer to trade with those tools and use them according to what is done and other option traders do not use them atoll. It is each persons choice what she/he is doing and there is no right or wrong about that. For very directional trades I will not use the probability calculator when I enter the market. I can use it in this case for an exit strategy. For option selling strategies like short straddles or short strangles I will use very well such tools. So as told: It depends what we have in mind and how we define us as option traders. According to that we use and have different ideas and tools we use in our trades. As option selling is a higher risk game, I will use as many tools as I can to to sit on the top of the trade. So for Pannalal's strategy the use of such tools makes very well sense. If you want to trade such strategies that is again your free will. If you still feel it is to risky, this those not mean that the strategy has no value. It just would not fit your "Trading in the zone" and for some it is "Trading in the zone". I posted in the past a video about a lady who made huge money in here trading and if you did listen to that what she told, then you know the value of probability trading. Here for those who missed that video: https://www.youtube.com/watch?v=BquDGE9KxZQ

@SaravananKS

You may are interested in this: Straddles and Strangles: Comparing and Contrasting these Two Volatility Strategies: http://education.optionseducation.org/course/view.php?id=109

Enjoy the day / DanPickUp

 

[pannalal]

Dear Pannalalji,

To be frank, I don't have that much theoretical knowledge, I have only practical knowledge in trading them and facing issues when trade goes against and the adjustments and the stress.

I'm politely saying No to your request above because I don't have knowledge or time to research on them. You have better knowledge than me in theory, so I will leave this topic to you to explain rather than me.

Ananthji,

Theory has its own value. Anyway, let us forget it for the time being.

You have practical knowledge in trading. Now, let me tell what I do (and some other members also):

I take the trade only if the probability of loss is less than a value (say 20%). Then, at the end of each day, I compute probability. I have a threshold (say 30% to 35% based on volatility). Once, I reach this threshold, either I close the trade or hedge it depending on the circumstances. As I am selling naked options, if the threshold is reached early (say within a week), I need to take loss. However, if threshold reaches at a later stage (say after 15 days), I earn a profit. This is more or less a mechanical system and does not require much mental strength. If threshold does not reach at all, the trade is automatically closed on the expiry date and entire premium is your profit.

Now, with your practical knowledge, please suggest the improvement in the above method.

Note: I do real trade with real money. Otherwise, there is no purpose of doing all the research and writing the software.

 

[munde_77]

Here some help to the ongoing discussion: A free probability calculator: http://www.nondirectionaltrading.com/options-probability-calculator.htm It is very useful when understood how to use it. I by myself use proba calculation regularly, even in future trading. I was many years ago introduced to probability trading by my mentor. In todays professional option software like OpVue7, there are probability calculators included. I work with OpVue6. I also use the Monte Carlo calculator for straddles and strangles. Here an other free tool for you guys and girls: http://www.volatilitytrading.net/monte_carlo_option_calculator.htm An other tool is within Excel. If you are lucky to find one of the first very old Excels, there you will have a calculator for Standard Deviation. In the newer Excel files it no more exist. When you Google for such files be careful before you use them. Open them first only Sandboxed. A friend of mine did download such a free file and after that we found out that his system has become infected with a Root-kit Trojan. So be aware about that.

Now let me say this: Some of us prefer to trade with those tools and use them according to what is done and other option traders do not use them atoll. It is each persons choice what she/he is doing and there is no right or wrong about that. For very directional trades I will not use the probability calculator when I enter the market. I can use it in this case for an exit strategy. For option selling strategies like short straddles or short strangles I will use very well such tools. So as told: It depends what we have in mind and how we define us as option traders. According to that we use and have different ideas and tools we use in our trades. As option selling is a higher risk game, I will use as many tools as I can to to sit on the top of the trade. So for Pannalal's strategy the use of such tools makes very well sense. If you want to trade such strategies that is again your free will. If you still feel it is to risky, this those not mean that the strategy has no value. It just would not fit your "Trading in the zone" and for some it is "Trading in the zone". I posted in the past a video about a lady who made huge money in here trading and if you did listen to that what she told, then you know the value of probability trading. Here for those who missed that video: https://www.youtube.com/watch?v=BquDGE9KxZQ

@SaravananKS

You may are interested in this: Straddles and Strangles: Comparing and Contrasting these Two Volatility Strategies: http://education.optionseducation.org/course/view.php?id=109

Enjoy the day / DanPickUp

Thanks , Will go through thoroughly when time permits :thumb: