Hi, just curious, found a site that seems to exploit anomalies in the options area (buing options 7 days bevore a earnings event and selling them shortly
bevore the announcement). Trick is, that Theta does not seem to take place shortly before earnings and vola going up and you get the premium.
So basically its a long vola strat. Anybody has some tips?
Also, is anybody trading options based on port123 strategies?
Best Regards
Andreas
Are you talking about steadyoptions.com? I’ve been trading there for a couple years now, that’s one of the core strategies. We sell straddles prior to earnings and exit just before the announcement. Theta is still a factor, but rising volatility offsets it to varying degrees. If you get movement on the underlying in the meantime, you can make some dough. If not, at least your downside risk is mitigated.
It definitely works, but it takes a lot of effort managing entries and exits.
I am also trading directional positions based on P123 signals (this is much easier money tbh). PM me if you like, maybe we can swap some ideas.
I have been looking into this lately as well. I researched the steadyoptions strategies as well. As far as I can tell their main strategy of selling going into earnings and closing just before cannot handle any significant size. It also relies on very specific stock selection that requires too much discretion for my liking. Overall, options in individual stocks seem too illiquid and I cannot imagine there is really any edge to be found in trading index options. There are so many complex strategies, but I keep ending up coming back to the same place that backtesting options too the extent we can stocks just isn’t there and there is no edge here.
What I keep coming back to, however, is the idea that if you can come up with a decent stock strategy, does it make sense to hedge it with an index LEAP put for the year with a cost of 6% or so? Ignoring all the greeks and what can happen over the course of a year, a LEAP might make sense when looking a one year timeframe at cost of 6% or so (depending on IV at the time). This would be prohibitively expensive if investing in index funds, but if you believe your stock model has at least 6% alpha annually, it could be solid.
I would say from having talked to the guys there that most of the traders on SO have accounts around the $40K range, some up to $100K. There are probably a couple hundred guys following those trades, maybe more. There’s also a pooled fund following them that is moving several hundred contracts per trade. So aside from a few of the more thinly traded issues (which we’ve learned to avoid), liquidity doesn’t seem to be problematic. Remember too that options volume generally spikes heading into these events.
Guys with larger accounts will typically follow alternative strategies, with condors or collars on the major indexes. Less profitable, but appropriate to larger accounts.
I like to sell calls against Dividend Champions when either:
[]Equity is going ex-dividend
[]RSI(2)<10I have set up some screens for them, but it’s easier to do it myself in EXCEL. One reason is that I can estimate an upcoming ex-dividend date based on last year’s ex-dividend date for the quarter – I don’t need the company to have declared the dividend.
For RSI(2), I like to do some ETFs as well. That creates an extra step on P123 because of the separation between stocks and ETFs.
Thank you all for the discussion! I was refering to CMLviz.com and their option trade backtesting mashine (only three years backtest the rest of the backtest is based on backtest in videos).
I do not trade stuff, that is not documented by academics to be robust, I could not find the
theta trade (theta disapearing in front of earnings announcements) and rising vola (in front of earnings).
I will research further and let you know and come back with private messages.
Anyone else trading options only on p123 screens, portfolios?
CMLViz is somewhat useful. They now have 5 years of data. It offers very little in terms of controlling entry and exit; it’s oriented more towards continuous rolling trades. If you have some ideas lined up ready for testing, give it a try for a couple months and then cancel. It doesn’t take long to exhaust the possibilities.
Their videos and posts are curve-fit garbage designed to lure in the unwary.
Hi Andreas
I used to sell puts 1 to 2 months out on high quality stocks which are in a weekly oversold status. It is pretty consistent, but it still eats up margin and requires some manual trading and I could not backtest it. But I still trade/traded it once in a while. It should fit nicely into a more momentum-biased portfolio.
Best regards,
whotookmynickname
I use options to trade a short portfolio. Mainly bear call spreads + puts. Probably the only way to safely short stocks. I don`t think there is an exploitable edge in option trading alone.
Btw I used http://www.optionsplay.com
I liked it. Let me know what your thoughts are.
I use Optionsplay as well. It is a good resource to test scenarios but does not allow back testing. The aspect I like is the ability to enter a daily play to spread bets with positive expectation over time.
Thank you all!!!