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Guy raised the question of using options vs. S&P
futures. I was an Options market-maker for 5 years on
the AMEX, so am very conscious of the difference.
Considering the drawdowns with even your best
signals, Guy, options with their wasting premiums are
probably contra-indicated. Unlike futures,options
require very precise timing; it is no good being
ultimately right; you have to be right first, not
later. Otherwise, premium erosion will take away most,
if not all, of your profit.
The second problem is volatility. If you chart $VIX
over time, you can see that you have to be right, or
at least not wrong, on the level of volatility
incorporated into the premium. If you buy options and
implied volatility declines, say over a 2-week holding
period, this will have a very negative effect on the
level of premiums.
My guess is that if you do options at all, they
should be long term in-the-money LEAPS.
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