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Rudolf,
this is going to be the my last post on this, because it's getting too
time-consuming for me.
I appreciate your work as you describe it, and your enthusiasm. I am sure
there will be some interesting papers from you in the future, and I wish you
well for your endeavors.
For the time being, however, what you are writing is still mostly in the
subjunctive mood, like "if I were to do this, then all these wonderful
things would happen." Do it, prove it in the real world, then I might be
more convinced.
You write: "...all the _useful_ combinations of options to trade would
"automatically" show up if we apply an appropriate system modeling approach
to a "network" (see above) of options with "constant trading strength"."
It's a bit like saying "We would automatically be able to levitate in the
air if we applied an appropriate levitation modeling approach." Show that it
can be done! Then - more power to you!
Rudolf, in my "former life" when I taught computer science at the university
I have seen quite a few well-intentioned, highly intelligent researchers
like yourself propound theories that didn't really work out on the proving
grounds of reality. I am not saying this would be the case with your
theories, only that the jury is still out.
Lastly, please do not think of option spread trading as "traditional" and
"non-directional". It is neither. Option spread trading is not any more
traditional than the formula for solving a quadratic equation. It represents
a way of dealing with the reality of trading, just as that formula deals
with the reality of quadratic equations. Both will always be here as long as
we trade options according to the present rules, or have problems leading to
quadratics, respectively.
Nor is option spread trading necessarily non-directional, though in some
cases it is. The great thing about option spreads is that you can give three
variables - price, time, and volatility - different weightings according
your perception of the market. To give just one example - a ratio spread
certainly has a directional bias that changes in a non-linear way according
to corresponding changes in price, time, and volatility.
Rudolf, as I said before, I appreciate your work, and your spirit of
inquiry. Once you get your project off the ground, let me know.
All the best wishes,
Michael Suesserott
-----Ursprungliche Nachricht-----
Von: owner-metastock@xxxxxxxxxxxxx
[mailto:owner-metastock@xxxxxxxxxxxxx]Im Auftrag von rudolf stricker
Gesendet: Tuesday, August 15, 2000 09:44
An: metastock@xxxxxxxxxxxxx
Betreff: Re: What options to sell?
Michael,
On Mon, 14 Aug 2000 22:46:49 +0200, you wrote:
>I understand better now what you mean. It seems we
>are discussing two different things here.
Maybe, not really different, but one thing is a part of the other,
please see below.
>The trading system you are working on (and with) uses at-the-monies only,
>doesn't it?
Actually, I do it for at-the-monies only, but of course it can be done
for any "network" of options in-the-/out-of-money and for any
time-to-expiry. Its a matter of resources only.
>It sounds very interesting the way you are describing it, but it
>is not what I would call a true OPTION trading system.
If I would extend my "high frequency" (i.e. TA-based) system to
calculate signals for a "network" of options (see above) in parallel,
it would automatically include all the nice things, that traditional
("non-directional") option traders concentrate on, and your statement
below would no longer be valid:
>What is still unavailable, at least as far as I know, is a mechanical
system
>that can trade option strategies such as ratio spreads, butterflies,
>strangles etc. This is where options can play their strengths, isn't it?
I personally do not restrict myself to "non-directional" option
trading, because this imo is a artificial restriction which claims the
"efficient market hypothesis" to be 100% valid for the underlying,
beside of some other simplifications of real markets. That's why I'm
working on something like a "dynamic market trend (DMT)" model, i.e.
my "low frequency" system.
>It would be a wonderful thing to backtest and mechanize the trading of all
>the option strategies that are at our disposal, including the readjustment
>of positions with follow-up strategies, just at the push of a button.
Systematical back testing of all the traditional (non-directional)
option strategies imo would be an unnecessary expenditure, because all
the _useful_ combinations of options to trade would "automatically"
show up if we apply an appropriate system modeling approach to a
"network" (see above) of options with "constant trading strength".
This way, my option trading system imo can be seen as a more general
approach, that includes the specialized "non-directional" strategies,
which particularly becomes true, when the "high frequency" (TA-based)
and the "low frequency" (DMT-based) system components are used in
combination.
>We have great analysis tools, to be sure, but no way to backtest strategies
>on a large scale. And the reason is - insufficient historical data!
Sorry, but I wouldn't agree here fully. Even if it might be convenient
to have more historical data, the information contained in the
historics available today is used only to a very small extent. This is
in excellent agreement with other areas and disciplines, like e.g.
product design and business management, where only between 5 and 50%
of the available know-how is actually used, for which the reasons may
be seen in our education.
mfg rudolf stricker
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