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John,
Our system provides us with absolutely no indication in terms of trading
market or bull or bear move. Actually, we seem to do equally well in a
trading market as long as the trading range is fairly broad. Since we seem
to be able to pick those turning points, we have made a lot of money in this
type of market. I'd be overjoyed in the NASDAQ would continue to trade
between 3,000 and 5,000 forever. :) Same with the S&P.
A few years ago I mentioned that long bull or bear moves without
consolidations, retracing, etc. are where we do the worst. I think 1997 (if
my memory hasn't failed me) was our worse year ever, and while we made a
100% return that year, our profitable trade percentage declined to below
60%, which is highly unusual for us. We spent a lot of time working on this
and subsequently modified our trading rules (not the system or the
calculations) to better handle this type of market. With this modified rule
set, we are able to maintain our historical profitability percentages
without sacrificing control.
I should drop a warning in here. The current market appears to work well
with our system and we are running slightly above our historical 75% correct
profitability level. In case anyone is following what we do, they should
remember that historically we're wrong on 1 out of every 4 trades. Never
forget that.
Here are the dates of all of our futures trades since last October (when we
started keeping track of them for our little family newsletter). You can
see that we're always in the market. I will look at your VIX suggestion to
see if there might be any relationship to our trades.
10/11/99 Sell 1343.00
10/26/99 Buy 1285.20 57.80
10/27/99 Sell 1327.00 41.80
11/23/99 Buy 1409.00 (82.00)
12/23/99 Sell 1477.50 68.50
01/28/00 Buy 1365.00 112.50
02/01/00 Sell 1415.50 50.50
02/28/00 Buy 1327.20 88.30
03/06/00 Sell 1410.70 83.50
04/03/00 Buy 1513.20 (102.50)
04/07/00 Sell 1517.00 3.80
04/14/00 Buy 1439.00 78.00
04/25/00 Sell 1444.00 5.00
05/09/00 Buy 1430.50 13.50
05/16/00 Sell 1428.50 (2.00)
05/30/00 Buy 1381.80 46.70
06/05/00 Sell 1476.50 94.70
06/13/00 Buy 1467.00 9.50
06/20/00 Sell ????
We are running over 82% correct at this point in time, however we always
have to keep in mind our 75% historical number. You can see that our trade
duration varies from 1 day (10/26/99) on up. The last couple of trades
being 0ne week in duration.
That loss last November hurt. It was right at that point when we were able
to increase the size of our trades (based upon our money management rules).
Of course the April loss didn't help and it took a while to recover. That
loss could have been avoided, but my brother and I had been dissecting a
trading rule change for the past 3 years (we don't like to rush these
things). I was the con and he was pro. I didn't think it made much
difference, but this loss (real money) helped convince me to surrender. :)
As you can see, we don't make changes just because they might eliminate a
loss. It's easy to tailor a rule set to fit the market. That's why we
don't optimize. When we discover something that looks like it might have an
impact on our trading, we first back-test if for up to 12 years. Second, we
start to watch the current market and paper trade the changes while still
trading the old rule set. In this case, we've been monitoring it for 3
years. The proposed change helped, but I wasn't convinced that it made any
sense (logically and mathematically). After 3 years of paper trading, and
making sure it didn't negatively impact our system, and after that huge
loss, I finally gave in and we added the new rule to the rule set.
I guess what I'm saying is that we have a collaborative effort here, and
don't make changes on the spur of the moment. It's taken us a long time to
realize that we need to look at our trading over a longer window. Like last
year when we finally incorporated money management techniques. Since then,
and since we have taken this long-term approach to trading (like not having
to make a million dollars by Friday) we have succeeded in building our
trading capital to a substantial amount. I'm comfortable taking smaller
positions, as I know it really doesn't matter in the long term. After doing
this for 45+ years, I'm finally maturing. :)
Guy
Paranoia...you only have to be right once to make it all worthwhile!
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]On
Behalf Of John Manasco
Sent: Wednesday, June 21, 2000 5:03 AM
To: metastock@xxxxxxxxxxxxx
Subject: Re: Selecting options or writing uncovered options
Guy
Spreads can be used for many purposes and in many markets. For example if we
are in a trading range market a spread may be an even better way than a
directional play to squeeze some money out of the market. Does your system
ever not have a strong opinion of the market direction? That may be a good
time to put on a spread trade. Your example of a spread is just one small
example of a large number of combinations available. And like I said I do
think spreads are a good way to price a future that is locked and extricate
oneself from a position. Also, an understanding of the uses and applications
of spreads is helping me get a better understanding of the market.
Having said all that I do initiate more directional trades than spreads. If
I do my research and feel I'm right about the direction of the underlying
I'll buy or write contracts depending on my outlook. This has been very
profitable at times but also kinda gut wrenching at the wrong times. I use a
broker who accepts stops on options so I sleep better.
If you're going to play the OEX then I would suggest getting an
understanding of the VIX. This is the put call ratio of several at and near
the money call and put options on the OEX. When the VIX is high it's time to
buy and when the VIX is low it's time to go is a cute saying that does have
a historical basis. A VIX above 30 often signals a good buying opportunity
while a VIX below 20 is often a sell signal, or at least a signal to tighten
up your stops. These are my levels and you may come up with different ones
that you're more comfortable with.
A high VIX reading is often a good time to start writing puts. It means we
are near a market bottom and puts will lose their value in a rally faster
than a purchased call will gain value. A low VIX is a good time to write
calls although my call writes are usually not as profitable as my put
writes. In the middle you try to find support and resistance levels and move
off them. Just so you understand me I don't write options on the OEX but I
use the VIX to guide me in writing options on stocks I follow. Just another
tool in my toolbag. And yesterday I bought the OEXSR puts at $15.00. We'll
see if you or your brother are better pickers.
Good luck,
John
----- Original Message -----
From: Guy Tann <grt@xxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Tuesday, June 20, 2000 11:24 PM
Subject: RE: Selecting options or writing uncovered options
> John
>
> I've seen similar strategies used trading futures. Used them myself many
> years ago without a lot of success. I've found it sort of like kissing
your
> sister. Yes it does limit your risk, but it substantially limits your
> profits as well.
>
> Let's see if I understand you. If you write your call option at $15.00,
you
> make $1,500. Then you would have to buy a call option further out at,
let's
> say $10.00. That way you have nothing invested (you actually make $500
less
> commissions) and as long as the market moves the way you think it should,
> the further out calls should drop faster than the call you wrote. If the
> trade goes against you, you have at least limited your exposure since you
> own a call to effectively offset the one you wrote, albeit now under
water.
>
> I guess that makes sense, but I'd have to think about it. My first
thought
> is that as long as we're able to maintain our current probability of
> success, are we better off just buying the puts and calls that we want and
> not bother writing anything? I really don't know and I am trying to learn
> the best approach to use. Today I bought 10 OEXST at $17, while my
brother
> selected OEZSR Puts.
>
> We'll have to follow this through.
>
> Guy
>
> Paranoia...you only have to be right once to make it all worthwhile!
>
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
[mailto:owner-metastock@xxxxxxxxxxxxx]On
> Behalf Of John Sellers
> Sent: Tuesday, June 20, 2000 11:23 AM
> To: metastock@xxxxxxxxxxxxx
> Subject: RE: Selecting options or writing uncovered options
>
> Please consider the placing of the writing of a call option say at value x
> and also purchasing a call option at 5 or 10 dollars higher in price to
> protect your position with a an approximate maximum loss. This strategy
most
> brokers feel more protection and should make them more accommodating.
>
> This method can also be used to Puts also. Practice moderation in the
> beginning as incorrect positions are costly. I used this approach with OEX
> options in the past.
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of John Manasco
> Sent: Monday, June 19, 2000 3:20 PM
> To: metastock@xxxxxxxxxxxxx
> Subject: Re: Selecting options or writing uncovered options
>
>
> Guy
>
> Are you going to write options only on indexes or also on stocks? My
broker
> requires $100,000.00 and lots of history to write naked index options.
>
> John Manasco
> ----- Original Message -----
> From: Guy Tann <grt@xxxxxxxxxxxx>
> To: Metastock User Group <metastock-list@xxxxxxxxxxxxx>
> Sent: Monday, June 19, 2000 2:49 PM
> Subject: Selecting options or writing uncovered options
>
>
> > List,
> >
> > Well, here I come again from our normal position of ignorance.
> >
> > We're planning on getting more involved with options. For our next sell
> > signal that could arrive any day now, we plan on writing SPX Calls and
OEX
> > Calls in addition to buying SPX and OEX Puts. We have very little
> > experience buying options and have had beginners luck with our first 5
> > trades. Now we're going to get a little serious here and try to make a
> few
> > bucks.
> >
> > We've each budgeted $10,000 for buying options and another $10,000 as
our
> > exposure writing options.
> >
> > Now, I'm busy reading my option book, like a good little student. Since
> we
> > lucked out with our previous trades we're feeling overconfident. :) I
do
> > have a question regarding buying options (since I haven't gotten to that
> > chapter yet):
> >
> > How should I select what option to buy? Currently I select 'in the
money'
> > options and look for option months that have a pretty large open
interest.
> > Is there a formula or a decision process we can apply to pick the right
> > option month?
> >
> > In terms of writing uncovered options, my question is basically the
same.
> > How do we determine which options to write? I guess, even more
important
> > is, do we write options that expire out 3 months or would we write the
> near
> > month options? Again, since we're short term traders and will probably
be
> > buying these back before they expire, my guess is that we should write
the
> > near month.
> >
> > Additionally. my idea is that we should write 'in the money' options
with
> > pretty good open interest. Again, I'm sure there is a methodology
> somewhere
> > that would help us make a semi-intelligent decision.
> >
> > Any recommendations or thoughts would be appreciated.
> >
> > Thanks,
> >
> > Guy
> >
> > Paranoia...you only have to be right once to make it all worthwhile!
> >
> >
> >
>
>
>
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