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Hi RTers
I have used this method on a number of commodities very successfully.
I write strangles when the following criteria are met:
1) IV is running "relatively high"
2) less than 45 days to expiration
3) when the return on margin exceeds a given % when the option stirkes are
*at least* 2 std deviations (based on close to close over the last 30 days)
out. For my given profit targets, I have sometimes been able to go out 3
or 4 SD's. Those times are an option writer's dream.
Historical options data is difficult to obtain.
However, using something like trade station, you can pick an aribrary date
and plot upper and lower limits, and then replot every so many trading
days. Then see how often those lines are violated.
Remember, even if the limits are violated, you may still be able to close
the position at a profit. Also you can "roll" the position up or down and
still stay in the trade.
Watching IV's and money management are certainly the keys.
I have a 99% winning percentage in some commodities.
I have had 2 rather spectacular losses - one my own fault and one an "act
of god".
I was naked a bunch of JY when something strange happened over the weekend
and the yen opened limit up and the IV skyrocketed. I won't trade the
currencies other than daytrading now.
Regards,
Paul Weston, CTA
Message text written by INTERNET:shazlewood@xxxxxxxxxx
>> I just finished reading a book by someone called K. Anand containing
some rudimentary option strategies (backspreads, naked strangles, hedged
with a long straddle when IV falls, etc.)
>
> The news in it was the following: according to the author Implied
Volatility provides the real range for the market over any given time
period. Thus you take the at the money IV for let's say the S&P and
project the market range based on this number. F!
or example, assume the following:
>
> Sept S&P is @ 1200
> At the Money IV = 15%
> Days to expiration (August) = 32
>
> Expected movement = sqr root (32/365) * 1200 * .15 = 53
> Expected range at expiration = 1147 to 1253
>
> The real news is that, according to Anand, this range has held true
historically 90% of the time. He therefore recommends strategies that are
short at 1 sigma based on the at the money IV.
>
> Since I have not been able to find a database of at the money IV for the
S&P, I have not been able to back test the theory. Any comments?
>
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