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Right, I am using the VIX for the volatility component.
BR
----- Original Message -----
From: THE DOCTOR <droex@xxxxxxxxxxxx>
To: ROBERT ROESKE <bobrabcd@xxxxxxxxxxxxx>
Cc: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, November 18, 1999 9:18 AM
Subject: Re: Gen - DROEX system
> JUST ON HUGE CAUTIONARY NOTE, If you are going to try it in the index you
have
> to be very cautious about making sure your implied vol. in the index
option is
> correctly calculated. YOU have to calculate off of the implied forward
futures
> price ... which the VIX does do a great job of. It should net out in the
VIX
> because both puts and calls are used.
>
> Also it is not only a long only system ... if it works long term it should
> identify shorts as well.
>
> ROBERT ROESKE wrote:
>
> > Subject name has been changed to DROEX system.
> >
> > Gitanshu Buch and I have been playing around with the DR's code and this
is
> > my third itteration. I still see where another 100% return could be
made.
> > The system as described by the Droex was a long only system. I also see
> > where some decent coins could be picked up on the short side. Granted
there
> > are a bunch of testing no no's at this point and will address those
later,
> > but initial impressions are that he may have something decent here.
Since
> > this is kinda new stuff to me, what values should strived for in each of
the
> > outputs of the Performance Summary?
> >
> > Thanks,
> > BobR
> >
> > ----- Original Message -----
> > From: THE DOCTOR <droex@xxxxxxxxxxxx>
> > To: <realtraders@xxxxxxxxxxxxxxx>
> > Cc: <realtraders@xxxxxxxxxxxxxxx>
> > Sent: Wednesday, November 17, 1999 9:30 PM
> > Subject: [realtraders] (No Subject) {02}
> >
> > > Ron,
> > >
> > > We're giving away diamonds and nobody is listening.
> > >
> > > I can't take credit for the idea.....the original concept was
something I
> > saw
> > > about 10 years ago while sitting on the desk at Salomon Bros. back
when
> > they
> > > traded a risk account. I then discussed it with Jim Yates(May he rest
in
> > > peace)who, as you know was the pioneer in using vol. to forecast price
> > > action. Yates' work never delivered the results all of us hoped it
would,
> > > but his work was always interesting. I always believed Yates had a
good
> > > idea, but placed more value in it than it was shown to deliver. I
then
> > saw
> > > the technique used again while doing some training at a hedge fund ..
> > where I
> > > wanted to quit my job and stay. They were more successful, in almost
all
> > > market conditions, then anyone I had every seem. So successful that
the
> > > hedge fund was closed to new investors and charged an annual 50% back
end.
> > > I've played with it .. trading the stock - not the option .. for the
last
> > few
> > > months and it has worked. HOWEVER it has worked during a period in
time
> > when
> > > "I believe" it is measuring very very short term momentum. I was on a
> > desk
> > > this afternoon that began to run the simulation and back test it ...
they
> > > have a system akin to the old David Bruce machine that let's you
simulate
> > and
> > > back text "virtually" anything. We back tested a handful of stock
> > ....ORCL,
> > > APPL, DIS, AMCC, AOL, EMC, INTC, MSFT, FCS and IBM. It worked on
every
> > stock
> > > .. every time EXCEPT IBM. It appears to work well when the difference
> > > between the 5 day actual (HIGH/LOW) is much higher than the implied.
The
> > > sample is neither long enough or broad enough to assume it really
works.
> > > I've tried to do it a bit on the S & P using MERC options and one of
the
> > > problems is trading friction ... I will try it with the SPY and QQQ
in
> > the
> > > future. I really wish the MERC option was easier to trade .... I may
to
> > have
> > > to quit my job if it works just so I can trade CBOE. My guess is that
as
> > > long as money flows into the market are based on "short term" effects
and
> > not
> > > asset allocation. One clear challenge in the idea, and what the
problem
> > was
> > > in IBM ... I THINK... is issues weighted in a popular index seem to
have a
> > > BETA related momentum all their own ... which is why doing it on an
index
> > > ... when buy/sell signal exists ...could.
> > >
> > > By the way ... if I can really fine-tune it and back test out ...
you'll
> > > never hear about it again. I taught it at a couple of seminars in the
> > last
> > > few weeks, because I found it so interesting, but I should really
test it
> > > more in different market cycles. It might just be an easy time to
make
> > > money. It also means I schedule a lighter schedule and leave a couple
> > hours
> > > a day to trade... which is really screwing up my schedule.
> > >
> > > Ronald McEwan wrote:
> > >
> > > > Dr OEX passed on this gem of a piece of trading info a few days ago.
> > > >
> > > > "This results in an interesting and usually controversial
> > > > trading phenomenon ........ which has lately generated a great many
> > > > profitable trading signals. It appears lately that when short term
> > > > actual vol. of an instrument exceeds the implied vol. in the options
of
> > > > that instrument the underlying almost always rallies "
> > > >
> > > > This works great and is easy to follow if you have access to
realtime
> > > > options quotes and volatility analytic. I had some time to try to
> > > > generalize this idea and use the VIX with a calculation of the
actual
> > OEX
> > > > volatility (calculated from the daily high and low. (as I mentioned
it
> > is
> > > > only a generalization). I subtracted this volatility figure from the
VIX
> > > > (converted to get a daily volatility number). This gave me the
> > > > difference from the actual and the implied Vol. The result is the
> > > > attached chart. The chart is not confirming the recent move up in
the
> > > > OEX. I am suspect of this rally being able to sustain itself.
> > > >
> > > > Ron McEwan
> > > >
> > > > PS thanks Alex
> > > >
> > > > ------------------------------------------------------------
> > > > [Image]
> > >
> > >
> > >
> >
> > ------------------------------------------------------------
> > Name: DRoex3.gif
> > DRoex3.gif Type: GIF Image (image/gif)
> > Encoding: base64
>
>
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