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I use the five days to calculate an average 1 day. So the factor is X 16 for
the one day. You can annualize out any vol. by assuming a 256 day year (trading
days)and just look at the square root of the period. So 1 day is the square
root of 256 for a 16 factor. If you used 1 week you would use the square root
of 52 or a factor of 7.21. I have to assume there is no monopoly on ways it
"might" work.
ROBERT ROESKE wrote:
> What is the annualizing factor if 3 or 4 or 6 days are used? 5 days uses 16
> for the annualizing factor.
> Thanks,
> BobR
>
> ----- 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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