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I do not know enough about futures and options to confidently trade (but reading your thread and recommended books are helping get me over the hump.)
I have a question about the backtesting. From what I can gather, it looks like you placed a trade, waited for the 50% decay, exited trade and then placed another, etc. over the 4 year period. My question is, what would have happened it you started the test 1 day earlier or 1 day later? Keeping the same logic to what contract to enter, do you expect the results to hold if you performed the backtest starting any day of the month (yes, I recognize it's 29-30x more backtest simulations).
I am trying to convince myself the results would hold no matter what day of the month you put on this trade and the 6xIM results are not biased to the starting date. Any insight you can provide is much appreciated.
You can certainly run your own backtests and see if this is true. It takes me 4 hours to do a 4 year backtest using XLS-SPAN.
A true backtest would start a new position for each trading day of the 4+ years to see if there was a day that a position suffered a loss. Just starting a different day in Jan 2013 wouldn't give you true results.
The reason you can trust my strategy based on what has happened in the last 4 years is that many times I have picked the worst day to enter trades in that time frame and shown the results. This thread has many examples. Like entering on 20150817 right before the 20150824 crash. Or entering late Dec 2015 before the early 2016 crashes.
The problem with a high delta short is if you have a slow steady drop and stay low that short could easily be ITM or on margin call.
Now a quick drop will make a profit by the longs making more profit than the short lost. 20150824 is an example of …
Now things could happen in the future that are different than what has happened the last 4 years that might show a losing trade. I wish CME would release the files so we could backtest 2008 & 2009 and know how margin required for a position changed those years.
I challenge anybody to find a day since 2012 that you would enter my strategy and have it end up on margin call or the account balance goes negative. I haven't found one.
If I reentered positions on April 24th I would have sold EW3q7p1960p1700(2). They settled at 1.90 on April 24th. They settled at 1.75 on May 1st.
On May 1st I would have entered a EW3q7p1990p1750(2) spread.
So in this case waiting a week made my position worse than if I just reentered the day I exited prior positions.
Today I sold EW3q7p2000p1760(2) spread for 1.70. Only possible 1.4% MROI if exiting at 50% drop in premium in 30 days but that is what the market is giving me now.
Would there ever be times when you bought vol, for example if we fell even further to say a point where we'd only been lower 1% of trading days? Or would you just stop selling vol below a certain point due to decreased premiums and thus reduced r:r?
Since I haven't found another trade that does as well as my ES spread, I think it is better to have winners that make less, than possible losers that could lose a lot.
Right now I have 80% of my account balances in ES spreads (for IM and excess).
16.8% of account balance used to cover margin for all trades.
Since 2015 (when I started the 2 longs to one short spread) I have traded 2,647 ES spreads that have netted $93,571.78. Zero losing trades.
Can you please explain the last sentence. 2647 were the number of trades? or what? how much did you start with? how much did each trade netted on average?
Interesting, so you're Long more options than Short now?
Last Thursday's flash crash in crude oil had me question how I'm managing losses (as losses tend to do). My threshold is to get out at 300% of original premium received (for 2x loss). I try to be as mechanical as possible---but the plummet had IV so high that I really would have felt better being a seller at the time...not buying to close just because my alert went off. I obeyed my exit rule (for what ended up being a 490% loss instead of 300% because I hesitated several minutes), but the event makes me want to consider changing or improving the rule.
I had a put ratio spread with 3 short at $40, and one long at $41 in July Crude. In a period of about 10 minutes, /CL dropped from $46 to $44...then started chopping sideways.
It's something of a paradox.... The scenarios that hit your take-loss parameter for an exit (fast volatile spikes) are the ideal scenarios that you want to ENTER as a seller. Which is exactly what I did the next morning and recovered about 60% of that loss.
Which brings me to thinking this--- since take-loss-parameters are usually triggered in high IV situations, and high IV is good for sellers and bad for buyers---maybe an ideal take-loss parameter should be based more on the underlying. I know some people manage this, but I haven't figured out how yet. Any thoughts or wisdom for this greenhorn?
