ROM of HIPS and LOBS

The below expired.

6/21/18 STO SOLD -1 /ESU8 1/50 JUN 18 (Wk4) /EW4M8 2745 PUT @2.00

The return on margin for the last three weeks of this strategy is about 9%.

This conclude the review of HIPS and LOBS.

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LOBS signal setup

Today LOBS signal appeared.

6/21/18 STO SOLD -1 /ESU8 1/50 JUN 18 (Wk4) /EW4M8 2745 PUT @2.00

The below expired.

6/18/2018 STO SOLD -1 /ESU8 1/50 JUN 18 (Wednesday) (Wk4) /E3CM8 2795 CALL @2.00

Weekly Option: Theta Gain with Gamma Risk

weeklies.jpg

When I looked at my trades, realized that almost 90% of them are on weekly options.

Weeklies advantages are :

  1. Theta decay is most fierce in the last week of expiration
  2. Plenty opportunities to do Earning play
  3. Technical Signals setup; Hammers, Shooting stars and crossover .etc
  4. Ride on Macro news like FOMC, Oil inventories or any major news
  5. Counter like SPX have three expiry dates within a week
  6. Big counters with weeklies are gaining more liquidity and thus easy to close or exit

 

There are a few downsides of the weeklies :-

  1. Gamma risk (positions get tested often)
  2. Adjustment is almost impossible
  3. Commission cost

Of late, I have been trading on a new broker platform and that save me a huge commission cost with $1 per contract and no closing cost.

tastyworks

Do open an account with tastyworks.com if you trades weeklies.

Penny Increment Options watchlist on TDA

 

pennyincrementoption

Recently, at local option gathering group, we were discussing using TDA scan to identify stocks to play options. A friend ask for me for any good watchlist. I recommended them to use penny increment options from TDA platform that provide optimal price and  liquidity for option.

 

 

 

Earning Play

EA wk30

A good friend wanted to know what I do before market open. I told him that I usually plan my trades before market open. He asked how do I plan and can give him some specific example.

Example : This period is earning season and I will plan for earning play. I would list down all the after-market and before-market earning and list down all the counters. I prefer to do post-earning trades or when the earning result is announced. The stock will have a general direction where it is heading, I would put in my option trades and within 5 days I will be out of the trades.

earning play.PNG

Setup

  1. List down those stocks earning After Market closing and Before Market opening result
  2. Observe the earning result to get a sense of general direction
  3. When market open,  note the price direction (spot trend or candle signals)

Entry

  1. Enter when there is confirmation
  2. Chose weekly option or DTE within a week (at most two weeks)

Rationale

  1. Probability of win is high (follow trend strategy)
  2. Premium may be low but time decay is fast
  3. Effective use of margin as every week the margin is replenish

 

I caution my friend that following other people option method may or may not suit his character or nature. The best is that one should develop his own and practice it into  perfect with fullness of time in the market.

Back Testing Weekly Option on SPY

backtest SPY

The above is the result of back test of SPY using delta neutral strategy.

Assumptions

  1. Weekly option open on Monday
  2. Premium collected around $0.15
  3. Close on the last day market close
  4. Loss is calculated base on the different of the 1 SD and closing price
  5. Strategy used is Delta neutral (Strangle or IC with $2 wide spread )

Observation

  1. The 17 trades resulted in a net loss
  2. Undefined risk or wide spread protection will result in higher loss
  3. Winrate 82% but the 3 trades loss can wipe out the profit
  4. Commission will result in a bigger loss

Conclusion

Even with stop loss for every trade or use 1 SD IC with maximum $1 loss spread will result in a loss and the commission will wipe out that profit. This option system is not workable in long run.