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  • #441
  • Edited 8:14pm Jan 15, 2018 6:50pm | Edited 8:14pm
I feel like I have a new understanding of options today, I was contemplating the Greeks. But, my intuition tells me, not just the Greeks are important, just like how gamma is important to delta as gamma indicates a positions latent delta acceleration, the other 2nd order Greeks all have potential uses, like vonna, tells us portfolio sensitivity to delta in volatility, which is important if you are doing spreads. (Intuition, to be refined)

Thinking back, I think my problem was I underestimated how premium decays when spreads go ITM too fast. So if I can Vega hedge that portion, that will be the way to go.

So suppose you have a 1 by 1 bull call spread, if price drops, you can roll your short closer to lower your break even and actual loss, but if it goes and stays at the upper strikes positions, the main issue here is Vega is high and at this position the long call Vega is low, the short call Vega is high, so although you made money on spot price, the premium is still expensive, but the key will be to figure how to lock in the current delta profits, or/and hedge Vega values.

Notice that when you use spreads, IV itself does not matter as much, since you have Vega on both side, but in this case, IV skewness is the main issue here.

In the case of naked short options, IV is a problem, as selling low IV may cause you to take too much risk and not compensated enough for it.

As for long calls and puts IV is too, as it's a wasting asset.

IV is the markets pricing in uncertainty and their view of volatility.
  • #442
  • Jan 18, 2018 2:45am Jan 18, 2018 2:45am
Ah, I have an enlightenment today with regards to the post above, the reason why my rescues are ineffective, probably because I did not factor in ro3k into my actual dance, but only used ro3k to see the higher tf of who is in what terrain. And because of that I mistimed my rescues, and just 1 to 2 mistakes like this on fibo skew could lead to quite high skew usage.

The lessons are all there in the taf thread, I was just too inexperienced to see it, because reading it is 1 thing, comprehending what is said is another altogether.

As for the triangular arbitrage relationship, it can be used to do the actual rotation if position is still desirable, instead of cutting and flipping.

Also the currency index which Phil is using is sort of like price action of all major pairs and crosses all condensed into their respective charts.
  • #443
  • Edited 4:39am Jan 21, 2018 4:07am | Edited 4:39am
i wonder about something, does tail risk have something to do with butterfly?

essentially, the major risk components in a portfolio will usually come from afew areas, price crash risk, and in multiple asset correlation, on top of the price crash risk, the correlation risk, which is how much of your portfolio is too correlated it becomes no different from a single gigantic bet?

basically studying the insights into this, will give me more edge when in the death battle scenario.

there are 2 ways to handle the crash scenario, and running into the death battle scenario, 1 way is stated above, the 3legged animal, to capitalize on current volatility and momentum, this is a reactionary stance.

the other is a preventive stance, and im researching this.

interesting stuff in this link, essentially, similar idea to mine, the question is, what is the cost of hedging and if it is cost effective to maintain such strategies?
http://www.labiful.com/wp-content/uploads/2016/03/TailRiskHedging_S%C3%A9bastienJacques.pdf

also in the article, similar strategies like the 3 legged animal, where there could be tearing risk.
  • #444
  • Jan 21, 2018 4:25am Jan 21, 2018 4:25am
i have an enlightenment today, which is that, option strategies are way to help you express your view of the market, buying spot in a range, may be a way to trade a mean reverting market, but an alternative is using options butterflies, limited risk, and when used in conjunction with taf short chart timing skills, it can be enhanced further.

that is, in a trending environment, using options is usually ineffective, as the premium erodes your performance, in mean reverting environments, options can help you out, but using spot vs using options, different strategies, different risk profile.

for spot, if a tight stoploss takes you out, a wide stoploss kind of losses its purpose, so perhaps options is better? but options you need your timing to be right.

so perhaps the key is some kind of mutated butterfly
  • #445
  • Jan 23, 2018 11:57pm Jan 23, 2018 11:57pm
Meta correlation analysis.

When 2 seemingly uncorrelated assets become increasingly correlated.

Is that you see the shift in correlation numbers from a 0.5 to at least 0.8.

1 example is the flight to safety, it's very iconic during market crisis.

Bonds and stocks are usually not as correlated, but during certain systemic events, they become very correlated, which is the flight to safety.

Suppose we apply this analysis to the 3 legged animal, we will see how their correlation shift.
  • #446
  • Edited 6:39am Jan 24, 2018 5:53am | Edited 6:39am
In the book, the market wizards or 1 of it in the series which has Anthony Saliba being interviewed, I saw that his main method of trading was scalping options, in short range, while buy otm puts and calls, and how he scalp the range is through spreads, sometimes time spreads like butterfly sometimes debit spreads or credit spreads (my guess).

This is a viable method, with possibility of extreme robustness towards black swan events. Essentially crisis will never take you out.

I will continue researching this mo, I believe many useful properties of options can be gleamed from such insight.

1 strategy is that, if you are a term trend trader, and want to withstand Whipsaws, you can use the form of backspreads, the long 2 short 1 variation, where it is limited risk unlimited profits, and with such form, the limiter is from the location of the breakeven, essentially you are speculating run away markets.

I am wondering, if executing backspreads, on 1 week options, is it viable?

Butterfly plus spot?
  • #447
  • Edited 9:05am Jan 24, 2018 8:28am | Edited 9:05am
I think I have a better appreciation for the Greeks today after a thought occured to me, if viewing my collar position previously, it is safe to say that, according to the Greeks, if price hit my upper strikes, my delta and gamma with about max volatility and time premium are still there, and for that reason, since theta and Vega which contributes to premiums are high, and with being ATM on the strike of the short call, delta for further dated options have a smaller number and gamma is relatively small, whereas for nearer dated options, delta is going to be relatively large at the short strike and gamma will be high, implying there is latent acceleration in p&l fluctuation per dollar, so we gamma we can spot inflection points where delta requires hedging.

So if gamma and delta is low but we are near strikes, what can we do? Effectively, we have a position that is full of time premium and if as time passes, gamma and delta will increase.

I feel like solving this will clue me to best practise of managing debit spreads.

I guess different people have different way of learning, I just looked at what the book by Charles cottle wrote, man, everything I wrote above about greeks, is all written there, I read the book but can't comprehend it, I guess I'm a hands on person, I learn by doing.

This is interesting, I see from the book, that how the Greeks shift as price changes, and as you go near the top strike, your position delta risk has not shifted much, gamma is fairly slow if you are further out on expiration, but theta and Vega, has expanded. This essentially tells us where the risk components come from.

Effectively, when price trades to your short strikes in a very short amount of time, the long call options has little time value, and the short call doesn't budge or may even have it's premium increased, it's as good as effectively managing a covered call, except with limited downside risk.
  • #448
  • Edited 11:06am Jan 24, 2018 10:41am | Edited 11:06am
Expiry selection and strike selection i knew this was important, but now i think i got a feel for it. So speed of market and volatility determines strike and expiry date.

If speed is fast, maximize delta, if speed is slow, may need more time.

Strike selection is tied to terrain.

Hmm seems like my strike selection is wrong, if i buy a monthly atm call and short a 150 pip away call i pay 60pips, but my potential is 70pips, implication is perhaps i am choosing stikes too close off.
  • #449
  • Jan 24, 2018 11:45am Jan 24, 2018 11:45am
https://youtu.be/8fr_yswp5Ho

What thus guy says is interesting, it alludes to theoretical edge trading?

Mainly for credit spreads.
  • #450
  • Jan 25, 2018 1:55am Jan 25, 2018 1:55am
Hi CookieMonsta

good video on the basic mechanics of working out probability, should be used in spot as well when working out how to scale a trade using the higher and lower frames coupled with the now situation we find ourselves in..... the only problem with spot is there are no actual %'s given so only experience can be your guide to assign the probability model we create.

regards

Phil.
-be careful about what you allow to be put in your mind-
  • #451
  • Edited 6:41am Jan 25, 2018 3:45am | Edited 6:41am
Quoting phil13
Hi CookieMonsta good video on the basic mechanics of working out probability, should be used in spot as well when working out how to scale a trade using the higher and lower frames coupled with the now situation we find ourselves in..... the only problem with spot is there are no actual %'s given so only experience can be your guide to assign the probability model we create. regards Phil.
Hi Phil,

Yep, that is what indicators attempt to replicate I guess.

As for if it is advisable to pursue such a stance towards trading using probabilities, I believe it can only be through experience or feel the pulse of market aspect. That way it maximised your capacity to learn and augment the model to adapt to market conditions, as the probabilities will keep shifting.

Essentially, Fti's advice, you are the edge when trading the markets.
  • #452
  • Jan 25, 2018 9:19am Jan 25, 2018 9:19am
https://youtu.be/ESdF5FigepQ

Good stuff, i guess he highlighted my mistakes to me.

Essentially the theta shifts
  • #453
  • Jan 28, 2018 5:30am Jan 28, 2018 5:30am
there is a use case for indicator based trading, its highly unorthodox, but the insight gleamed from it may be highly educational.

the basic moving average trend based strategy, use this and trade it with a demo account, this is your scout, for market being trendy.

a range based trading strategy, use this and trade with a demo account, this is your scout for choppy market terrain.

why 2 which are pretty much opposite of each other? because mechanical strategy on balance lose money in terrains they are not meant to trade, and make money on terrain which they are meant to handle.

this tells us if a trading strategy goes into a string of losses, the market has become the other terrain it is unable to handle, hence the moving average of returns from these 2 DEMO accounts, gotta stress this, nobody should ever use this kind of method with real money, we are just tracking the markets, not trying to trade the markets.

main reason why, is because once you see the string of losses or general p&l curve from these 2 account shift, you technically should see a shift in market terrain for quite awhile.

i have noticed some funds do pure mechanical strategies, so the idea came from that. is that when these funds keep making mistakes like these and cannot deviate because of their portfolio mandate, you can sort of track their performance to understand market's terrain, and use their mistakes to enhance your skill.

its an idea which i got from the market wizards book series, some of the market wizards are pit traders and floor traders, and how they trade, is by looking at who in the pit is consistently winning for perhaps the past week, and who is losing for the past week, those winning the past week, you may want to copy in a strategic way, those who kept losing you may want to fade them in a strategic way. the same idea is applied here, except on funds, and you can't see their face either.
  • #454
  • Edited 7:44am Jan 28, 2018 6:51am | Edited 7:44am
https://www.youtube.com/watch?v=L7G0OfJUON8

something about the conflict of interest in the industry

i believe that also explains the section about fti saying that derivative markets, cfd cannot affect actual price

well the day trading part, im not too sure, those brokers need to make money too, well thats where they stop hunt right? so, piggy back on their stop hunting?

not saying what is highlighted here regarding the brokers do is right, but the markets are a battlefield, you not ready, don't step in, just gotta know, you look after your own money, everyone is there to hit everyone else.

thats also always why you have to do your own homework, demo on your account till you are satisfied before doing it with real money.
  • #455
  • Edited 9:06pm Jan 28, 2018 8:55pm | Edited 9:06pm
https://en.m.wikipedia.org/wiki/Nyquist_rate

The Nyquist theorem, it is a computer science phenomenon. But what has it got to do with trading? Well very simple, the rate at which we recognize hips and lops, by the number of bars, which is the sampling rate, must be much faster by 2x the actual data rate.

Have you seen choppy markets which are 1 strong bar up 1 strong bar down? On a 1hr chart? And you have no idea what it wants to do? Answer is, the 1hr chart is ineffective for detecting the correct current sample rate of the markets. The sample rate of the markets itself keeps shifting up and down depending on what's happening as well.

Hence, shifting timeframes when markets are fast is important.

The candle sticks are a price action condensation tool, it represents the price and volatility information, OHLC, in a segment of timeframe, perhaps 1hr if you choose. Hence knowing how to switch timeframes when needed is important.

Reason is because if you clean out too much data, you remove important data, you will not have effective analysis because important data is cleaned out. Hence getting a good feel that perhaps for current conditions, the say 5min is not good and going to 1hr or h4 is not good and going to 15mins for a more accurate representation is a useful skill to have.
  • #456
  • Edited 12:17am Jan 30, 2018 12:03am | Edited 12:17am
Quoting CookieMonsta
https://en.m.wikipedia.org/wiki/Nyquist_rate The Nyquist theorem, it is a computer science phenomenon. But what has it got to do with trading? Well very simple, the rate at which we recognize hips and lops, by the number of bars, which is the sampling rate, must be much faster by 2x the actual data rate. Have you seen choppy markets which are 1 strong bar up 1 strong bar down? On a 1hr chart? And you have no idea what it wants to do? Answer is, the 1hr chart is ineffective for detecting the correct current sample rate of the markets....
The barbwire type terrain is usually the kind of problem which is the issue here, barbwires itself does not show hips and lops and no direction, implication is, only taf mo type trading mo with a move to average position can handle such terrain, otherwise single entry type mo may be able to handle it dependent on your ability to time trades and entry mo and exit mo.

But if ability to time trades on single entry mo is not as good, there is a good chance you can get churned out. So for single entry trade mo usually when you see such coils, you just let it cool and trade other stuff.

Volatility and speed and the above Nyquist sampling rate, tells us that perhaps, when markets are transiting into these kinds of coil, it is better to leave such markets alone if trading single entry mo.

For taf mo, if trapped in such terrain, depends on where your position net skew is at, other tactics may be employed to handle such terrain.
  • #457
  • Jan 30, 2018 10:31am Jan 30, 2018 10:31am
Quoting CookieMonsta
https://www.youtube.com/watch?v=L7G0OfJUON8 something about the conflict of interest in the industry i believe that also explains the section about fti saying that derivative markets, cfd cannot affect actual price well the day trading part, im not too sure, those brokers need to make money too, well thats where they stop hunt right? so, piggy back on their stop hunting? not saying what is highlighted here regarding the brokers do is right, but the markets are a battlefield, you not ready, don't step in, just gotta know, you look after...


Hi CookieMonsta

Good video on how the industry works, very similar to what fti has told us to research.

What he is saying about day trading and scalping is not to only restrict your training to developing only those skills as the market must be traded according to how it moving (fti also does this by leaving part of his trades/skews in if he thinks the situation warrants it), recently I also mentioned that we should all be well practised in trading over all terms (look at my U/J 3 month trade) and take each one as they come at you by the situation we create for ourselves. Though he is at the end of the day selling courses himself but…. With the difference of him being in the game himself with evidence to back it all up, he does seem to actually allude to some ways of trading that I picked up on in that video that are most likely part of his paid course, do not know if it is because I have been around for a while now or not but I got what he says about how to trade and find trades as it is pretty much along the lines of what I do anyway (trying to follow the bigger players basically), I like how he says the entries are not as important as the time taken to find a reason to push the button....i also believe scaling in was touched on very briefly.

Regards

Phil.
-be careful about what you allow to be put in your mind-
  • #458
  • Edited 7:17pm Jan 30, 2018 6:57pm | Edited 7:17pm
Quoting phil13
{quote} Hi CookieMonsta Good video on how the industry works, very similar to what fti has told us to research. What he is saying about day trading and scalping is not to only restrict your training to developing only those skills as the market must be traded according to how it moving (fti also does this by leaving part of his trades/skews in if he thinks the situation warrants it), recently I also mentioned that we should all be well practised in trading over all terms (look at my U/J 3 month trade) and take each one as they come at you by the...
Hi Phil, yes, he is selling a course, he has some samples in his channel, I think he is the real thing, but his mo is fairly macro, as his materials can be checked against entry level economics textbook for college.

I have not bought his course so I could be wrong, but from what his samples show, I inferred these information.

As for its validity, I believe what he has there is fairly strong, 80% fundamental analysis 20% technical analysis. However the mo is more for portfolio managers who trade macro timeframes.

I believe what comes to mind is general conditions? Jesse Livermore mentioned such. It's more global macro.
  • #459
  • Feb 2, 2018 10:01pm Feb 2, 2018 10:01pm
First day back to dancing the taf mo with 3 legged animal, after having a long period of hiatus because of work commitments.

Blotter as below, many areas for improvement spotted, timing, as well as holding on to winners, and perhaps i could be more aggressive since on wind.

trades taken 10mins after nfp came out.

the timing of the trades booked is actually US hours timing, no idea why its not in SGT.
Attached Image (click to enlarge)
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  • #460
  • Feb 3, 2018 2:42am Feb 3, 2018 2:42am
Just an idea building on the above video on probability of profits, what if for butterflies, we calculate the breakeven price to have a 15% chance to lose money, so if it's a butterfly, it will have a 70% chance to stay within the breakeven strikes, and then we calculate how much we make on risk reward.

This leads me to think perhaps here is the theoretical edge.
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