(1) Finding, Back-Testing an Options Strategy (2) Position Sizing for Options

(1) First Hour: Identifying and Back-Testing a Successful Options Strategy (Don Brady)

In the first hour, I will report on systematic testing I have been doing on options strategies using historical options data.  My testing has led me to a straightforward strategy with very promising test results which aims: 

- to be completely mechanical and not entail any discretion
- not to need to make any adjustments 
- to sell net premium in the short term and buy longer term premium, seeking to make money when possible from both time decay and, on the long side, from big moves.

Although I have started trading the strategy only recently, I will justify why I expect it to perform well on an ongoing basis.

Undoubtedly, others are doing something that is related when manually "managing positions by the greeks."  I am aiming to eliminate the use of manual discretion in my approach.  I have very specific quantified results.

I hope that my talk will appeal to several different interests:

To those learning options, we will take time to explain what is going on in very simple terms, that do not really require reference to any "greeks" beyond delta. This is a key goal as I know that we have lost some people in some past meetings.  I think we can do better. We will use Think Or Swim's platform to illustrate placing trades.  

For those already trading options strategies, there will be comparisons to other approaches and we will try to find some insights together.  I will show results that show that some strategies that appear, at first glance, to be the best and highest profit strategies are frequently, in reality, the worst, once one looks closely at drawdowns.

For those interested in options strategy testing, I will talk about the issues of designing an options strategy back-tester, including obtaining historical price data, and how I addressed them in my case.

For those interested in writing code using a platform like R, I will discuss the incredible power of SQL-like queries over large time series data sets using the data.table package in R.

(2) Second Hour: Position Sizing in Options Trading, and General Discussion and Critiques (Arthur Schwartz)

As part of the second hour, Arthur Schwartz, one of our members who is most active in trading a variety of options approaches, will give a short talk, starting  around 7:45 or so, on position sizing for options trading.    Arthur has been looking at a fascinating application of the "Kelley rule" that he has been studying.  No prior familiarity with the Kelly Rule is needed, as Arthur will explain it in his exceptionally clear manner.

We will also invite Arthur and our other experienced options traders to critique my talk from the first hour, and have a general questions and answers session on any aspect of trading options ("ask anything").

The meeting is free.  We have lots of room - the full combined meeting room space.  IBD group members and others can just show up if they do not wish to join this group and RSVP.

After the meeting at the Library ends around 8:45, those of us inclined to stay up for a while longer (we realize that not everyone can) usually get together at a nearby restaurant / tavern and you're welcome to be part of that also.  Undoubtedly we will discuss Options some more along with other topics.

By the way, separately, we are arranging a talk for a later month by an outstanding researcher on options trading strategies. One goal of this month's meeting is to get us ready for that later talk, so please try to attend this month for that reason also.






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  • Tom C.

    Not the best meeting I've attended, only because I didn't come away with anything I felt I could or benefit from personally. I will say thought that I'm constantly impressed with the knowledge, experience and intelligence of the group's membership as demonstrated by the discussions during the Q & A and look forward to future meetings.

    1 · November 5, 2013

    • Tom C.

      Don, Please don't take my comments as criticism. It was more like "not what I expected" or maybe "a bit over my head"? I have done some backtesting of stocks in the past and was curious about the possibility of backtesting options. It doesn't look like something I have the time or talent for.

      November 7, 2013

    • Don B.

      Tom, Thanks for commenting! I do not take it as criticism and in any case criticism is fine. I will post some ideas on the forum within the next day or two on how one might take a simpler approach to backtesting options using a spreadsheet.

      November 10, 2013

  • Doug

    I missed the event.
    Would it be possible to hold it on a monday?

    November 6, 2013

    • Don B.

      Hi Doug, We used to meet on Mondays but that has conflicts for some of our other members unfortunately. Actually the Library was very full and believe it or not Nov. 5 was the only date available for the whole month with the exception of dates right around Thanksgiving.

      November 6, 2013

  • Dr. Jose' R.

    Great to hear our own members give interesting presentations on thought-provoking ways to trade and share their discoveries with us!

    November 6, 2013

  • Andrew H.

    Looking forward to my first meeting with the group.

    October 31, 2013

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