Modeling a Strategy

Discussion in 'Stock Market' started by william the wie, Apr 1, 2011.

  1. william the wie
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    william the wie Gold Member

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    My goal minimal losses 87.5% of the time and really big gains 12.5% of the time.

    Starting point buying an at the money straddle with an expiration date of about a year away.

    Original loss minimization model buy more straddles as the market moved. The does reduce losses and has worked for me.

    New idea buy a slightly out of the money put when the market goes up or a slightly out of the money call when the market goes down. More profit is good but less loss when the market is in a trading pattern is better.

    What's wrong with this strategy, anything obvious?
     
  2. Toro
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    Toro Diamond Member

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    Implied volatility is overpriced compared to realized volatility. Therefore, you are usually overpaying for options.
     
  3. william the wie
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    william the wie Gold Member

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    true. Therefore the 7 to 1 losers to winners ratio, the need to minimize losses and even if both the top and bottom are nailed that's only 2500- gross on the mini S&P for each round trip in 7 out of 8 years with 2500 to 3000 annual buy in. However unless you know a way of nailing tops and bottoms that's as good as it gets on a risk adjusted basis. I expect to lose 500-1000 most years and currently risk premiums are excessive so I am expecting the melt up to continue for the rest of the year, the majority is always wrong. Good point though. I have calls at 115, 125 and 130 I don't expect to buy any more for the rest of the year.
     
  4. Toro
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    What are you trying to profit on, momentum or reversion to the mean?
     
  5. william the wie
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    william the wie Gold Member

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    Reversion to the mean. Latency does create momentum but reversion to the mean is generally easier to model for loss limitation and letting profits run. Take LTCM to 9/11:

    3 actionable downturns in less than 4 years when the 100 year average is one such downturn every 4 years.

    The big money in that period was riding the market up to the March 2000 blowout.

    On the other hand big actionable moves 1968-82 were kind of scarce. With that level of variance I want a strategy that can minimize losses with normal volatility and profit on major moves when reversion to the mean kicks in.
     
  6. T-Bor
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    T-Bor Active Member

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    English please?? :razz:
     
  7. william the wie
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    william the wie Gold Member

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    Is that easier to follow?
     
  8. Jenna93Zwang
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    Jenna93Zwang Rookie

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    Please clarify what are you talking about, the only thing i can understand from this is that, it is related to the money exchange strategies of present day market.:confused:
     
  9. william the wie
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    william the wie Gold Member

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    Actually no, index options XSP options to be exact. Financial crises should be more common during the switch to a more online world. 90+% of the world's population should be online by the end of the decade vs. 30+% now and beyond the obvious killing of most types of sticks and bricks retail no one knows what that means.
     
  10. Chilton
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    Chilton BANNED

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    I think reversion to mean strategy in the need of the hour but most of the traders are following other models to minimize the loss by hooks or by crooks.But bottom line is that we are losing and losing fast....
     

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