probability of 50% profit on short options trade
David, I downloaded the SPY options for November 2016. There are 102160 rows of data. Looking only at the 1/20/2017 expiration options, there are 398 out-of-the-money calls with both volume and open interest and 802 out-of-the-money puts. Figuring out which strangles and straddles would meet their 1 sigma strategy definition would be a daunting task. This is not really a problem with R but a problem of what is the definition of a 1 sigma strategy or straddle. There is also the possibility of data mining the best strategies. Once the strategies that meet the 1 sigma definitions are identified, it is a piece of cake to identify how many strategies make it to 50% profit and how many are profitable at expiration. I'd do the calculations in C and also keep track of the maximum loss. In just writing this email, I've figure out another problem. I could identity strangles that are about 1 sigma away from the current SPY price, but, what do they mean by a 1 sigma straddle? Best, Frank Chicago, IL
From: David L. Van Brunt, Ph.D. [mailto:dlvanbrunt at gmail.com]
Sent: Sunday, December 25, 2016 1:46 PM
To: Frank; Chris Waggoner
Cc: r-sig-finance at r-project.org
Subject: Re: [R-SIG-Finance] probability of 50% profit on short options
Sent: Sunday, December 25, 2016 1:46 PM
To: Frank; Chris Waggoner
Cc: r-sig-finance at r-project.org
Subject: Re: [R-SIG-Finance] probability of 50% profit on short options
trade Frank and Chris-? Yes, the Dough folks are advocating a?strategy that I'd like to study a bit more since the things you both mentioned all jump right out. I think Chris took my "get started" comment to mean get started in trading this (or trading at all), rather than get started on the evaluation of their claims-- I was not clear. My "finding the best trading opportunities" is so I can study their strategy from there.?I've been investing and trading profitably for 20 years (longs, shorts, equities, indices, options, actual real estate...), but I enjoy reading and studying what others are up to in my spare time (as FT job responsibilities allow). So when I see extraordinary claims I like to try replicating and studying them for myself - it's fun, and I learn a lot in the process. So many gurus cherry pick from history (Frank caught that right off), since the?most popular thing to sell for a profit is "advice". :-) To dissect Dough's broader claims, I'd have to reproduce what they've done with their "probability of 50% profit" but they're not really giving enough information to replicate it that I've been able to find.? Hence the post. It sounds like thus far the short answer from this R forum is simply "we don't know how to reproduce that." ? On Fri, Dec 23, 2016 at 11:34 AM, Frank <frankm60606 at gmail.com> wrote: 1) Why not ask the Dough Boys to do your heavy lifting? They developed this strategy using 10 years of historical data. Ask them to run it over these 10 years for the Mar/Jun/Sep/Dec major SPY expirations for options with about 45 days until expiration. 2) Ask the Dough Boys why they only used a theoretical Monte Carlo simulation for 2005 to generate their results. I'm retired, but I think it is 2016. 3) What about the L in P/L? I see nothing about the losses that might have occurred. How about the losses for the Sep 2001 strangles and straddles? And likewise for the Sep 2008 strangles and straddles. I don't know of any successful option traders that only sell options short. But 91% probability of making a profit in all these straddles and strangles at 50% of profit and 81% if held until expiration. I'm incredulous. All the successful option traders I know trade spreads in which at least one leg is long and has a reasonable delta or gamma relative to the short option(s). They put time into models and analysis that identify option spreads that have one leg that is cheap or correctly priced and the short leg that is expensive. What are three things that are short-lived? 1) Dogs that chase cars. 2) Basketball teams that can't free-throw. 3) Traders that sell naked options. Best, Frank Chicago, IL -----Original Message----- From: R-SIG-Finance [mailto:r-sig-finance-bounces at r-project.org] On Behalf Of David L. Van Brunt, Ph.D. Sent: Thursday, December 22, 2016 9:57 PM To: r-sig-finance at r-project.org Subject: [R-SIG-Finance] probability of 50% profit on short options trade Hello; I've been following the "dough" trading platform for a bit and they are big on short options strategies such as strangles, straddles, verticals, etc.? One nice thing their platform does is compute the probability of reaching 50% of target (max) profit, and they recommend taking profits at that point in time. I was wondering if there is a way to do this in R... I know there is (monte carlo, for example) but if there is a package or tool that has done some of the heavy lifting already, it would save me re-inventing the wheel. The motivation, of course, is that I'd like to pass many tickers into a script that helps me find the best trading opportunities.? Their thinking is described here: https://www.dough.com/blog/probability-of-50-profit-on-dough Can anyone point me in the right direction to get started? --------------------------------------- David L. Van Brunt, Ph.D. mailto:dlvanbrunt at gmail.com ? ? ? ? [[alternative HTML version deleted]] _______________________________________________ R-SIG-Finance at r-project.org mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance -- Subscriber-posting only. If you want to post, subscribe first. -- Also note that this is not the r-help list where general R questions should go.