The market’s first ninety minutes chopped out two short signals and two long signals before settling into an downward trend for the rest of the day.
That slide into the close saved the trade for the day. After an initial draw down of $1500 (on a $10K buy-in on each trade)
Size ranged from 72 to 90 contracts per trade.
What kind of STOP size do you use with this system ? I am assuming at least 2 SPX points (or .2 on SPY). With that assumption loss per trade on each contract (assuming a delta of 0.5) would be $10 or $700 on 70 contracts that you traded. I am using the lower end of the size you mentioned. With four losing trades, you would have lost $2800. This is in a ideal scenario without slippages and commisions. If you add slippages and commision, i would say the loss per trade would be at least $14. That would put the loss at $980 per trade and $3920 for 4 trades.
But you claim you had an initial drawdown of only $1500. Can you explain the math ? This is only possible if you use a STOP size of less than a point on SPX (or less than .1 on SPY). Is that the case ?
You got me.
For the purpose of the blog entry I did all those calculations based on the TradeStation chart in the blog, which has a commission and slippage assigned to it. The slippage number is not always accurate because it usually ranges from two to four cents per contract on those most traded strikes. I have three cents assigned to the trade as a ball park number. Sometimes closer to expiration, that number can stretch a bit on individual trades. The blog entry is just for discussion generally because its calculations are never that far off and its usually the subject matter -- the systems, timing, stocks, whether or not the coffee's perking -- that I think matters most there. I link to it on Twitter and StockTwits and Reddit and Facebook at times so its purpose is more general than here.
That being said, I went back and reviewed the actual trades based on your comments and you're right, there was more slippage than I reckoned but no where close to your calculation. The chop chop at the beginning of the day cost $1927 instead of $1500, and I did not take the first put buy on the open because I had long signals from the previous daily close, reducing the final result on a splendid Thursday to 75% instead of 79%. Boo-hoo.
There is math in the stops of course but not any that I focus on. There is no range on the SPX or SPY to determine my stop. What determines the entry and stop are the open and a moving average on SPY and the SPY options if that's the trade, on QQQ and its options if trading the Naz. They vary all over the place and they can stop out on the close of a bar that was bot on its open (that happens more often than one likes but it's usually no more than a little loss). The initial entry has a tight stop each day but, yes, whipsaw days can kill you, and trending days are what you live for. And, by the way, since it's a day trade, there is no over-night risk.
The approach I've developed for options now is all in the Link within the link above that I tongue in cheek call "The Fool's Game."
There are tons of options strategies for hedgers and institutions with deep pockets and massive portfolios to protect or enhance, but for the little retail option trader (or at least for me) that's all too complicated. The Greeks are all Greek to me. So in trying to develop this system I've taken inspiration from the greatest market guru of all time, Henry David Thoreau - "simplify, simplify, simplify." It either goes up or it goes down. If it's up above its open buy the calls, if it's down buy the puts. Don't buy any size you that will make you sweat.
Good luck and good trading.
P.S. Here's next week's 266 call look like at the moment, the profit per $10K is the white rectangle on the lower right :
Edited by diogenes227, 15 December 2017 - 01:16 PM.