Thursday, June 26, 2008

An Option Strategy That's Working Now?

Summer. One of the contributors to this blog is off trying to climb a mountain. Good luck Dan! However that's no excuse to stop writing - our customers certainly don't stop the good support and strategy set-up questions. We therefore will recap some of the latest questions worthy of sharing - more in a series coming!

Options Strategy - What's Working Now?


Has anyone had any promising results configuring a scan for unusual options volume? My results have been mediocre at best...
Source:http://investorshub.advfn.com/boards/read_msg.aspx?message_id=30214560

Our answer featured a short strategy that looked for spikes in put volume.


"SHORT- Heavy Options Vol w/2.5 put/call and 400%vol .50=SL Hld:25 MinsNo"
To repeat this is a short selling strategy. It looks for heavy options volume (trading 400% more than usual volume today) with a 2.5 Put to Call ratio.

The OddsMaker helped us determine the best position management rules for trading this strategy. They call for a $0.50 stop loss and a holding period of 25 minutes. This advice however can change with each new day's worth of history added to the backtest results. You should run the OddsMaker each day to determine if an advantage still exists.

Tip: Notice for the sake of easy record-keeping we incorporate in shorthand the trading rules into the name of the strategy. This helps later when we look back and try to understand how to trade it.

Update: Dr. Brett Steenbarger pointed me to this intriguing article by Hanna Capital, "Using Options For Short-Term Trading". I liked their trading rules and will seek to incorporate them into future strategies for The OddsMaker to judge!

Footnotes and Related Articles:

  • Check out the whole category of articles written about patterns we've modeled from various other authors and articles we've come across called: Strategy-Sessions
  • Use The OddsMaker to further understand what trading rules would produce the optimal trading outcome for this strategy in the recent market. Trading rules would include the answers to these questions: How long to hold each opportunity? When during the market session should this strategy be traded? Where should the stop loss be set?
  • Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this 'as is' or modify it to your own liking as many others do. Know, however, that Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, alerts and all other features are for research purposes only and should not be construed as investment advice
  • See this video on our Collaborate function to learn how to open these strategies inside Trade-Ideas PRO

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