Some discussions on entry/exit


Jan 18, 2014

 


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#19 Jan 18, 2014

All,��this is the last email that is cc'ed to you directly from me. I'll switch to our Yahoo group after this one. Please join the group if you like to receive further discussions on this strategy.

Hi Andy,

1. Selecting 56+/-7 days to expiry is my personal preference for back testing at the moment for a few reasons.��A). I have done a few studies starting at the post on��smoothprofit.blogspot.com/2013/12/otm-option-time-decay-and-its-exit-time.html. Based on the following chart, the time decay rate is acceptable starting around 9 weeks before expiry.����

B). The P&L of the entire portfolio will be more smooth in the 8 to 4 week period due to smaller portfolio Gamma. It also gives us enough time to adjust if market goes against us.

C). If I remember correctly, Karen stated she would have 50% positions opened around day 56.

I think using shorter days for entry should be fine, for people who are OK with more dynamic P&L. In this way, they may get faster profits and/or losses.

2. I just started testing legging in and posted my thoughts on��smoothprofit.blogspot.com/2014/01/some-thoughts-on-back-testing-super.html. We need to investigate it some more to come up with better rules on it.

3. A good question on legging out. We need more studies on this one too :-( I hope others can shine��some lights on it.

4. I don't think we will use additional indicators for now, because we want to make the strategy as simple as possible (Karen made it clear in the interview). The indicators I'd like to explore are Bollinger bands and Vix only.��I guess it's OK if someone like to use another indicator that he's familiar with to replace the above two. But I'm not in favor of using too many indicators.

Cheers,Charles

Date: Wed, 15 Jan 2014 12:34:11 -0800Subject: Re: [supertraderkarenstudy] Re: Karen will be available on 2-11-2014 on TT

Hi Charles,

Sorry if these questions have been answered in prior emails.��

1.Why select options 56 +- 7 days till expiration if according to the exits rules we exit in a month? Is it because there isn't enough premium? Secondly why are we exiting next month when time decay is highest?

2. In regards to legging in, what is our plan if we leg in and it keeps going in that direction?

3. Have we consider legging out? Maybe 10% per a leg?



4. Have we consider using other market indicators in addition to the VIX, such as market breath, % stocks hitting 52 week highs, A/D line?

Thanks,Andy



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