Sentimental Options

Busy day, but I've been sitting in the corner with my dunce cap on since, oh, about Saturday afternoon or so. I'll explain why in my next post, tomorrow, when I'm rested and sober.

...also, as a bonus to explaining the origin or Zorro, my very own, absolutely unique theory on how Douglas Adams picked 42 as the Answer to Life, The Universe, and Everything, thereby demonstrating either my total genius, or my utter nuttiness. Which may or may not come in tomorrow's post.
 
interesting image indeed..depending on werther your thinking about two 21 year old females, or males haha
 
N Rothschild said:
interesting image indeed..depending on werther your thinking about two 21 year old females, or males haha
Click to expand...

As that would depend on gender/sexual orientation, I will leave that as an exercise (one hopes pleasurable) to the reader.

I meant to post earlier today, but it was an intense day. Trading is war, since as DT pointed out, it's a negative sum game. Sometimes, on some days, you need total concentration. For me, today was one of those days.
The system said to go long GDX, but my gut said no way. So, I went in heavily hedged. Ideally, I like to make actual money on days like this, but that doesn't always happen. Today was one of those days, but I was very happy with my results anyway. On a day when the potential loss could have been severe in the extreme, I wound up almost even. A triumph in my book.
On NYX, I'm almost completely neutral right now. That exchange stock system gave out a buy for tomorrow, and as this is an incredibly simple system, you can tell well before the close what it's going to tell you. So, I waited as long as I could, and bought a single call for tomorrow. I'm flat, in terms of deltas, going into tomorrow.
The previously mentioned dunce cap is due to the fact I didn't - I hesitate to admit this, but it's true - do the simple calculation of what NYX's realized historical volatility has been. Turns out the median is around 31%, which is the implied vol of the options - wotta surprise, eh?
The reason this is important is that GDX is well north of this. The idea that an index would have a vol north of a (normal, not a utility/REIT/master limited partnership) stock never actually occurred to me. So this was a bit of a shock.
Of course, I should have figured this out ahead of time. Hence the dunce cap. It also explains why I was so completely puzzled by the drop in vol after the earnings. It was just reverting to its mean, but I had a picture in my head of much higher vol. Truly dumb.
But it's a valuable lesson: this is why you always try stuff out in a demo account, or trade it in tiny amounts, as I'm doing with NYX, first. Because you'll always make incredibly stupid, dumbass mistakes, when you're trading something for the first time, or after a long layoff, as is the case here with NYX. Of course, back in the day, I only ever traded the stock, so that's a double whammy.
Looking at the options, btw, they're really cheap. I'm thinking I should just do NYX directly. The options are cheap because the stock is cheap. So, if you're going directional, there doesn't appear to be a good reason to do the options on NYX. But I'm kind of addicted to the flexibility options give you.
Something to ponder...

The answer to Life, the Universe, and Everything will arrive. But first I have to digest my dinner. To think, one first has to eat, after all.
 
A Roll of the Dice

So, moment of truth on IWM. The options based sentiment index is turning, but hasn't quite gone from short to long. Exchange-based system turned just now. Both were losing trades, theoretically, but that's not what I have to decide based on. Their total records are almost exactly the same over the same timeframe, so choosing either one would just be a roll of the dice.
The big difference is the 6 day holding period, on average, on the exchange-based system, versus 9 days on the options system. Shorter is better if you're doing options, so in the absence of an advantage in terms of returns, we're going to have to go with the exchange-based system. Still, I'll continue to track both. Not seriously trading yet with this anyway, so I have time to decide what to do when I decide to dive in for real.

...and, if the title of this post hasn't given it away, a roll of the dice is my theory on 42. There's 42 pips in a pair of dice, 21 on each die. (making DT's post above eerily prescient...) So, the answer to Life, the Universe, and Everything is...
...a roll of the dice.
 
NYX system gave a sell today, as did the IWM exchange-based system. I missed out on frontrunning this signal near the close because I was fascinated by a thread in, I think the Mechanical section, on using DMI.
To see why, do the following: put GDX up on a 30 minute bar, then put up the DMI on a 6 period parameter (6 is my magic number for intraday indicators, and as I said before, anything less than 30 minutes is just silly if all you're doing is swing trading). Remember that the rule, according to this thread, is to trade when the red line is in the middle, following the signal from the line that's on top.
Do it for the last two days. You'll see why I was fascinated. It matches exactly my gut feel on what's going to happen to gold, and what has happened all week, as a matter of fact. Spent my afternoon reading up on it and figuring out how to use it for myself. Definitely something to look into.
 
Socked by yet another snowstorm over here. It gets exhausting.
Anyway, no change. I haven't even done the work to know if there was one, and I just took a quick glance and saw that I was basically even on the day, which isn't bad when you consider I barely had time to do much more than take a glance.
Heavy wet snow. Like moving cement. Yuck.
Will do the work tomorrow, since we're now on weekend time. For now, it's sleepy time.
 
I'm back. Aching and groggy, but back.
I still have a tree down in the backyard, and more branches, big ones, all over the place. But nothing's getting cleared until the snow has substantially melted. As that's happening pretty rapidly, we may be able to get to it by next weekend. Curiously, it's been stormy, but warmer by quite a bit than last winter here in the northeast US.
Anyways, the signals are (no change in these) plus in GDX, minus in NYX and IWM. First one's been kinda accurate, the other two way off. All of these, btw, are fading systems. Fades, I think, are ideal for options, given the limited risk/reward nature of the beast. If a trade goes against you, big deal. If you structure it right though, should it go in your favor, you should be able to do well.
On that subject, I've been more and more interested in this DMI thingie. It went positive on GDX Friday morning, via the oddball system promoted in that thread on here I was reading, using a DMI of six periods. It's stayed there ever since. I was and am heavily hedged, and if I had withdrawn that hedge on Friday morning, I'd be well positive by now, as the hedge did well right up until the DMI gave a signal, and the main trade has done well since then. As it is, I'm only mildly positive as a result of the hedge.
I'll be keeping an eye on this, and maybe what I'll do is see if it helps on the stuff I'm experimenting with, IWM and NYX, rather than chance screwing with my main squeeze. In this case it happened to match my gut feel on gold, but that of course won't always be true. I'll try the idea of hedging with a short iron condor if the intraday DMI set to 6 periods goes opposite to the signal, withdrawing the hedging side if as happened now, the DMI reverses before I get another signal from my system. Might improve performance, and it's certainly worth a try, based on what I'm seeing.
For now, I'll try it on this NYX trade, which is pretty much shot by now. The DMI is wildly positive on NYX. If it reverses, I'll try another vertical put spread, which of course basically amounts to doubling down. I don't recommend ever doubling down as regular practice. Here, it's just to get my feet wet trying this DMI thing, and it will be with a very small trade, again.
 
Not much to say. GDX continued to perform, IWM continued higher, confounding both my systems, NYX fell somewhat. Got a signal via the DMI system around noon today on NYX, although it was really marginal, but being the over-anxious fool that I am, I doubled down. Nothing to report on that yet.
Yes, I'm still bone-tired.
 
Benton D Struckcheon said:
Not much to say. GDX continued to perform, IWM continued higher, confounding both my systems, NYX fell somewhat. Got a signal via the DMI system around noon today on NYX, although it was really marginal, but being the over-anxious fool that I am, I doubled down. Nothing to report on that yet.
Yes, I'm still bone-tired.
Click to expand...

Well, that double-down didn't work, did it?
I'd say more, but really, that's the lesson.
Don't double down. A losing trade is a losing trade is a losing trade. Trying to make it a winning trade is like trying to make a pig sing.
For the two of you who haven't heard the punch line: it wastes your time and annoys the pig.
 
In other news, even GDX is being signaled to go down now.
I'm pretty sure what's going to happen, and have been all week: when the unemployment numbers hit on Friday, there'll be a nice little sell-off. We're at one of those points where it really doesn't matter what the numbers are, because everyone is positioned for perfection. Anything less will disappoint. Shoot, perfection might disappoint, given that sentiment is so wildly positive.
Of course, there is the small probability that I'm totally wrong.
 
Nice day in GDX anyway. This one continues to be much the easiest to read. I'm toying with merging the exchange stock and the options sentiment thing together somehow. Maybe staying neutral when they disagree, or weighting one more than the other, or something.
 
A little giveback today in GDX; the rest was the usual: monotonously up, when they're supposed to be going down.
As in real life, so in trading: nobody listens to me. Sigh.
A bit more intellectual rumination this w/e if I can find the time between seeing J Depp in "Alice in Wonderland" (really "Through the Looking Glass", according to the reviews, but these are the colonies, where we have a tough time with complicated stuff from da muddah land, after all) and cleaning up the extraordinary mess the last storm left - now that the snow's largely melted, the damage is plain to see, and it's pretty amazing.
 
Interesting data this weekend.
GVZ, the gold vol index, is back down to where it was in Aug 2009. So, low for this year, but not unusually low overall.
VIX hasn't been this low since May 2008, when the crisis was building.
RVX (Rus2k vol index) hasn't been this low since June 21, 2007.
Despite these lows, more puts than calls traded on the VIX on Friday. Apparently, not too many people feel the need to hedge their market gains by buying a flyer on the VIX moving up. Especially interesting when you consider this behavior happened as we went into a weekend.
But maybe that's right. The overall sentiment index, which includes the actual volume of options on the VIX as well, isn't unusually low. One of the ideas I've been playing with is adjusting this for the time of month. Right now I try to smooth it out by averaging the last five days and then smoothing it even more in a sort of anti-Wilder way (Wilder always used EMAs in his indicators, which overrates the most recent reading; I try to underweight it when it comes to volume, because options volumes are so erratic from one day to the next), but I'm thinking I also probably need to account for increased volume right around options expiration day. I'm thinking one simple & stupid way to do this might be to relate the current reading to the 21 day average, since most months have 21 trading days, and maybe adjusting it down if it's higher, and up if it's lower. I was definitely having this thought right around the end of the year, because volumes fell dramatically during the holiday season. In general, you notice a spike in volume near expiration, not surprisingly. But that's not always true, so doing a really simple underweighting of the volume on or near expiration would probably not be good.
 
Bow-ring.
My wife & I both agreed that the best thing about this version of Alice was Bonham Carter's Red Queen. She had a subtle lisp that was perfect.
Beyond that, they turned Depp into some sort of daft nice guy as the Mad Hatter, which is not what Depp should be about. He's supposed to bring a dash of Mick Jagger into his characters. Definitely didn't do it this time.
Alice herself was dull, and the whole thing amounted to a six-year old girl's fantasy version of the story.
Unicorns would not have been out of place. Yuck.
 
Tried adjusting for options expiration over the weekend, but no go. Looks like the smoothing I'm already doing is enough. If I really really tortured the data, I could get - I am not lying - all of fitty cent more, over, like, three years.
Not really worth it.
All signals continue. Minus on everything, which means plus on the dollar, btw. I'm comfy with this because if you look at a daily chart of the dollar, it really does look like it's bottomed.
I'm not sure what the eventual size of the air pocket under gold will be, but I have a feeling it will turn out bigger than any of us thinks or expects. The options data shows a total lack of bullishness, and even worse, of interest: whereas 100,000 plus options volume was common in Nov and Dec, these days we're lucky if we break 50,000. Not a good sign at all.
Of course, I've been known to be wrong, occasionally. (I heard that...)
 
I should point out that the gold system is not a fading system. The ones I'm testing are. Of course, so far, the gold system is still proving to be the most accurate. Which probably means I should try switching one of them, using the gold logic as a template. I went for fading because you can get nice gains sometimes on that, and like I said, with the auto limits options put on the risk there's no problem with seriously losing trades, but of course if the trade goes south you're stuck twiddling your thumbs waiting for a long time sometimes, like now. Which is probably not a bad thing, but still.
A project for the coming weekend...
 
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