[R-SIG-Finance] probability of 50% profit on short options trade

[Frank]

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

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