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

[David L. Van Brunt, Ph.D.]

Frank and Chris-

Yes, the Dough folks are advocating a strategy that I'd like to study a bit
more since the things you both mentioned all jump right out. I think Chris
took my "get started" comment to mean get started in trading this (or
trading at all), rather than get started on the evaluation of their
claims-- I was not clear. My "finding the best trading opportunities" is so
I can study their strategy from there. I've been investing and trading
profitably for 20 years (longs, shorts, equities, indices, options, actual
real estate...), but I enjoy reading and studying what others are up to in
my spare time (as FT job responsibilities allow). So when I see
extraordinary claims I like to try replicating and studying them for myself
- it's fun, and I learn a lot in the process. So many gurus cherry pick
from history (Frank caught that right off), since the most popular thing to
sell for a profit is "advice". :-)

To dissect Dough's broader claims, I'd have to reproduce what they've done
with their "probability of 50% profit" but they're not really giving enough
information to replicate it that I've been able to find.

Hence the post.

It sounds like thus far the short answer from this R forum is simply "we
don't know how to reproduce that."


On Fri, Dec 23, 2016 at 11:34 AM, Frank <frankm60606 at gmail.com> wrote:

> 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/pro
> bability-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
>
>         [[alternative HTML version deleted]]
>
> _______________________________________________
> R-SIG-Finance at r-project.org mailing list
> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
> -- Subscriber-posting only. If you want to post, subscribe first.
> -- Also note that this is not the r-help list where general R questions
> should go.
>
>

	[[alternative HTML version deleted]]