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Offline Algorithms in Low-Frequency Trading

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Re: Offline Algorithms in Low-Frequency Trading

#11

Post by im3w1l »

artemonster wrote: post #6
omarhaneef wrote: post #4

Earlier quoted context omitted.

You’re taking the tail risk on the down side but you’ve sold it on the upside for extra yield.

I undestand words but I have absolutely no clue what you're talking about. Can you recommend some books on the topic?

The "tail" in tail risk referes to the tails of a probability distribution. A normal distribution has "thin" tails. The probability of huge outliers is pretty low.

If you have tail risk, then it means you have a decent chance of losing a lot more money than the typical variation. Your returns might look like +1.1, +0.9, +1.2 +1.05, -3. So your profit is pretty predictable with little variation, until suddenly you lose a lot of money.

Re: Offline Algorithms in Low-Frequency Trading

#12

Post by omarhaneef »

artemonster wrote: post #6
omarhaneef wrote: post #4

Earlier quoted context omitted.

You’re taking the tail risk on the down side but you’ve sold it on the upside for extra yield.

I undestand words but I have absolutely no clue what you're talking about. Can you recommend some books on the topic?

I would look up two terms:

Covered calls

Naked puts

If you want to go heavy duty into it I recommend the Hull book (options, futures and other derivatives) but for your purposes the investopedia articles are enough.

Basically naked puts means you’re selling downside insurance so if the stock crashes you eat the loss. Covered calls mean you sell upside risk but have the stock so if it goes up you make a little.

Re: Offline Algorithms in Low-Frequency Trading

#13

Post by kwhitefoot »

omarhaneef wrote: post #5

This is worth a read if only because of the clear introductory explanation of the market clearing mechanism. However, it’s not a profit maximizing algo that will make you rich (not that there’s anything wrong with that).

Will it make me better off?

Re: Offline Algorithms in Low-Frequency Trading

#14

Post by jkhdigital »

lowfreqtrader wrote: post #2

If low frequency trading interests you, here's a project some people might want to check out: https://github.com/brndnmtthws/thetagang It's designed to sell option premium on major indices (like the S&P500 or NASDAQ-100) to generate mostly passive income, with a fairly reasonable risk-adjusted return. It uses a combination of strategies that involve selling naked puts and covered calls, which both have the same risk…

I’ve observed the opposite in cryptocurrency option markets; covered calls tend to net a higher yield than the equivalent puts.

Re: Offline Algorithms in Low-Frequency Trading

#15

Post by lordnacho »

lowfreqtrader wrote: post #2

If low frequency trading interests you, here's a project some people might want to check out: https://github.com/brndnmtthws/thetagang It's designed to sell option premium on major indices (like the S&P500 or NASDAQ-100) to generate mostly passive income, with a fairly reasonable risk-adjusted return. It uses a combination of strategies that involve selling naked puts and covered calls, which both have the same risk…

Ex pro options trader here. Looks interesting, and I've starred it, but it does sound like it's just collecting premium?

If you're selling options, you probably need to risk adjust your returns a bit more than what's common:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=377260

That's by Andrew Lo, big name in the area.

I'm sure you've also come across Taleb, who knows a thing or two about selling options.

Re: Offline Algorithms in Low-Frequency Trading

#16

Post by WJW »

kwhitefoot wrote: post #13
omarhaneef wrote: post #5

This is worth a read if only because of the clear introductory explanation of the market clearing mechanism. However, it’s not a profit maximizing algo that will make you rich (not that there’s anything wrong with that).

Will it make me better off?

Reading more about things you haven't read about before will increase your total knowledge and therefore make you better off in a holistic sense, yes. In a purely monetary sense, no it will probably not have any effect on your life.

Re: Offline Algorithms in Low-Frequency Trading

#17

Post by WJW »

kgwgk wrote: post #8
lowfreqtrader wrote: post #2

If low frequency trading interests you, here's a project some people might want to check out: https://github.com/brndnmtthws/thetagang It's designed to sell option premium on major indices (like the S&P500 or NASDAQ-100) to generate mostly passive income, with a fairly reasonable risk-adjusted return. It uses a combination of strategies that involve selling naked puts and covered calls, which both have the same risk…

https://www.daytrading.com/selling-volatility

There's a fantastic quote in the book about the LTCM fiasco ("When genius failed") about how academics always want to short volatility because they have view of how society "should be" and it is not very volatile. IIRC, the quote was by some old grizzled options trader who used to have the same view but had been bitten often enough to internalize that volatility is much more common than beginners think.

Re: Offline Algorithms in Low-Frequency Trading

#18

Post by wbl »

artemonster wrote: post #6
omarhaneef wrote: post #4

Earlier quoted context omitted.

You’re taking the tail risk on the down side but you’ve sold it on the upside for extra yield.

I undestand words but I have absolutely no clue what you're talking about. Can you recommend some books on the topic?

The only book you should read is John Bogel's. Do what he says like Goldman partners, Bank of America senior executives, almost every economist does with their money and stick it in low cost diversified mutual funds.

Or you can learn stochastic calculus and end up in the same place once you realize half of all active traders do worse than the market, before fees.

Re: Offline Algorithms in Low-Frequency Trading

#19

Post by joshribakoff »

wbl wrote: post #18
artemonster wrote: post #6

Earlier quoted context omitted.

I undestand words but I have absolutely no clue what you're talking about. Can you recommend some books on the topic?

The only book you should read is John Bogel's. Do what he says like Goldman partners, Bank of America senior executives, almost every economist does with their money and stick it in low cost diversified mutual funds. Or you can learn stochastic calculus and end up in the same place once you realize half of all active traders do worse than the market, before fees.

Buffet sells 5b in options premium a year

Re: Offline Algorithms in Low-Frequency Trading

#20

Post by Schweigi »

hntrader wrote: post #3
lowfreqtrader wrote: post #2

If low frequency trading interests you, here's a project some people might want to check out: https://github.com/brndnmtthws/thetagang It's designed to sell option premium on major indices (like the S&P500 or NASDAQ-100) to generate mostly passive income, with a fairly reasonable risk-adjusted return. It uses a combination of strategies that involve selling naked puts and covered calls, which both have the same risk…

What does the tail risk look like on this strategy and what kind of annual return do you expect?

I did make my own option trading algo which is similar to the one in the Git Hub repo (but I used Scala, which gave me additional returns, jk :) ). Return totally depends on the delta of the options you write and the option symbols in your basket. Mine could be configured to be between 10-100+%. The higher the return the more volatile.

The idea of using multiple symbols like SPY and TLT is to reduce the tail risk. But in the end there is still tail risk like for example in the crash of 2015. Making the strategy delta neutral with hedging could improve it but I never completed that part.

There is an interesting book with all the math by Euan Sinclair about option writing and how to minimize the risk if you are interested.

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