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Offline Algorithms in Low-Frequency Trading

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Re: Offline Algorithms in Low-Frequency Trading

#41

Post by JimBlackwood »

lordnacho wrote: post #15
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.

Do you maybe have some books you could recommend? I have a strong math background, so that’s not a problem.

I have a hard time finding courses or books that cover how these instruments work in some depth.

Re: Offline Algorithms in Low-Frequency Trading

#42

Post by svmt »

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 briefly looked at the README and code. The strategy is an implementation of The Wheel. Did you backtest the strategy including commissions?

I doubt there is much left after commissions. See [0] for a backtest including commissions and [1] for a blog post from ORATS on how to backtest the strategy using the ORATS backtester.

[0] https://www.reddit.com/r/options/comments/j3ofna/the_wheel_b...

[1] https://blog.orats.com/backtest-basics-how-to-set-up-the-whe...

Re: Offline Algorithms in Low-Frequency Trading

#43

Post by lordnacho »

JimBlackwood wrote: post #41
lordnacho wrote: post #15

Earlier quoted context omitted.

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.

Do you maybe have some books you could recommend? I have a strong math background, so that’s not a problem. I have a hard time finding courses or books that cover how these instruments work in some depth.

The problem is the books don't really tell you. They're written in this mathematical way that kinda obscures how to actually think about them practically. If you're more into math maybe stochastic calc will be just fine for you.

Here we go anyway:

Hull: Futures, Options, and Other Derivatives

Natenberg. Don't recall the name, but this is maybe the closest to practical.

Paul Wilmott, Quantitative finance.

Taleb, Dynamic Hedging. Got a signed copy :)

Also I think it's smart to read about instruments that aren't options, ie don't just cut to the chase. Time value of money, futures, forwards, bonds, swaps, equities. Then vanilla options on all those things, then exotics.

Re: Offline Algorithms in Low-Frequency Trading

#44

Post by icedchai »

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…

Seems like it would be less trouble to buy QYLD (nasdaq-100 covered call ETF), or one of the equivalent funds.

Re: Offline Algorithms in Low-Frequency Trading

#45

Post by eloff »

smabie wrote: post #38
eloff wrote: post #31

Earlier quoted context omitted.

This strategy seems to make a lot of sense to me, so I just checked out the performance of UPRO over the last 5 years versus SPY (^GSPC). UPRO is up 426% (wow) $17.37-$74.01 and ^GSPC is up 192% (talk about a bull run) $1932-$3714 So with UPRO you would have had an average profit of 65.2% per year, and with SPY 18.4% per year. That's even better than x3 returns. Plus you'd have the bond returns. Interesting idea.

UPRO is only 1/3 of your portfolio, so you have the same exposure as SPY i.e: you are not going to make those crazy returns. The idea is to get cheap borrowing by using a leverage ETF and then buying bonds such that the bond yield > cost of leverage.

You're arguing against a strawman argument that you invented.

I didn't say you would get those crazy returns - merely pointed out that you would have beat the S&P 500 over the last 5 years with the strategy outlined by the parent post.

How well it holds up over a time period that also includes bear markets is another question - you can't just look at a bull market and assume it's representative of all time.

Re: Offline Algorithms in Low-Frequency Trading

#46

Post by eloff »

hntrader wrote: post #36
eloff wrote: post #31

Earlier quoted context omitted.

This strategy seems to make a lot of sense to me, so I just checked out the performance of UPRO over the last 5 years versus SPY (^GSPC). UPRO is up 426% (wow) $17.37-$74.01 and ^GSPC is up 192% (talk about a bull run) $1932-$3714 So with UPRO you would have had an average profit of 65.2% per year, and with SPY 18.4% per year. That's even better than x3 returns. Plus you'd have the bond returns. Interesting idea.

Isn't UPRO just a leveraged SPY. Seems different to the above option selling strategy

You must have skipped over and didn't read the parent post at all. We're not talking about the wheel strategy here.

Re: Offline Algorithms in Low-Frequency Trading

#47

Post by opportune »

svmt wrote: post #42
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 briefly looked at the README and code. The strategy is an implementation of The Wheel. Did you backtest the strategy including commissions? I doubt there is much left after commissions. See [0] for a backtest including commissions and [1] for a blog post from ORATS on how to backtest the strategy using the ORATS backtester. [0] https://www.reddit.com/r/options/comments/j3ofna/the_wheel_b... [1] https://blog.orats.c…

What many people don't understand about the relatively low-risk options strategies like the wheel or basic covered call selling is that, because they are low risk, they are less lucrative than many simpler strategies.

The financial industry would not just leave that much risk-adjusted return on the table, after all. Just because a strategy is complex does not mean it is lucrative.

Re: Offline Algorithms in Low-Frequency Trading

#48

Post by eloff »

StrangeDoctor wrote: post #39
eloff wrote: post #31

Earlier quoted context omitted.

This strategy seems to make a lot of sense to me, so I just checked out the performance of UPRO over the last 5 years versus SPY (^GSPC). UPRO is up 426% (wow) $17.37-$74.01 and ^GSPC is up 192% (talk about a bull run) $1932-$3714 So with UPRO you would have had an average profit of 65.2% per year, and with SPY 18.4% per year. That's even better than x3 returns. Plus you'd have the bond returns. Interesting idea.

You absolutely do not want to own upro for 5 years. High fees and more importantly beta-slippage will eat you alive.

Well you would have done just amazing (as I pointed out) over the last 5 years. Better than 3x the S&P 500.

I'm not saying you don't have a point, but one would need to look at how it performs over longer periods with more varied market conditions to answer your question.

Re: Offline Algorithms in Low-Frequency Trading

#49

Post by breck »

boxfire wrote: post #28
breck wrote: post #21

Unzipped the code and put it here for easy viewing: https://github.com/breck7/drillBits (Note: if author wants to create a GitHub I'll edit this link and point to theirs!)

Given the clear copyright statement, > Copyright (C) 2020-2021 Terence Kelly. All rights reserved. did you happen to get the author's permission to put that up? I don't even like IP law that much, but its funny to me how much no one gives a shit. This was a crime, albeit a silly and small one.

https://giphy.com/gifs/reactiongifs-DsFhEEGzo9LVu
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