John W Regular  Posts: 87 Joined: 8/1/2011 Location: Sydney, NSW, Australia  User Profile | I live in a time zone that requires me to use a mechanical entries. About 4 years ago I converted a lot of strategies to run options mechanically. My first mistake was to trade right at the market open. I lost my shirt almost immediately. Spreads at market open are outrageously large except on a select few options. The second mistake was to assume I could exit an option position at a reasonable price when a stop was hit. Often whenever my stop was hit it seemed that everyone else was jumping ship too. Spreads again were often outrageous, even well after market open. What did I learn? 1. I stopped trading options. I'm now actively researching re-entering options with the new Nirvana tools, they look very promising. 2. There are a limited number of stocks/ETF's that have a tight spread. The best way to find and validate them is to use Omniscan to dynamically search call and put volumes to find the top 20/30 symbols that are "hot" at the time. This is great for back testing. I no longer have the exact searches, but there are 4 formula building blocks for each of the call and puts. Refer CallOpenInterest(); TheoreticalCall(10); CallVolume(); and CallValue(in the money, strike, expiration,roll) as examples you can play with to come up with suitable dynamic lists for trading. There are always a select few symbols in the top 30 group but you'd be amazed at the other stocks that come and go. Beyond the top 30 actively traded options the spreads are highly variable and suspect. If I had a recommendation I'd probably restrict to the top 20 most liquid options. 3. Trade after 0955am when spreads have normalized. 4. The new trade plans and search procedures to only trade options with tight spreads are wonderful tools and need experimentation to find the right answers for each trader. We all have different trading objectives and approaches and I know there are others who will offer their wisdom that may differ from my observations, so none of this is gospel, its just one man's experience. 5. I'm not yet trading the new option strategies but am researching and developing to make sure my market entry fits with those rules above. These trade plans take time to do properly.. I've learnt through 20 years of trading for a living that the market is unforgiving and relentless, and when I put my money on I'd better have all the angles well researched and covered or I'll lose another shirt! I hope my experiences help you in developing your approach to trading options. | |
