Voltrader

"Green Trading" is just a signature i use that means profitable trading. As far as the rude response, it just proved to me that I shouldn't get involved in forum discussions.This was my first to the community and probably will be my last. I was trying to offer a different perspective on day trading seeing as how most retail traders blow out over and over. It seemed to me that the reason most people struggled was the fact that they viewed trading in a non-scientific manner. I'm not saying you need to be a quant because i'm not, but to have such a foul attitude about very relevant information speaks volumes. It perplexes me how somehow can expect to succeed in a chaotic complex market without looking for repeatable "stylistic properties". The reason that option traders trade the volatility surface is because it mean reverts. Mean Reversion is a predictable pattern. Gambling day in day out and shunning academic info is willful ignorance at best. All I was trying to do was contribute to the community, if its not well received then so be it.

As much as I get annoyed with academics, I really think that what Taylor discussed can be used to make money. For example, I allocated some of my capital to a strategy that just trades the afternoons and looks to ride trends if they exist. I sometimes like to scour the literature for ways to improve my trading.

When I first started trading, I used to beat myself up when my equity curve was either losing money or not growing consistently like I wanted it to. Consequently, I would constantly search for better entries, better systems etc. It finally dawned on me that there was a strong correlation to my equity curve and ES (S&P mini futures) volatility. My pnl would increase rapidly during periods of high volatility and would remain stagnant in periods of sideways or up-grinding markets. Contrary to pundits and pushy trading educators, traditional (albeit boring) academic finance can be a value-added tool in the retail trader’s arsenal. Stephen J Taylor introduced the notion of Stylized Facts, which provide great insight into our basis for understanding volatility and the best scenarios for intraday trading. In Asset Price Dynamics, Volatility, and Prediction Taylor lists some Stylized Facts for intraday returns: Intraday returns have a fat-tailed distribution, whose kurtosis increases at the frequency of price observations increases. Intraday returns from traded assets are almost uncorrelated, with any important dependence usually restricted to a negative correlation between consecutive returns. There is a substantial positive dependence among intraday absolute returns, which occurs at many low lags and also among returns separated by an integer number of days. The average level of volatility depends on the time of day, with a significant intraday variation. There are short bursts of high volatility in intraday prices that follow major macroeconomic announcements. What can we learn professor Taylor’s study? One, its really important to break intraday trading in futures or equities into timeframes. Traders make money by being on the correct side of substantial price fluctuations; however, if one is trading during a period of low volatility the likelihood of profitable scalp trading is very low. Two, bursts of volatility following major macroeconomic events can offer savvy traders great opportunities to take advantage of technical chart patterns. Thirdly, we also know that volatility comes in bunches. Meaning that there is a strong likelihood that periods of larger price movement tend to cluster together. Lastly, traders can use this to extrapolate the best times of day for a particular style of trading. For example, during the first hour (initial balance) traders might use a scalping strategy as a opposed to a trend following strategy, while in the afternoon a trader might be better served to hop on the established trend for the day. In conclusion, if retail traders can align strategies with probable periods of high and low volatility they will see their overall equity curve increase exponentially. Green Trading, Voltrader

Selling the iron condor has become a very popular strategy amongst retail traders. It seems like every time I open my gmail account, I’m getting offers about passive income trading with high probability condors from sales vendors. The truth is that the Iron Condor is a much more nuisance strategy than most people would like to admit. Iron Condors consist of two vertical spreads: the put vertical and the call vertical. These spreads can be sold near the money or farther out of the money. The goal obviously is to buy the trade back for a small debit. Expressing a view of volatility What most retail traders fail to realize is that the Iron Condor is not a price only trade. It is primarily a vega trade. Vega is the trade’s sensitivity to changes in implied volatility. The biggest misconception that a lot of practitioners have is that the only threat to the trade is delta and/or gamma. It has been my experience that selling Iron Condors every month mindlessly has a negative expectancy. Failing to take note of this can drive you crazy, and have you locked into the trade until the day of expiration. Since volatility is mean reverting, the goal should be to sell condors into rallies in Implied Vol. Timing Options, as we all know decay. They shed value each and every day. However, all options do not decay at the same rate. It is really important that retail traders understand this concept. Out of the money options decay at much different rate, than options near or at the money. Here is a graph that my buddy andrewfalde posted on his site: As you can see, when you sell OTM( out of the money ) options inside of 30 days you are basically locked into the trade until expiry week. The majority of the theta decay has already taken place by the 30 day mark. The real sweet spot for capturing pure theta is between 60-55 days from expiration. Your delta and gamma exposure is much smaller, and you can take advantage of the otm options shedding their value. Keep in mind, everything in options trading is a trade-off. There is really no right or wrong way of doing things. If you are a highly technical trader, then selling inside 30 days to expiration may very well work for you. The truth is that whatever strategy you choose, you must educate yourself on the pros and cons. Personally, I like to sell .15-.28 deltas 60 days out only when IV rallies. That’s a personal trade plan decision that I made based on my own risk tolerance levels. We all have to do what is best for our OWN trading accounts. Hope this helps. Green Trading everybody!! Voltrader