Suppose you don't want them even to know that you exist until you have preview the platform, you can take a tour of the platform by viewing their tutorial videos:
http://www.thinkorswim.com/tos/displayPage.tos?webpage=softwareSupport
The TOS platform is organized in TABS. Each Tab is an environment of its own, with a full set of functionalities. I like the Scan tab to find potential PCCRC candidates. Below is a view of my Scan Tab after I have loaded my PCCRC settings (please click on image to expand it):
Once you have specified your scanning parameters, you can save it as a search. I have saved mine as "PCCRC" which I can load in the "Account Info" tab, which is viewable from any other TAB, thus, I can see when a stock has met my conditions, any time during the day.
The PCCRC conditions above are only partial. I still need to go to Yahoo financial and verify that:
1. The stock trades at >1,000,000 shares on average over the last 90 days, and not only today.
2. The reason for the stock going up 10% has a fundamental reason, like beating the estimates in earnings report, and increase earnings guidance.
Finally, if the IV front month is higher than the IV back month, and the IV back month is LESS THAN 40%, then the candidate qualifies.
7 comments:
>>Finally, if the IV front month is higher than the IV back month, and the IV back month is >40%, then the candidate qualifies.
Juan,
I'm sure I'm missing something essential here.
Why don't you scan for front month volatility = (similar to) back month volatility and front month volatility is very low (< 25) and low compared to last month.
That way if volatility increases your back month options increase.
If you enter the trade with high volatility back month and the volatility slows down, so does the option price.
I have corrected the article. I meant to say that the back month volatility should be less than 40%. This is a general rule, but it applies to most situations. Sorry about the confusion.
The Scan is for the average IV of the options (consult Think or Swim).
The MIN IV is because I don't want options from stocks that trade with low IV. Such is the case with blue chips. The MAX is 50%, as I don't want to exclude stocks that may have high IV in the front month and low IV in the back month. This skew works in my favor.
Makes sense.
How many trades do you usually have going concurrently?
Do you "manage" your trade meaning you watch it at least every day and react to certain conditions?
In you latest post you've mentioned you're a day trader. In traderinterviews you've mentioned you're a scientist. Do you trade for a living?
Martin, it is hard to say too much about myself. I'd like to keep a bit of privacy, if you don't mind.
I am a Veterinary Pathologist. I do have a pathology consulting business which I operate from my home. WWW.PathoMetrix.com. It is hard to give up a discipline you spent so many years building. I a a Veterinarian with a MSc and a PhD in Pathology.
The PCCRC is designed for one NOT to trade on a daily basis, but I just enjoy doing it. If I get busy with my business or take a vacation to a far away place (like Africa which I love to visit), I don't worry about my positions. I like writing a lot and spend about 1/2 of my days in trading... Not DAYTRADING per say, but reading, writing and attending webinars. The other 1/2 I do pathology.
The number of trades at one time have to do with my strict adherence to the 2% limited risk per trade, which, with the PCCRC, usually result in a 10% capital per trade. That means that I can keep 10 trades at one single time (in theory). But when you do rollovers, profit taking adjustment and such, much capital is freed so you could have more than 10 trades running at one time. Currently, I have a lot of capital sitting around, waiting for the opportunities.
A day trader typically, buy or shorts early in the morning and closes the position by the end of the day. This would not work with options. Besides, my trades can stay on for months at a time, but they must be adjusted (or exited) once a month, as the front months expire (4-10 days before expiration). If I go traveling for prolonged periods of time (say 20-30 days), I might do the rollover in advance of my travel, so I can just let the positions be before my return.
Finally, suffice it to say that I don't HAVE to trade for a living, I would not recommend that to anyone, although I know some do.
Juan,
I'm looking at a potential candidate that I would like to discuss with you.
It actually came from my watchlist rather than the scanner, but I'd like to get your input on it.
Candidate: CX
Time: Short leg: April Long leg: July
Reason why I think it'll move is because it'll go through support @ 25 or bounce back up (no fundamentals here). I'm fairly new to elliott but once could argue that this move may be an extended C.
Anyway, I'm looking at the bid/asks and the trade would have a rough 8.35$ premium (2x3.8-2.85 [calls] + 2x2.8-2 [puts]).
HV/IV seem to qualify. Only concern I have is that the July IV on the Call is slightly higher than the April IV.
Anyway, I'd like to get your thoughts on this candidate, if it looks good or if I'm completely out of my mind even considering it.
Also, I'm new to this strategy, so please point out anything that comes to mind.
Thanks for your thoughts.
Martin, in many respects, this would not be a trade I would take because it does not fit any of my 3 strategies.
1. The stock is below 30, so that means that I would be paying too much in commissions. This is because to meet the 2% risk, I need far too many contracts. The more contracts the higher the commissions. I prefer to wait until it gets to $30 or more.
2. The stock is near the 52 week low. One of my strategies selects high fliers like AAPL and GOOG, but none of them the 52 week low.
3. IV/SV is HIGH!!! I would only consider an IV/SV ratio BELOW 1, not above it. This is an indication that the options may be expensive compared to the volatility of the stock.
4. The IV is at the high end of the chart. Both the short and the long term options have IV's above 40%. This breaks my rule of only BUYING options at 40%.
5. SELL FRONT MONTH options. NOT APRIL now, I would be selling Jan. You want to take advantage of Theta decay and rollover your shorts to Feb, and March before closing the position, if all goes well.
6. Don't buy Jun, buy April options. June options are way too far.
Please be careful to read my rules. I have posted plenty of material for you to read. You can also get my videos, if you don't want to bother going through the material.
Remember, this is a system, with rules of entry that won't simply apply to your discretionary trading.
If you are interested in the Elliott wave and buy calls in anticipation of a move, perhaps you should consider getting a software that would do Elliott counts for you, such as the Refined Elliott Trader by Elliottician.com.
Juan,
For many reasons, this is a really interesting trade.
Congratulations on your hard work to discover this approach!
I built your screen in my ThinkorSwim account, and it has been interesting to see what has popped up the last few days. The stocks have not met your criteria, but I have learned about some great companies that I would not have noticed otherwise. I played around with some modifications to the screen today, just for fun. I think that variations of this screen could be used in other fascinating ways, and I'll write about that later.
I love the reactionary, (as opposed to predictive) aspects of your system. Like you, I have been trading since the 90's and took some years off after the dot-com debacle. I was into a number of the companies that were headed by now-imprisoned management. I just couldn't believe anyone's financial statement for a time after that.
Anyway, as I returned to trading, I studied it in some new ways. I
have begun to have some real success and freedom with my trading using options and trading in non-directional systems. I have made money trading the SPY and the XLE in ways that react to the market, without attempting to predict an "up" or a "down" move.
Your idea works in a similar way. Here is my understanding of the thinking behind your approach - please tell me if I have it correct...
You wait, like a vulture, for a quality (and substantial volume)
stock to make a large (>10% move) on good fundamental news. The
large move is often into a new area for the stock which will have
limited resistance or support. Chances are very high that this
stock will continue, over the next few months, to make a large move
in one direction. You do not attempt to predict which direction.
It's almost like the stock has become untethered, and can flop
around for a while.
It would be rare for a stock to make a 10% one-day move, and then
lock itself into a tight range, and stay there. Your system takes advantage of the expectation that this stock will bounce around as it finds a new level. I like it alot, and understood it the moment I read about it.
I played around with the projected P&L graph on ThinkorSwim. It is
an awesome curve that makes good money on a big move up or down,
and loses a little if the stock doesn't move but stays in a small
range. It's like a big smiley face - it really is! You should add a chart to the web page.
The volatility parameters give you a high probability of success. I assume that one needs to jump at this trade late in the same day when it shows up on the screen. That kind of volatility skew can evaporate the next day, if the price and volume settle down. My SPY and XLE trading system also takes advantage of volatility spikes, but not necessarily skews.
I'm going to give your trade a try as earnings come out next month.
I don't see any reason to re-invent the wheel. I expect to try it exactly as you have specified, and only when all of your criteria
are met.
Great work. Thanks!
Post a Comment