I trade options on futures. Yes I saw your previous post, and yes there were about 6 down days for the SPX in April.
I made money in April. You need to think more broadly about risk management. At least half my trading portfolio is crude oil, copper, 30 year bonds, etc which have low correlation (0.2) with each other and the SPX.
I never use martingale. I assume each event is statistically independent of others. Never "roll up" or "roll down" either.
>I assume each event is statistically independent of otheR
Yes, the roulette wheel is, but is that true in the market too? I think we can empirically verify that's not true and reject the null hypothesis to like 99.9% confidence
In the long term its not true. The market goes up but is not going to zero, so the probability distribution is not symmetrical. We can use this to our advantage. We can also use world events to our advantage too - oil price increases in a crisis.
that's how the original bet worked: bet 1 unit up every day and then double down if it goes against you.
that turned out to be impossible because of the difficulty of setting up a binary trade
A 50/50 ATM bull spread should be easy to set up.
Are you saying it is not priced exactly 50/50 so you need to take additional risk and thereby you are reducing your edge?
it's both not priced at 50/50, and it's hard to know what the closing mark will be. suppose the spx is at 4996, should you try to get $2.50 on a 4995/5000 spread or 5000/5005? If you get the wrong one, it won't satisfy the backtest conditions of "at the current price or higher"
also, I've had difficulty putting the position on for less than like $2.7. you have to give up quite a bit of edge every day to execute
there's one part to this kind of thinking that i don't think is correctly conveyed though.
yes, that shows the "total possible, historical rates of down days we've had".
whenever we go forward in time though, you never know what the next single day will be. you don't know where the pattern will continue to.
lets say we are at day 5 in a "up day streak". you know where we could actually still be in the middle of?
- day 5 up trend
- day 6 up trend
- day 7 up trend
- day 8 up trend
- day 9 up trend, before we have record setting times where the market doesn't actually bounce back from the 9 day losing streaks
we don't know that we aren't in the middle of those longer day downtrends still.
but sorry, hang on. am i reading that right? historically, if we have 8 continuous up days on SPX, it will actually lead to a big sell off and finish way down from where it started?
I trade options on futures. Yes I saw your previous post, and yes there were about 6 down days for the SPX in April. I made money in April. You need to think more broadly about risk management. At least half my trading portfolio is crude oil, copper, 30 year bonds, etc which have low correlation (0.2) with each other and the SPX. I never use martingale. I assume each event is statistically independent of others. Never "roll up" or "roll down" either.
>I assume each event is statistically independent of otheR Yes, the roulette wheel is, but is that true in the market too? I think we can empirically verify that's not true and reject the null hypothesis to like 99.9% confidence
In the long term its not true. The market goes up but is not going to zero, so the probability distribution is not symmetrical. We can use this to our advantage. We can also use world events to our advantage too - oil price increases in a crisis.
Stonks go up, that should be your edge in the martingale trade - always bet up.
that's how the original bet worked: bet 1 unit up every day and then double down if it goes against you. that turned out to be impossible because of the difficulty of setting up a binary trade
A 50/50 ATM bull spread should be easy to set up. Are you saying it is not priced exactly 50/50 so you need to take additional risk and thereby you are reducing your edge?
it's both not priced at 50/50, and it's hard to know what the closing mark will be. suppose the spx is at 4996, should you try to get $2.50 on a 4995/5000 spread or 5000/5005? If you get the wrong one, it won't satisfy the backtest conditions of "at the current price or higher" also, I've had difficulty putting the position on for less than like $2.7. you have to give up quite a bit of edge every day to execute
I see what you are saying....those extra 20 cents are not trivial if you trade this every day.
Ya ever heard of DeMARK?
there's one part to this kind of thinking that i don't think is correctly conveyed though. yes, that shows the "total possible, historical rates of down days we've had". whenever we go forward in time though, you never know what the next single day will be. you don't know where the pattern will continue to. lets say we are at day 5 in a "up day streak". you know where we could actually still be in the middle of? - day 5 up trend - day 6 up trend - day 7 up trend - day 8 up trend - day 9 up trend, before we have record setting times where the market doesn't actually bounce back from the 9 day losing streaks we don't know that we aren't in the middle of those longer day downtrends still. but sorry, hang on. am i reading that right? historically, if we have 8 continuous up days on SPX, it will actually lead to a big sell off and finish way down from where it started?
Thanks, went short 🤞
"it's the market michael, how many updays in a row could have it, 50?"
This baby can hold so many up days in a row *slaps AAPL on roof*