The Big Number
There is one number which all of us know that 90% of traders (wait wait 90% of traders and investors) lose money, there is another number that 90% option buyers lose money and then there is one more number that all Option sellers lose money in black swan events. To me nobody can prove this number but this numbers are correct.
Journey to Options
What if I give you a coin challenge? When you lose, you will lose INR 10 but when you win, you will get INR 30. Would you take this challenge. I bet you would take it and that’s what asymmetric payoff means in options world. When you lose you lose small and when you win, you hit a homerun. That’s what attracted many of us to options. With new margin rules coming every day from SEBI, we have been eliminating one of the trading style. 1st circular there goes our Intraday Future trading, 2nd circular there goes out Intraday Equity trading, 3rd circular there goes BTST, 4th and so on.
When there is one door closed, by default there is another door that opens but you need look for it. I think when SEBI Implemented new margin, the door that opened was new margin rule for spread margin in options.
Back testing option strategies
Back testing technical strategies pretty straightforward as you will have only 5 variables to play Open, High, Low, Close, Volume and Open Interest. Everything is derivative of these variables but when it comes to options the real challenge for all coders starts, as there are variable beyond our imaginations like Call, put, monthlies, weeklies, In the money, At the money, Out of money, Implied Volatility etc. Imagine the data you need to handle at back end to manage it.
Back tester for Options
I started trading options strategies and quickly realized that it’s a futile exercise and stopped. Getting the signal in Amibroker and using Excel was the solution or may be python was the best solution. I was introduced to Stockmock by Vihan Singh and Jitendra Jain. Since I am curious about everything in fintech, immediately subscribed to the platform. With 1400 credit subscribed and started playing with strategies after strategies just made me realize that Options can be used to make consistent income through the market.
Woh Sab to thik hain, paisa banega? (Will it make money for me ?)
Remember the slogan, an Idea can change your life. I got my aha moment when I backtested a lot of static strategies like straddle and strangles with fixed stop loss and found out in the long run that shorting options on wednesdays and thursdays is profitable consistently. So there is an EDGE. Now our job was to improve that edge. You can go through Jitendra Jain’s twitter timeline and find many such ideas playing around.
What all I can back test
You can back test mainly 2 indices Nifty and Bank Nifty, combination of Futures and Options with buying, selling with weekly and monthly options. You can have Leg wise stop loss (either in points or %, Strategy wise profit and stop loss. There is one hidden feature which we and many stockmock users were not aware of until Nitish Narang, Founder of Stock Mock introduced us to. The feature is to enter premium by range, where you define your strategy but it will only trigger based on you defined premium. This will help you to have fixed risk management.
There is no free lunch and there is a cost to run a business. Stockmock has uploaded all the data on cloud and whenever we hit a back test button there is vast amount of data processed on server. They charge on per back test and time duration taken in back test period.
What’s in it for us
We review tools, trainings, ideas which we think have helped us and can help you too. We have build our own options strategy using stockmock platform.
Here we go about training about our thought process and building ideas over certain edge. If you plan to subscribe to stockmock, you can use this link.
That’s it for today.