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I have a long only momentum system that has back tested well and live results have been ok.

I would like to see if I can use these signals to sell Puts to see if it improves results.

Not looking for anything too fancy, does anyone know how I could start looking in to this?

Thanks

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    $\begingroup$ I'm confused by the question. You'd approach it the same way you did your other strategy...vet some data, spec and code your strategy, produce simulated PnL over your dataset(s), assess quality and tweak. $\endgroup$
    – Chris
    Nov 22 '19 at 19:09
  • $\begingroup$ With puts, is it also your intention to identify an arbitrage strategy with the put-call parity in mind? $\endgroup$
    – QuantStats
    Nov 23 '19 at 5:01
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I have been also thinking about the same.

Best possible way I could think of selling ATM around pivot of your top momentum stock at least 1 month forward in this way you can reduce some uncertainty.

But do pick the top momentum stock after you calculate risk adjusted return value. Else you might get trapped.

Good Luck!

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Short puts are synthetically equivalent to covered calls (same series). They both have an asymmetric risk/return profile. You limit the upside while retaining all of the downside risk. That translates into a poor R/R profile.

Two old expressions about selling covered calls (or short puts) are:

  • It's like collecting pennies in front of a steamroller

  • Most of the time you eat like a bird and sometimes you sh*t like an elephant

If your momentum system is robust, you should be buying puts or calls, affording yourself the potential for large gains and limited losses.

Not looking for anything too fancy, does anyone know how I could start looking in to this?

(1) Obtain historical data and note the option performance based on your equity momentum system.

(2) Or going forward, capture the option chain on the day that your system indicates that you should go long (or short) and then capture the option chain on the day that your system indicates that you should sell to close (or cover your short). Then evaluate the option performance.

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