Wednesday, June 10, 2009
Monday, May 18, 2009
Irrational Behavior
I've been digging again, with regards to $SPY this time. I like highly traded indexes, they give me a lot of touched data. I've been trying to quantify selling and buying pressure. My logic is as follows
From the table above, one can see that a plot of Volume versus change in Price should be parabolic. The logic is that large positive changes in price, i.e. a demand would cause a spike in volume. And conversely, a large selloff would no doubt cause a large negative change in price and large volume. What I found is *very* different. The first plot below is the exact plot, volume vs change in price.
I'm not sure why it doesn't behave as I expect. Even more odd is the upper cloud of data. That is data since the beginning of the year. This shows the volume is high sporadic, in my guess, due to the volatility of the market. Every bit of news scares the traders and they either sell off or buy, very irrational to me (although I could be reading this wrong). The next plot is a version of the same plot above with time inserted. It shows the irrational volume most recent, can anyone explain this?
| Pressure Type | Volume | Change in Price |
|---|---|---|
| Buy | High | Positive |
| Sell | High | Negative |
From the table above, one can see that a plot of Volume versus change in Price should be parabolic. The logic is that large positive changes in price, i.e. a demand would cause a spike in volume. And conversely, a large selloff would no doubt cause a large negative change in price and large volume. What I found is *very* different. The first plot below is the exact plot, volume vs change in price.
I'm not sure why it doesn't behave as I expect. Even more odd is the upper cloud of data. That is data since the beginning of the year. This shows the volume is high sporadic, in my guess, due to the volatility of the market. Every bit of news scares the traders and they either sell off or buy, very irrational to me (although I could be reading this wrong). The next plot is a version of the same plot above with time inserted. It shows the irrational volume most recent, can anyone explain this?
Wednesday, May 13, 2009
Time
I hate wasting time. I hate wasting time listening to people who are too verbose, and prefer those who are short. I hurry those people praying they get the point eventually (that they are too verbose). I despise doing something that won't make me money, or better me in some way. Looking back I realize that my ignorance has led me to waste too much time. My goal is now to change that. By the end of the year, I will be back on track! No more wasting time, time is money and money is the game. I'm ready for a challenge and risk.
Tuesday, May 5, 2009
S&P Energy Stocks
I created a nice little Google Spreadsheet of the S&P 500 energy stocks. The highlighting is static, ugh! Hence, when the statistics change, which they will upon load each column's conditional formatting must be manually updated.
my google s&p 500 energy stocks spreadsheet
my google s&p 500 energy stocks spreadsheet
Example ITM Put Sale (through expiration with excerise)
Variables
Gain = P * 100 - Max(SP-EP,0)*100
Example One
Gain = $2.00 * 100 - Max($90-$95,0)*100 = +$200
Example Two
Gain = $2.00 * 100 - Max($90-$89)*100 = +$100
Example Three *correction*
Gain = $2.00 * 100 - Max($90-$75,0)*100 = -$1300
In the last example, things become clear. If you sell a ITM Put contract, which gives the buyer the option to sell (to you) the underlying and obligates the seller (you) to purchase the underlying at the strike price (regardless of the expiration price), and at expiration the underlying is worth less than the premium gained you've lost money. This is a good thought experiment. Simply put if you want to own the underlying of an option, there is a break-even point as to where its more profitable to purchase the stock instead 0f selling an ITM Put. I would've made this mistake if I hadn't performed this little experiment. I'd like to see this information available on all trades, when confirming in TOS.
BTW - These numbers are randomly generated and are not taken exact from an options spread.
- Premium (P) = $2.00
- Current Price (CP) = $91
- Strike Price (SP) = $90
- Expiration Price One (EP1) = $95
- Expiration Price Two (EP2) = $89
- Expiration Price Three (EP3) = $70
Gain = P * 100 - Max(SP-EP,0)*100
Example One
Gain = $2.00 * 100 - Max($90-$95,0)*100 = +$200
Example Two
Gain = $2.00 * 100 - Max($90-$89)*100 = +$100
Example Three *correction*
Gain = $2.00 * 100 - Max($90-$75,0)*100 = -$1300
In the last example, things become clear. If you sell a ITM Put contract, which gives the buyer the option to sell (to you) the underlying and obligates the seller (you) to purchase the underlying at the strike price (regardless of the expiration price), and at expiration the underlying is worth less than the premium gained you've lost money. This is a good thought experiment. Simply put if you want to own the underlying of an option, there is a break-even point as to where its more profitable to purchase the stock instead 0f selling an ITM Put. I would've made this mistake if I hadn't performed this little experiment. I'd like to see this information available on all trades, when confirming in TOS.
BTW - These numbers are randomly generated and are not taken exact from an options spread.
Friday, May 1, 2009
Technical Analysis
I keep asking @kevinfrey what he thinks of my ideas. I appreciate his input, but one of the ideas I mentioned keeps coming back up (in my head). Is there a market for technical analysis automation? Kevin thinks that everyone has the same setup, and there would be no need for a custom setup for each person (hence no need for automation). When I review the definition of support, for example, on wikipedia I get no time frame of reference from which to draw the upper and lower bounds. And that's my point. I have the hunch that everyone, no matter if they are short or long term traders, use different reference markers at different points in time for the same trade.
An example of this would be if someone looks at SPY would they choose the low to be at March 9th, or March 20th. Answer is that it depends on how far back they look. Having historical patterns to allow one to see, save, and adjust could allow them to perfect their technical analysis skills.
It would seem that this 'difference' in location of technical analysis indicators might account for the edge that others have. I envision storing all the past indicators, and the person could scroll backwards in time to see their past indicators allowing them to refine their skills. I guess this could be done now by writing down and drawing the indicators on notebook paper for lookup later. I also see people, maybe those who are more successful, trading patterns with their friends in a social platform. For example, I might not use but would like to see the technical analysis patterns used by @nickfenton, and he could share (or sell) them with me if we were friends (similar to the facebook status of friends).
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