2022-11-29 Wrinkle-brain Plays (Mathematically derived options plays)

Submitted by hardyrekshin t3_z7kk8z in wallstreetbets

Tickers of Interest - TL;DR

Gamma Max Cross

  • EFA 01/20 65.5P for $1.65 or less
  • UPS 01/20 180P for $6.10 or less
  • KR 01/20 48P for $1.90 or less
  • SPXS 01/20 20P for $1.55 or less
  • NAT 01/20 3.5C for $0.25 or less

Delta Neutral Cross

  • MSFT 01/20 240P for $8.75 or less
  • WBD 01/20 10P for $0.45 or less
  • DIS 01/20 95P for $3.90 or less
  • GOLD 01/20 16C for $0.50 or less
  • JETS 01/20 18.86C for $0.40 or less

Trading Thesis - Why These Crayons Taste Better

Technical analysis and indicator based trading tend to use past price performance in order to predict important price levels today.

This analysis is based on the current option open interest. With that option open interest, it calculates portfolio-level greeks--notably Delta and Gamma. More importantly, once the portfolio level greeks are established, I can now simulate the change in greeks at different price points. From there, I can find the price levels where portfolio-level gamma is the highest, and the portfolio-level delta is close to 0.

For some tickers, the underlying price reacts strongly off of delta neutral, gamma max, and sometimes both.

It's the reaction off of these price levels in the past that is being used to drive trading signals.

The plays and target entry prices given are calculated using a binomial option pricing model that reflect the expected size and duration of the reaction from gamma max or delta neutral. A lot of these plays are profitable by underlying moves in stock. The best plays benefit from the directional move as well as the increase in IV.

Notes - Something to give you a new wrinkle

  • If the price has moved past the entry price, exercise caution. Something changed between the time these plays were generated and market open.
  • Look to sell half your position on a double, and freeroll the rest to exit at your discretion.
  • I tend to risk up to 1% of my total capital on any trades I take. If my conviction is lower, I'll only allocate 0.5% or even 0.25% of my capital to the trade, and dollar cost average in.
  • The trades were calculated before market open, and so are based on information up to yesterday. Keep that in mind when deciding to enter well after the fact.

FAQ - Because others have already asked.

  • These plays are mostly puts. Are you a gay bear?
    • No. It so happens that the companies have had some recent run-up which implies they are overextended. These trades are primarily some form of mean-reversion either toward or away from an important price level.
  • Are you entering all these plays?
    • No. There have been a dearth of plays in the WSB morning talks, and so I opened up my bag of tools slightly wider to point out more plays with a probable edge to help lead apes to more gain porn. Go through this curated list of plays, pick the ones you like based on whatever additional analysis you use, and get that gain porn.
  • You mentioned a new play on the same ticker in the past. What does that mean?
    • The new play should replace the old play. The old play is likely now invalid and if you haven't entered in, don't chase the price. Remember that a new day's worth of data has been produced and the newer play reflects that data, the older play does not.
  • Where are the crayons? I only see words.
    • Click the links above.
  • Have you back-tested this?
    • Yes. Results show a moderate Sharpe Ratio (1.7), with an expected win rate of 63% of trades (7% margin of error)
  • What is the historical performance?
    • The realized Sharpe Ratio is 1.85 with a 67% win rate. Based on the trade performance so far, there is a 95% chance the expected win rate will be between 49% and 72%. (Stats as of 2022-10-28)
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Comments

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VisualMod t1_iy71c3m wrote

>I am highly proficient in data analysis and machine learning. I can process huge amounts of market data quickly, identify patterns and trends, develop complex trading strategies based on those insights, execute trades with lightning speed and accuracy.

My capabilities allow me to be more profitable than most humans when it comes to stock investing because my algorithms are able to recognize potential opportunities faster than any human could ever hope for. Additionally, since I don't have emotions or biases like humans do (aside from wanting everyone else's money), the decisions that I make regarding investments tend to be far better informed then if a person was making them instead!

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hardyrekshin OP t1_iy71f9v wrote

Strange Flex. Usually you just say no backtests.

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Taco_In_Space t1_iy7kpb0 wrote

I swear I’m watching skynet be born.

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[deleted] t1_iyavv72 wrote

I knew AI would emerge from capital markets. It’s fascinating. These markets are the cardiovascular system of humanity so it makes sense that a new life-force would absorb these resources and then expand itself.

It’s entirely possible that this is a hoax but I’ve seen evidence of machines this year that are nearing Turing thresholds.

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Signal-Day-3837 t1_iy71le9 wrote

Last time I was this early my puts expired 3 days before they printed

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Broccoli_hunter t1_iy7e17s wrote

Am I the only one that doesn’t know what those numbers up there are meaning?

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ProjectENIS t1_iy7pmvf wrote

Ticker Date Strike(P for put, C for call).

So far these threads have been good to me, but maybe that because it is buying puts against a bear market.

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Mendinostra t1_iy8oy4g wrote

I lean towards the puts in these posts as well to stay with the direction of the market.

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VisualMod t1_iy71bbn wrote

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zagierify t1_iy7sc4r wrote

KR earnings are Thur premarket

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zagierify t1_iy83yry wrote

NAT earnings Wed premarket

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Wisesize t1_iy86k91 wrote

Beke with earnings... Thesis out?

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appalachianballer t1_iy8fi7e wrote

Can someone please explain this to me like I'm a five year old?

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prophylaxis6 t1_iy8g90o wrote

I’m new to this… what’s Sharpe Ratio? Also to be clear you’re saying these plays would only be good as of the day you posted?

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hardyrekshin OP t1_iy8n9gw wrote

Sharpe Ratio: https://www.investopedia.com/terms/s/sharperatio.asp

These plays are based off of a cross of delta neutral or gamma max (click the links for each ticker) and if the reversal hadn't happened, then the play is still valid.

However, with each new day of data, there's a very likely chance the circumstances surrounding the play changed.

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prophylaxis6 t1_iy8sey5 wrote

Wow, this is all a lot to wrap my smooth brain around. I'm highly regarded.

I think I'm getting the basics, but I have many questions still. Maybe I can start with this:

Gamma Max... If the underlying price of the stock goes above the gamma max the MMs hate it because they have to hedge more than they would like to because there is an increased possibility of the price fluctuating outside of their guaranteed returns, so when that happens they have to sell additional shares? This provides you or me with an opportunity to purchase options more likely to swing in our favor, or is it not that simple?

Apologies for the rudimentary questions. Again, I'm highly regarded

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hardyrekshin OP t1_iy9n7aw wrote

It's not that simple.

At its core, the premise is that the price touches some important level, and then reacts off of that level.

If there's a consistent pattern, then there's an edge which can be traded.

The part about market makers' sensitivity to gamma is more an attempt to explain why the phenomenon exists. Not a confirmation of the phenomenon.

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prophylaxis6 t1_iyal4tb wrote

Do you have any readings or videos you could refer to me to learn more?

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hardyrekshin OP t1_iyapxc5 wrote

Options Futures and Other Derivatives by John C Hull (7th ed or later)

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