Algorithmic Options Trading 2 The Financial Hacker.
Option profits can be achieved with rising volatility, falling volatility, prices moving in a range, out of a range, or almost any other imaginable price behavior. If the aapl price stays inside the range, we lose. PlotScale 10; var Step (RangeMax-RangeMin points; Step round(Step0.5,1 / round up RangeMin round(RangeMin,1 int i; for(i0; i points; i) if(Num 0) OptionGainsi OptionVals50i 0; else var Price RangeMin i*Step; if(Price RangeMax) break; var Gain 0; var Strike C- fStrike; var Val50 case buycall: if(Price Strike).
You need R installed for running it, and also the RQuantlib package for calculating option values. This leaves us with 60 total premium cost, and a chance of up to 440 profit when the price stays inside the range. The option prices are calculated from the underlying price, the volatility, the current risk free interest rate, and the dividend rate of the underlying. There are some tiny differences that might be partially random, partially caused by anomalies in supply and demand. The option chain is a list of all available option contracts of the selected underlying, with all available strike prices and all expiration dates. Conclusion Options and option combinations can be used to create artificial financial instruments with very interesting properties. This results in a statistial advantage (or disadvantage) of option combos with nondirectional assets. By the way, this option profit diagram resembles the response function of a Rectified Linear Unit in a neural network. It might explain a large part of the positive results of option systems in trading books. I would convert.t6 file into artificial option chains. Youll notice that the result is different any time, but it is more often positive than negative, even though commission is subtracted from the profit.
Algorithmic Options Trading 1;.
In this second part of the Algorithmic Options trading series well look more closely into option returns.