I Needed Money, So I Started Options-Hacking

If you’ve been here awhile, you’d see that I experiment with a large array of strategies. This helps me learn new things and run a diverse portfolio, but sometimes, it makes me forget what worked in the past. So, as I reviewed my year-end trade history for tax reporting, I noticed a period of option trades that were shockingly profitable, and then I remembered what it was. This strategy works by finding under/over valued options. The core idea is that on days of high volatility (positive and negative), the higher volatility will mean that more traders will be desperate to enter/exit positions and as a result, they may pay prices for options that may be too far from its true fair value. Here is a background of how we capture these opportunities: <ol> <li>Find a suitable stock. We will take a stock which is undergoing a volatile period. This can be found on earnings days, corporate actions(stock-split, merger, etc.), and even on just volatile days where the market is having a strong reaction to big news.</li> <li>Only look at options that expire around 30 days. 30-day options are the best for capturing these errors because they’re sensitive enough to actually profit with small price moves, but they have enough time-value to lose very little if the trade goes wrong.</li> <li>Use Options-Quant to price the options on the chain. We price the options chain until we get a big enough difference between the Options-Quant price and the market price.</li> <li>Put on the trade and wait for it to converge to/near the Options-Quant price.</li> </ol> <a href="https://medium.datadriveninvestor.com/i-needed-money-so-i-started-options-hacking-452daa35a615">Read More</a>