Live “Pure Play” Option Trade in XSP

optionalpha.com - Recently, I started running a bot template that holds what I call "pure play" trades. These are trades with slightly better than 50/50 probabilities (typically around 55% probability of max profit) and are entered at greater than 100% reward to risk. The goal, for me, is to get many trades over time that have consistent probabilities and pay a slightly lopsided amount of premium compared to the amount they risk.
Click here if you want to use the same filters I use in this video: app.optionalph...
Read the research on probabilities I referred to in the video here: optionalpha.co...

[@txbgould]

More great stuff. Always interesting to see how you are using Trade Ideas and the Option Alpha research is insightful.

[@wmrhawk]

Re: XSP vs SPY benefits, 1. Euro expiration (no early assignment) 2. Cash settlement. Therefore, if we have a contract ITM at expiration can we just leave it alone and not be concerned about assignment fees in Trade Station? Thx!

[@OptionAlpha]

Yes you can leave it to expire and cast settle, however there might still be assignment/exercise/settlement fees with your broker. You'd want to check with them.

[@RightTailAngst]

@@wmrhawk plus 60/40 tax treatment

[@rayfok]

This is very helpful

[@RightTailAngst]

Been thinking of doing this myself selling atm put buying 10 point under. Buy atm call sell 10 point call. Love the daily European style. Same as a Buy-Write with better margin

[@esnoble]

I really like the concept you are exploring - how to isolate factors which support more predictable profitability. Does volatility play into the lopsided effect you are capturing?

[@OptionAlpha]

Vol would play into the fact that we are selling premium vs. buying net.

[@TimurFedotov-lz5dm]

I want to see the similar research on zdte! Is it the same result would be?! More drawdown with higher pos, less drawdown on 50-55 pos? Very interesting! I'm taking about intraday , hours

[@benharsch9340]

XSP is also nice for cash settlement of positions. Unfortunate first day for your trade. Do you ever set up for early profit taking or stop loss? With margins that narrow, wouldn't most of those trades look like they'd turn into 0-sum games or flip the expectation into a losing proposition after incorporating commission/fees? Also, do you size these positions using Kelly Criterion or something like that, or just keeping it at single lots for now?

[@OptionAlpha]

For these I don't unless they reach something really high closer to expiration like 90% profit where I can take the short leg off for pennies. Since I trade through TS I don't pay any commissions on these trades so those don't impact the positions. And position sizing I just use 1 lots for now.