Positive Expectancy By Ken Hodor 42512 Presentation Overview Basic premise and history 6year backtested results Analyze Drawdown and expectancy My past showed all sellers of options have negative expectancy ID: 412845
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SPY Short Straddle backed up with the Smile Strategy producesPositive Expectancy
By Ken Hodor
4/25/12Slide2
Presentation Overview
Basic premise and history
6-year back-tested results
Analyze Drawdown and expectancy
My past showed all sellers of options have negative expectancy
Deal with “black swan” events
Conclusion Slide3
SuggestionSelling Monthly At The Money (ATM) Straddles has a positive expectancy
you make moneySlide4
What about Various Strikes?Slide5
What about since Oct?Slide6
SPY Short Strangle
6 Strikes above the current price
Sell
monthlys
one month out
Results for past 6 yearsSlide7
Short StraddleSlide8Slide9Slide10Slide11
SPY Short CallWin = 90.3%
Average Win = 0.99
Average Loss = 1.46
Expectancy = 0.52
Maximum Drawdown = 4.17
Cumulative Gain =54.38Slide12
SPY Short PutWin = 69.4%
Average Win = 4.11
Average Loss = 6.91
Expectancy = 0.11
Maximum Drawdown = 55.25 (Huge!)
Cumulative Gain = 53.56Slide13
SPY Short Strangle
Win = 72.2%
Average Win = 4.54
Average Loss = 6.40
Expectancy = 0.23
Maximum
DrawDown
= 39.92
Cumulative Gain =
107.95Slide14
So how to mitigate DrawDown?
Stop Loss
Day-Trade 5+
times more weekly calls and puts than Straddles
“Smile Strategy”
30 Delta or higherSlide15
Day-Trade Weekly Puts and CallsSlide16
Short Strangle + Trading
WeeklysSlide17
ConclusionSPY Short Strangle good for income
Much better than Money Market
Day Trade
Weeklys
to mitigate or even eliminate drawdown