I have no high conviction interest in any other stocks other than Tesla, but I do have high conviction in taking advantage of anomalous situations that happen sporadically. This thread will be about that exploration for me, and anyone else who wants to discuss their options / trading plays on other stocks because they perceive and want to take advantage of some systemic bias.
What do I mean about anomalous? I mean when dealing huge change in price, or big swings in volatility. The market is made up of many movements that on average may form close to a Gaussian distribution in most cases - and trading on those movements may generally lead to no advantage. But on big swings (essentially the "fat tail" of a change in price distribution, there is room for profit).
Even 10 years ago I made a basic machine learning algorithm searching for (price movement) circumstances when some profit could be made on stocks (totally ignoring fundamentals). What it found was basically only when huge changes in price in one day occurred (> 20%), short the stock by close and more often than not the stock would drop the next day.
This year I've mostly explored taking advantage of when volatility is insanely high in a stock. This is anomalous to me because it is doubtful over a year the volatility will stay that high.
Case in point was AMC a few months ago. Insane IV. Price was "high" and basic fundamental analysis told me it was unlikely to go and stay 2x or 3x higher long term. So I sold a bear vertical spread. That way, even if price remained flat, the eventual vega decay (say nothing about theta decay) would lead to profitability. Right that that trade is at 30% of total possible profit.
A one I tried this week was GNOG. A merger was announced at a specific market cap value and now the price has shot and stayed there. But volatility was still high, so I sold a 17.5 put and a bear vertical spread 20/25 for Feb 22. Just a handful on contracts for experimentation. The risk is that the deal falls apart I suppose.
What do I mean about anomalous? I mean when dealing huge change in price, or big swings in volatility. The market is made up of many movements that on average may form close to a Gaussian distribution in most cases - and trading on those movements may generally lead to no advantage. But on big swings (essentially the "fat tail" of a change in price distribution, there is room for profit).
Even 10 years ago I made a basic machine learning algorithm searching for (price movement) circumstances when some profit could be made on stocks (totally ignoring fundamentals). What it found was basically only when huge changes in price in one day occurred (> 20%), short the stock by close and more often than not the stock would drop the next day.
This year I've mostly explored taking advantage of when volatility is insanely high in a stock. This is anomalous to me because it is doubtful over a year the volatility will stay that high.
Case in point was AMC a few months ago. Insane IV. Price was "high" and basic fundamental analysis told me it was unlikely to go and stay 2x or 3x higher long term. So I sold a bear vertical spread. That way, even if price remained flat, the eventual vega decay (say nothing about theta decay) would lead to profitability. Right that that trade is at 30% of total possible profit.
A one I tried this week was GNOG. A merger was announced at a specific market cap value and now the price has shot and stayed there. But volatility was still high, so I sold a 17.5 put and a bear vertical spread 20/25 for Feb 22. Just a handful on contracts for experimentation. The risk is that the deal falls apart I suppose.
