Options tracking in WLP would be nice
Author: TheInvis
Creation Date: 8/13/2008 8:27 AM
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I read somewhere recently that there is now a data service that tracks option prices, giving you the ability to backtest/analyze trading strategies using puts and calls rather then long and short positions in the corresponding stocks.

Any truth to this? If so, how/where?

(And if it ain't true, why don't you guys do it? ; ) )

The thought being, if options price behavior mirrors (or perhaps amplifies!) the movement of the underlying stock, a smaller bet in options could produce equivalent (or better) results than the stock buy/sell. Another benefit would be that the investor could capitalize on a wider range of alerts on a daily basis, theoretically pushing the strategy to its normative (ie: long-term) performance pattern faster than placing say 1 stock trade a day.

One primary issue would be: Are upside and downside movements in options symmetric to stock performance? This remains to be proven. Tracking same using Fid Watchlists is doable (manually), but will be a pain.

Even w/o Watchlists of option symbols, WLP can be used to inform options trading in a number of ways. In my experience thus far however, any projection of option price behavior beyond a day or two out is written in vapor. In other words, the old saw "past behavior is NO predictor of future performance" proves itself out faster in the world of long-term options than anywhere else in the investing universe, where -- despite the parameters of my WLP models -- my win rate in the real world panned out at ZERO.
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I have been paper-trading LEAPs and 2 month out options against a couple strategies, using WL5 for the alerts to initiate the paper trades.
The key points are: Chose your expiration wisely versus the signal your strategy offered. And, there are many additional variables which greatly influence the long term pricing models.
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