Quantitative Research for Options Markets
Examine the methodologies used to develop and evaluate models within complex derivatives and options markets.
At Morgan Group
SPX Options Modeling
We model a basket of options on the SPX. These are of short duration, 1-5 DTE. The model primarily sells options, either spreads or condors. Very infrequently, the model will buy SPX options.
Market Participation Framework
This system models options ONLY on certain days when our model indicates the short-term volatility is overpriced. The model is “in the market” approximately 20% of the days but can have extensive inactive periods.
Risk Monitoring and Validation
We monitor total exposure, correlation, and expected drawdown. We have over 1 year of experience researching and validating these SPX options.
System Characteristics
This system has an average hold of 1-2 days, with limited capacity. Our modeling and back-testing indicate that this system can be traded with an estimated risk-adjusted return of ~2x holding the S&P and an average correlation to the S&P of 0.00 for the 10-year period shown.
SPX Options Model Results
Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.