Did you ever find what happens when you go and look at the option options chain or scanner, and select the strike to sell?
There is a lot going on and traders make discretionary decisions what strike to use.
I want to automate that part for making trading more consistent and hopefully more profitable
First attempt I went with a naive delta range. It was something like 24-38, then turned into a map for ranges, separated on calls and puts.
It’s still didn’t work well sorry so I added more maps to adjust for stock prices, and IV ranges.
That worked for a while, and then market settled in current mode, “flat” implied volatility where a lot of names get a narrow premium distribution across strikes. What happens is premiums get clustered around ATM strike.
Which means delta range has to extend to 45-48 on puts
I decided it’s time to build a model which going to look at greeks, expected move and determine delta range for strikes.
It tools a while to build something that determines ranges reliably across different securities, separately for calls and puts. I wanted closed richer puts and more distant calls.
This was one of the most fun project I did. I have a full test suite to validate results, but I haven’t quite figure out how to make test inputs automated since they have to come out of some other model or calibration data.
I’m also not using any historical data or backtesting, again same problem what’s the test inputs.
Still, it works with remarkable consistency. I run it today on a bunch of names, NBIS TLT COST CHWY just random liquid names and all strikes from delta ranges were well defined. I was looking and yup that’s where I’d look to sell premium.
Has anybody build anything similar? As a model, math formula basically, rather than set of rules.
Anybody interested to compare results, even empirically for discretionary selection? Let me know the names, I can reply with results (when market opened)
Upd this is how it works
[NBIS delta range](https://preview.redd.it/pheh7mlerymh1.png?width=993&format=png&auto=webp&s=9809d25cbcb62d55ca0e130af4a85e5189d79bb3)
[CPB delta range](https://preview.redd.it/755lxs4jrymh1.png?width=949&format=png&auto=webp&s=5d6ed3d19a36564ff0ca66b6cae7e5c8a077553b)
Pretty good selection across vastly different securities