SPK Mini S&P 500 Option Trading Model

SPK option trading is the proprietary model which he has personally developed by Alexander Shpak and offered to our clients since September 2009.

The SPK trading model is based on a technical analysis (Scheme Charts) and statistical research of the last 20 years (since 1996) of the daily and intra-day changes of the United States stock markets.The strategy involves the trading of various series mini S&P puts and calls on the S&P 500 future options (ES, EW, EOM option series). The program is relatively simple, with only one traded asset – the S&P 500 options market that is based on the S&P 500 futures which in turn relies on the S&P 500 Index. This index is calculated as a weighted average of the 500 biggest (by market capitalization) public companies in the United States. The adoption of the S&P 500 Index with its wide calculated basis, allow significant asset diversification.

The trading involves combination of options strategies by buying and selling E-Mini S&P 500 options, usually between 2-6 weeks until expiration and depending on the current market conditions.

For SPK trading model, the trade decision process typically has 3 steps:

The first step is an identification of short term market condition. On this level SPK trading strategy incorporates fundamental with technical analysis (Scheme Charts – charts compression technique). Тhe main task of the first step as precisely as possible to describe the current market conditions and plan for possible scenarios of market changes.

The second step is the choice of option strikes and options series for options strategies. For this we take into consideration prices of the options, market volatility and how much time remains until expiration. For analyzing the option strike price we also use our unique mathematical model “Risk Movement Matrix” (RMM) personally developed by Alexander Shpak.  RMM have been built on the basis of historical fluctuations of S&P500 index and taking into account a variety of market conditions. Finally the RMM has been developed for 8 levels of market conditions from quiet low volatile market to “fast market” with huge fluctuations (two levels for quiet markets, tree levels of “normal” market and tree levels of the “fast market”).

The last step of decision process is to choose appropriate option strategy according market condition and breakdown probability. In other words we compare RMM data (historical scenarios) with current market conditions and generate an appropriate option trade strategy:

  1. It may be writing naked options or short strangles in the low volatile market in order to capture option premium (first two level of market condition according to “Risk Movement Matrix”, RMM).
  2. It may be sold spreads or call put ratio back spread on the “normal markets” next three level of market condition according to “Risk Movement Matrix”, RMM. (Naked put options writing is usually not allowed with VIX values above 25, level 5 and above according to RMM model).
  3. And we are using more complicated strategies, like combination of sold and bought time spreads, for example, in the high volatile markets (last three levels of market conditions according to RMM).

Тhe main advantage of this program is that it works across a wide range of market conditions, not depends on market direction and may be great complement to trend-following and other systematic strategies. We hope that this program will be mostly suitable for investors who are seeking an alternative return or diversification, which has the potential to gain consistently over time.