Combining Trend Following and Option Selling Strategies

From the guys over at Condor Options:

Thu, Feb 2, 2012 | Jared Woodard

Historically, two of the most successful approaches to trading have been trend following and option selling. Trend following and momentum investing are strategies known to just about everybody, and option selling (i.e. collecting the volatility risk premium), while not quite as famous, is hardly a closely-held secret.

Usually, these two approaches are treated as strangers. Momentum/trend traders are conceptually long volatility in that they are willing to accept small, frequent losses from choppy markets in order to reap gains from large price swings in one direction; a stock or futures position with a trend-based rule set in place will have a similar return profile over time to a portfolio that buys straddles. Traders who are net sellers of options, in contrast, are usually looking for mean reversion to dominate, especially if they are doing so from a market-neutral standpoint. Both our iron condor and calendar spread strategies have fit this profile in the past.

In 2010, I developed a strategy designed to exhibit the best features of both approaches.

Read the rest here.