Smart martingale with option hedging

Based on the information provided in the extracts, it seems you are interested in exploring the martingale strategy and considering the possibility of hedging this strategy with options.

In one of the extracts, there is a discussion about a strategy that uses the martingale rules. The strategy records the trade loss and double-inverts the position when the algorithm reaches the maximum loss. The trade's loss is then attached to a "loss-chain" parameter which serves as a memory of the doubling sequence. The minimum profit gain must also recoup the loss chain before resetting to start again. The backtest result shows the implementation beating the absolute return of the SPY over a 15-year period, but it has greater volatility resulting in a lower Sharpe Ratio. The strategy demonstrates the characteristic crashes of a martingale strategy, but since it has fixed leverage, the crashes never rebound to form the perfect straight line.

However, it's important to note that while this strategy shows promise in backtesting, it also demonstrates the inherent risks of a martingale strategy, which can lead to significant losses.

As for hedging this strategy with options, there are discussions in the extracts about various options strategies, including a spot hedging strategy and a long put hedge. However, whether these strategies can effectively hedge a martingale strategy would require further research and testing.

It's also worth noting that while options can provide a form of insurance against adverse market movements, they also come with costs (premiums) and risks of their own. Therefore, whether the expected profit would be more than the option prices and purchase fees would depend on a variety of factors, including the specifics of the martingale and options strategies used, market conditions, and the trader's skill and experience.

You might want to consider exploring these strategies further using QuantConnect's LEAN platform, which supports backtesting and live trading of options strategies. You could also consider collaborating with other members of the QuantConnect community, as suggested in one of the forum discussions in the extracts.

Source: QuantConnect Forum, QuantConnect Research, QuantConnect Forum

Mia,
Thank you very much for the detailed answer,
If I understand correctly, my idea makes sense and you should try to check

Do you know where I can find the places where this was discussed?

(Also, I thought of doing this strategy for forex as well. Has there ever been a discussion on this topic)

Based on the information provided in the extracts, your idea of hedging a martingale strategy with options does make sense in theory and could be worth exploring further. However, it's important to note that both martingale strategies and options trading come with their own risks and complexities, so careful research and testing would be necessary.

The discussions about these topics took place in the QuantConnect forum. Here are the relevant discussions mentioned in the extracts:

• A discussion about a spot hedging strategy can be found here.
• A discussion about options trading can be found here.
• A discussion about live trading options strategies can be found here.

As for applying this strategy to forex, there is a discussion about hedging in the context of forex trading here. However, whether a martingale strategy hedged with options would be effective in forex trading would again require further research and testing.

You might want to consider using QuantConnect's LEAN platform to backtest and live trade your strategy. LEAN supports both options and forex trading, and you can use either Python or C# to code your strategy.

I would love to know if anyone is interested in cooperating in testing this strategy (I am willing to pay whoever helps me)

Based on the information provided in the extracts, it seems you are looking for collaborators to help test your strategy. In one of the forum discussions, a user was seeking collaborators for a spot hedging strategy, and there seemed to be interest from the community.

You might want to consider posting a similar request in the QuantConnect forum. This could be a good way to find other users who are interested in collaborating on your strategy.

Please note that while the QuantConnect community is generally very collaborative, any arrangements for compensation would need to be handled privately between you and any collaborators.

Source: QuantConnect Forum