For traders of short puts, the only significant factor is the probability of the price slipping below the strike. The Sortino Ratio is similar to the Sharpe , but with a focus on downside movement. For years I have felt some type of charting of the Sortino ratio on a TOS chart would be informational for determining both the optimum timing for entry and early exit of a short put position.
The math involved and experience puts this outside my capabiilty. I have sent a number of requests to the TOS Thinkscript team but have gotten no positive response. I can not find any activity here on the Sortino Ratio, and am wondering if any info may be available on Sortino Ratio charting?
--- I am not attempting to analyze a portfolio, but only a single ticker at an instant in time.
--- Some major brokerage houses are currently using the Sortino ratio in their proprietary system for decision-making on short puts.
--- My thought - the TOS standard Probability of Expiring Cone is not reality, because the actual probability above the axis is not the same as the probability below the axis. This actual skew is defined in the Sortino Ratio. Charting a numerical value of the Sortino at each point in time would indicate both the degree of the instantaneous skew, but would also provide a historical record of trends in the skew over time with price, volume, and other indicators.
--- It seems over time an understanding of the movement in the Sortino relative to other indicators would serve to improve the quality of entry/exit decisions on any option position impacted by the reality of the relative skew in the PEC.
I had contact with a major brokerage house advisor some time ago. He was aware I was a periodic trader of short puts, and in an effort to encourage an account to move to his firm, he summarized his use of the brokerage house's process in using the Sortino ratio to select optimum times for entering and exiting short puts on tickers in their buy list. Since the probability of downside movement is the major factor of signficance in short puts, he emphasized their proprietary system offered a distinct advantage over the more traditional probability of movement indicators for entry and exit decisions. In the two years since this meeting, I have attempted and failed to access such an indicator.
"The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally."
As a wild speculaltion, could they have been charting the probability of the ticker not retracting below a "user defined target of some defined %" or ......?
I can not give you a mathematical formula for the calculation.
I am just passing on the fact at least one brokerage house reports they are improving their short put entry and exit timing decisions on individual tickers by using proprietary, time-based "sortino ratio type" indicator charting. Defining this mathematically is beyond my ability, so I was inquiring if anyone here was using or could define such a tool.
Gray
The math involved and experience puts this outside my capabiilty. I have sent a number of requests to the TOS Thinkscript team but have gotten no positive response. I can not find any activity here on the Sortino Ratio, and am wondering if any info may be available on Sortino Ratio charting?
--- I am not attempting to analyze a portfolio, but only a single ticker at an instant in time.
--- Some major brokerage houses are currently using the Sortino ratio in their proprietary system for decision-making on short puts.
--- My thought - the TOS standard Probability of Expiring Cone is not reality, because the actual probability above the axis is not the same as the probability below the axis. This actual skew is defined in the Sortino Ratio. Charting a numerical value of the Sortino at each point in time would indicate both the degree of the instantaneous skew, but would also provide a historical record of trends in the skew over time with price, volume, and other indicators.
--- It seems over time an understanding of the movement in the Sortino relative to other indicators would serve to improve the quality of entry/exit decisions on any option position impacted by the reality of the relative skew in the PEC.
I had contact with a major brokerage house advisor some time ago. He was aware I was a periodic trader of short puts, and in an effort to encourage an account to move to his firm, he summarized his use of the brokerage house's process in using the Sortino ratio to select optimum times for entering and exiting short puts on tickers in their buy list. Since the probability of downside movement is the major factor of signficance in short puts, he emphasized their proprietary system offered a distinct advantage over the more traditional probability of movement indicators for entry and exit decisions. In the two years since this meeting, I have attempted and failed to access such an indicator.
"The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally."
As a wild speculaltion, could they have been charting the probability of the ticker not retracting below a "user defined target of some defined %" or ......?
I can not give you a mathematical formula for the calculation.
I am just passing on the fact at least one brokerage house reports they are improving their short put entry and exit timing decisions on individual tickers by using proprietary, time-based "sortino ratio type" indicator charting. Defining this mathematically is beyond my ability, so I was inquiring if anyone here was using or could define such a tool.
Gray
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