BSOD – CTRL ALT DELETE – HALT – HELLO WORLD

When I read Paul Ford’s What Is CODE  – recently published in Bloomberg, it resonated with me enough to be inspired in writing just as abstract flash fiction blogs regarding our world of a Turing Machine based binary code, the influences of Apple’s “App Stores” flooding our ultra-mobile high tech market, which amplify the threats that are infiltrating the security of our financial institutions, and the means of which, devising an alternative trading platform that is completely coded unlike anything before, stands out as the priority in my life right now.

Is the threat worse or the massive proliferation of ultra-mobile technology dominating our lives and credit cards?

IF This, Then This…

Ford claims there are an aggregate collection of coders (programmers) around 18 million and growing fast.  He makes a poignant point that you cannot disregard (and I’ve known for a long time after having my computer’s hard drive hacked to death several times) that either programmers are running the world or the programs that they are coding are running the world.

sudo apt-get upgrade

If you stumble upon my blog and read the accounts of this fictionalized – flash written story – you’ll be introduced, rather covertly to the things you NEED to know in regards to developing a vital perspective that challenges your own subconscious bias between myth and fact.  Such as that people think Apple is a superior product.  It is not.

In fact, to date, Apple/Macintosh is a wanna be Android, given that baseline syntax used for all operating systems is Unix/Linux based.

The Apple Watch is only the means of which to keep its customer base tethered to having to have their other products to find satisfaction of functionality.  Blindly spending more money on something that is inferior reeks of the irrational behavior of a “skewed” debt driven economy that make Bitcoin more attractive each day we face another economic crisis.  Have you bought a Mycelium Wallet yet?

You can Ubuntu-ize your life to make it much easier to manage the “terminal codes” of which both Microsoft and Apple are terminally ill because the collective “they” programmers, are like all writers of anything – Asemic to Linguistic Tongues – they have to put their own spin on it, plagiarizing that which was the original Basic Word.

is pal: {x -|x }

Moreover, he Proof of Concept trading model: CODEXCELIAN can give you the robust absolute critical knowledge of understanding equity mechanisms.  2 + 2 = 4.

The Turing Test 

Notable physicist Roger Penrose pays the deepest respect to Alan Turing in his white paper on living  a computer driven lifestyle.  It is without a doubt a truth of which sadly one of the greatest minds of the 20th century was destroyed by homophobic zealots.

But then there is Ada Lovelace, Linda B. (UNIX coder) and others who pioneered the course of technology to what we know of it as managing, or at the very least obstructing through complications of Blue Screens of Death in our lives today.

This is how I arrived at the title of my story:

“WRITE HIM OFF – Z EQUALS ZERO”

We live in a world economy based on the Pareto Effect.  Our very own perception and/or motivation to claim our individual right to be selfish enough that it is the way to attain our construed dreams of fulfillment, are guided and  molded into this belief system that for one to gain, another must suffer.

This title reflect it, metaphorically, because story titles are suppose to emblematic of the story’s plot, and my story embraces humanity because I am a human, at least I was mere reflection of one the last time I looked in the mirror.

“Write Him Off” is to imply that the Turing’s Model no longer works, Wolfram, et al are in danger of becoming extinct, just as millions of earthly creatures have disappeared from our wanton gluttony of devouring the earth’s cyclic equilibrium of resources, thrusting our civilization into a quick descent of obscurity.

I mean no insult to Turing, yet it does bear fruit in the manner that he was initially mistreated and then through the course of computerizing society’s history our coders are evolving his mechanism.

“Z Equals Zero” equates into the Greek letter “Zeta”, (you already know what this represents) and Zero as the numerical binary code “0” that streamed down the computer monitors in the movie the Matrix – representing a Zen mindset of “the illusion of nothingness”.

Combined together you have a story plot about the ending of one computerized mindset era and the its code.

SERGM

Then there is the nonfictional aspect of my quantitative model (hint for you coders) that is ready to be programmed for API cloud access, is going to be posted here.  Had you read my article “SERGM” last year, you’d been introduced to a manner of critical thinking that, to my surprised gained me an invitation to join Interactive Brokers “think tank” on writing trading algorithms.

I declined because of the very fact that I would have been pushed into the traditional mainstream polluting belief systems (our synapses transfer data between neurotransmitters at 2 milliseconds, much too slow for CPU programmed high frequency trading programs – clocked at 2 microseconds) of which I am trying to break away from by listening to frequency tones on a daily basis.  Pineal gland activation is a primary function of exiting the Occidental paradigm.

Your own thought process right now is getting jumbled, as the presentation of my own stream of consciousness is skewing the internal perceptions of your limited time frame experiences in life as not equating – both mathematically and psychologically coherent.

We, as humans, can only evolve as fast as our minds can assimilate what we experience – and that comes in holographic fragmented fractal tiles of embedded memory – stored in at least three areas of our cranial machine.

Artificial Intelligence is seriously hampered by this fact as our own mental latency is transferred into the construction of a machine that is mathematically programmed to our cognitive means of critical thinking – running wildly through mega calculations that spin terabite hard drives out of control.

When the algo hits a snag, it halts and goes into the BSOD.   There more inefficiencies within our computer industry than there are common nonsensical approaches to solving the issues that we have already created with due course of conflict resolution.

This opacity causes risks. One study by a researcher at the University of Hawaii found that 88 percent of spreadsheets contain errors.  Paul Ford, What Is Coding?

I’m taking  you into “no man’s land” per se – and this part of it will take a quantum leap of faith on your part to try and remain connected, and focused with impeccable intention – the journey of Don Juan in Carlos Castaneda, and beyond the mouse pointing cursory browsing attention span of three seconds.

In conjunction to this blog site – I’ll be developing a website and YouTube videos that hopefully, once I get the “bugs” fixed will be live Excel streaming (making sure I’ve removed the 88 errors) so you can follow my gleamed equity and option trading signals.

Entropy and Inert Code

It is my intent to introduce you to the future of trading platforms – both through fictional story telling and the actual reality of Lilliputian mechanisms based on abstract constructs, i.e. quasicrystal polyhedral geometrical strategic complex systems embedded with adaptive agent subroutine calibrations that reveal the “pings” of HFT’s shark bait offers.

Be aware that things will be getting “thick” to make you “think” in solving what I will be making more puzzling by not filling in all tilling along the way  That’s your job to exercise your gray matter between your ears.

Finally, I am NOT the guy in the khaki jacket.

Stay tuned, the best is yet to come.  I might even get a Noble Prize.

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ADOBE SNAPSHOT -CALLS AND PUTS OUTCOMES

adbe-screenshot-domain-date-time

In the moment of time we have during execution of market performance – data flowing endlessly from all nodal points perscribed by our algorithms; here is ADOBE (NASDAQ:ADBE) – artistically designed and/or engineered using our CXQ Excel model to be calibrated with Marcoaxis – the Buy or Sell graphics.

Sharpening the data’s focus in this case causes a slight distraction – to the viewer’s inner eye – But the essential kernel of information to which we direct your attention is the Call linear/logistic tracking blue line that rose away from the Put – up above it’s placement, simply implemented by the spreadsheet’s functionality.

The pivotal inputs are Entry Price, Ask and Bid.

We earned about $372 (not including commissions) on the Long Call (OCT Strike 105; Premium Limit Order Entry $2.14. (Put Strike was 94 with a Limit Entry at $1.10.)

Volatility – DTE:  Call Delta rose to 0.724; Put -0.036.  Prob OTM for the Call dropped to 0.2929 while the Put Prob OTM rose to 0.9573.

Trade date was 9/8/2016.

Next up – COSTCO September 28th.

We have a Limit Order for a Long Call on COST OCT (hoping for more volatility given the drop in price over the past few months. Limit Order Entry $152.80 with a target to $157.34 before the earnings report in six days. (Just within the 7 day cycle.)

As with all our posts they are strictly educational. We are grateful for Macroaxis’ assistance in providing their robust Financial Analytics. (The graph posted on the right.

ADOBE PRE-EARNINGS OPTION TRADES -SUMMARY

EQUITY in this ledger: Adobe (NASDAQ:ADBE)

Introducing our move toward a “block” “chain” model using Excel for baseline configuration of input/output parameters regarding Option Trading.

  1. Block: CODEX.  C-RTN, Spread (Strangle), “BUY” (Calculated signal),  Profit/Loss
  2. Excel Layout – Call/Put Workbook Inputs
  3. Determining Option Chain, Strike Price, Premium correlations
  4. Macroaxis Finance:  ADBE Recommendation Graphic

Taking into account the opportunity to make profits from the earnings volatility, we review out context for the pre-earnings report for the asset Adobe (NASDAQ: ADBE).

  1. CODEX/C-RTN BLOCK:  This is a signal based calculation that takes into account both underlying price ranges and statistical computations.  It is sensitive to price move, just as Beta, even more so, and provides a Forward-Looking outcome.  When CODEX is positive than the underlying price trend is Bullish.  When it moves into the negative, the underlying price trend is Bearish.  The max number either way is +1.000 or -1.000.   C-RTN represents a modification of monetized cyclic period to determine the trend, and a calibrated signal “BUY” that is based on a Logic formula.   When the Codex and C-RTN are in conflict, meaning they don’t complement either positive or negative outputs, than there is a risk averse alert for entry.
  2. The CALL/PUT “BLOCK”  aligns the correlated data inputs provided to track the variances between elements.   The Excel layout is flexible so that the elements can be arranged in accordance to the option trader’s hypothesis.  We use “Thinkorswim” to export the selected option chain(s) that is pasted into adjacent spreadsheet.  Then the relevant data is cut and pasted into this format.   What is not shown is the DTE  (Time Decay) entry price BLOCK that provides the “limit” order price in relationship to the traders spread.  You’ll notice the Entry Price input where, in this case, we went Out-of-the-Money (OTM) for both Long Call/Put.  Typically, we prefer a comparable premium, yet our strategy for this trade was short term, capitalizing on volatility and time decay.
  3. BLOCK ARCHITECTURE for this layout is meant to be an optical reference; both for mental entrainment by seeing the correlation of the underlying price move to the Options inputs, and providing an orientation to see time decay of the premiums in real time.

Our terminology has changed over many times over the years.  Conceptually, it’s basically all the same:  building a node of dependent statistical input data that is available to be “chained” or “linked” or “neural” to other “clustered” independent data that is incorporated into various Excel formulas.  We like the flexibility of using Excel as it gives us many options for simulating outcomes and most importantly Proof of Concept.

This ledger publication is extremely simplified in presentation.  As we present more of our own trades and the context behind them, things will become sophisticated and in-depth.

 

CODEX C-RTN P/L
0.07804 -0.0162 $72.00
STRANGLE BUY Signal
CALL PUT
Month 16 SEP 16 (4) 100
Trade Date 09/12/16 09/12/16
Strike 100 95
Premium 3.05 2.13
Ask 3.10 2.16
Entry Price 3.900 0.920
Delta 0.4682 -0.3235
Vega 0.1284 0.116
Prob OTM 0.5679 0.6407
Volume 130 32
Implied Vol 0.2791 0.2982
Gamma 0.0441 0.0373
Contracts 200 200
Close $610.00 $432.00
Open $780.00 $184.00
Profit/Loss -$170.00 $242.00

Macroaxis Financial Analytics provides a complete breakdown of relative analytical elements used by portfolio managers.   We use Macroaxis for several reasons; in this case we wanted to see what the overall market sentiment was for Adobe prior to their earnings release.  We’ll incorporate this feedback into making a case for leaning into either the Call or Put.

screenshot-www-macroaxis-com-2016-09-12-18-09-50

GRTS Market Analysis and Codexquant are meant to present educational thesis’ to provide insightful means of attaining impartial investing decisions.  The take away, moreover is an orientation to confront “our” bias and blind spots when it comes to the truth.  Traditional means are quickly being replaced by highly advanced technological devices and programs.  If we can provide one with a new insight of what’s valid in revising the way we assess our global economy, than we’ve achieved our purpose.

CODEX QBT COMPUTATIONAL EQUATION INPUTS FOR EXCEL

CODEX.QBT – MATRIX
STATISTICAL PARAMETRIC 
EXCEL SEQUENCE EQUATIONS AND COMPUTATIONS

INPUT DATA MATRIX

Symbol

Impl Vol

%Change

Close

Open

AG

0.61

0.03

10.8

11.06

STRIKE CALL

INTRINSIC

C PROB OTM

C PREMIUM $

10.00

0.82

0.34

1.00

1.20

0.04

BIDU

46.39%

2.19%

170.14

172.38

STRIKE CALL

INTRINSIC

C PROB OTM

C PREMIUM $

175

5.11

0.56

8.2

INTRINSIC IS THE DIFFERENCE BETWEEN THE UNDERLYING AND STRIKE PRICE FOR CALL CALL OPTIONS;

PUT OPTIONS IS THE DIFFERENCE BETWEEN THE STRIKE PRICE AND THE UNDERLYING

TGT: =SUM(HIGH PRICE-LOW PRICE)+OPEN

TGT 2: =SUM(OPEN PRICE – CLOSE PRICE)+LAST PRICE

INTRINSIC VALUE IS THE ACTUAL VALUE BASED ON AN UNDERLYING PERCEPTION OF ITS TRUE VALUE, BOTH TANGIBLE AND INTANGIBLE.

TGT

TGT

RANGE

11.59

11.42

0.79

P PROB OTM

P PREMIUM $

IV POP

0.65

0.35

0.48

0.04

CALL IMPLIED VOLATILITY- PROBABILITY OF PROFIT

PUT IMPLIED VOLATILITY – PROBABILITY OF PROFIT

CALL IV POP: =SUM(STDEV IV – CLOSE)

PUT IV POP: = SUM(STDEV IV – PUT PREMIUM

C IV

C HV

OPT IV

STDEV IV

0.57

0.45

0.61

0.833

STANDARD DEVIATION EQUATION FOR IMPLIED VOLATILITY

=STDEV(C IV; C HV; OPT IV)*10

DELTA

THETA

GAMMA

VEGA

0.710

-0.009

0.230

0.010

-0.290

-0.009

0.032

0.088

CASH DELTA

= DELTA* UNDERLYING PRICE * POSITION SIZE

THETA = 10,000 * -1 = -100;

MEASURE OF TIME DECAY FOR A ONE DAY TIME HORIZON;

EXTRAPOLATED OUT TO EXPIRATION

PROFIT/LOSS

CASH DELTA * SPOT CHANGE IN %; (CASH GAMMA * SPOT CHANGE IN %)/2;

THETA*NUMBER OF DAYS (USUALLY 1 EXCEPT FOR W/E;

VEGA*CHANGE IN IV

Q & P WORLD

(QUANTITATIVE – OPTIONS; PORTFOLIO – EQUITIES)

P ACTION

1.55

PRICE ACTION IS ESSENTIAL IN COMPARISON TO NET CHANGE. IT ACTS AS THE LEADING INDICATOR FOR INTRADAY PRICE MOVEMENT DIRECTION/REVERSAL

=SUM((LAST PRICE-OPEN PRICE)+(LAST PRICE-HIGH PRICE)+(LAST PRICE-LOW PRICE))/1.8

NET/PRICE MOVEMENT RATIO

=SUM(NET CHANGE/PRICE ACTION)

HV

STDEV

IV

0.91

0.96

1.17

HV (HISTORICAL VOLATILITY) IS COMPARED TO THE PRICE RANGE STANDARD DEVIATION AND THE IMPLIED VOLATILITY THAT SHOWS IF THE ASSET’S PRICE MOVEMENT IS VOLATILE – MEANING THE OPTION PREMIUMS WILL BE HIGHLY ACTIVE

ALPHA

BETA

EXP RTNS

-0.42

0.31

0.08

ALPHA:

=SUM(RISK FREE RATE)+(EXP RETURN-BENCHMARK)*(STDEV RETURN/STDEV MARK)

BETA:

=SQRT(EXP RETURNS)/ABS(HV)

IF BETA IS “2” IT WILL BE EXPECTED TO SIGNIFICALLY OUTPERFORM IF MARKET IS GOING UP, AND SIGNIFICANTLY UNDERPERFORM IF MARKET IS GOING DOWN.

IF BETA IS “1” THEN ASSET AND MARKET WILL GENERATE SIMILAR RETURNS OVER TIME

EXP RETURNS: =STDEV(IV;HV)*SQRT(DAYS/252)

BENCH: =SUM(CLOSE PRICE;OPENPRICE;LAST PRICE; HIGH PRICE; LOW PRICE)/5*0.01

STDEV RETURNS: =STDEV(PRICE ACTION;IV)

STDEV MARK: =STDEV(STDEV;BENCH)

BENCH

STDEV RTNS

STDEV MARK

0.64

0.27

0.23

LIST FOR BLACK SCHOLES CALCULATION

RISK FREE

0.25

 

EXP MOVE

SD SQRT

1.87

0.77

EXP MOVE:

=LN(PIVOT PRICE)*0.45

SD SQRT:

=STDEV(OPEN PRICE;LAST PRICE)*SQRT(EXP MOVE)

LOG

EXP

0.88

2.42

NATURAL LOG:

=LN(EXP MOVE/SD SQRT)

EXPONENTIAL:

=EXP(LOG)

SKEW

DAILY %

0.56

0.45

SKEW:

=SKEW(HV;STDEV;IV)/EXPONENTIAL

ALTERNATIVE:

=SKEW(STDEV;SQRT SD;LOG;EXP)

DAILY %:

=SUM((PRICE ACTION)*0.1/SQRT(DAYS/252)

ADD: MEAN AND VARIANCE

PIVOT

64.01

PIVOT PRICE:

=AVERAGE(PRICE SERIES)

OR

=AVERAGE(OPEN;LAST;HIGH;LOW PRICES)

CHG %

1.01%

PIVOT PRICE:

=AVERAGE(PRICE SERIES)

OR

=AVERAGE(OPEN;LAST;HIGH;LOW PRICES)

CHG %

1.01%

=SUM(HIGH PRICE TGT-HIGH PRICE)*1/HIGH PRICE TGT

HIGH

66.07

=SUM(OPEN+EXPONENTIAL)

LOW

65.29

=SUM(HIGH PRICE TARGET-SD SQRT)

INT

EXT

#N/A

#N/A

INT: =SUM(LAST PRICE – STDEV)+IV

EXT: =SUM(LAST PRICE – INTRINSIC)

STDEV

#DIV/0!

=STDEV(CLOSE;OPEN;LAST PRICE SERIES)

SV

IV

VOL

#N/A

#N/A

#DIV/0!

STATISTICAL VOLATILITY

=AVEDEV(CLOSE;OPEN;LAST;HIGH;LOW)^0.314

TO FIND IMPLIED VOLATILITY RANK (INTRADAY)

=STDEV(OPEN, HIGH, LOW, LAST PRICE RANGE)

THEN,

=SQRT(STDEV)

A-B

#N/A

=SUM(ASK-BID)/VOLUME

RULE:

WHEN SV, IV, VOL ARE NEAR NEUTRAL THIS IS A BUY SIGNAL –

STDEV SIGNALS AN ANOMALY IF IT LOOKS LIKE AN OUTLIER TO THE TRIAD.

GROWTH

VALUE

SD SQRT

#DIV/0!

#DIV/0!

#DIV/0!

GROWTH:

=GROWTH(LAST PRICE; HIGH PRICE;SV;IV;MIN+TIME VAUE)+MIN PRICE TGT

VALUE:

=SUM(GROWTH-LAST PRICE)

SD SQRT:

=STDEV(IV;VOL)*SQRT(DAYS/252)

ALTERNATE:

=STDEV(ROR;ROC)*SQRT(DAYS/252)

=STDEV(HIGH PRICE;LOW PRICE)*SQRT(DAYS/252)

MIN + TV

#N/A

TIME VALUE

=SUM(MIN+EXTRINSIC)

INDEX

WEIGHT

#N/A

#DIV/0!

INDEX:

=AVEDEV(PRICE SERIES)/5

WEIGHT:

=SUMPRODUCT(STDEV;SV;IV)*PRICE ACTION

ROR

ROC

#N/A

#DIV/0!

ROR:

=SUM(HIGH PRICE-LOW PRICE)/ABS(HIGH)

ROC:

=STDEV(HIGH;LOW)*SQRT(DAYS/252)

MEAN

#N/A

MEAN

=MEDIAN(OPEN PRICE;LAST PRICE;HIGH PRICE;LOW PRICE)

P TGT

EXP MOVE

#N/A

#N/A

PRICE TARGET:

=SUM(LAST+PRICE ACTION)

EXPONENTIAL MOVE:

=(PRICE INDEX)*45/252)

CAN VARY TIME FRAME USING 1/16TH FRACTIONAL

VAR

KURT

0

#DIV/0!

VARIANCE:

=VARP(OPENPRICE TO LOW PRICE SERIES)

KURTOSIS:

=KURT(SV;IV;ROC;STDEV)

ALPHA

BETA

RSQ

#N/A

#DIV/0!

#N/A

ALPHA:

=SUM(IV)+(PRICE ACTION – STDEV)*(INDEX/WEIGHT)

BETA:

=FTEST(IV;NET CHANGE; PRICE INDEX)

PEARSON:

=PEARSON(HIGH, LOW, CURRENT PRICE; NET CHANGE, PRICE ACTION, PRICE INDEX)

(Disclaimer:  The data presented is intentionally provided for educational purposes only.  We are not making any recommendations nor implying that this statistical set up is a proven format for making profitable trades.  Our intent is to expose traders to the combinations of scenarios regarding Excel equation inputs and the means of calibration by making a modular layout of specific “family” statistical inputs that can be supportive for other modular bins.)

Peace.

Rich

THINK BACK: TWITTER EARNINGS – THE WHIPSAW OPTION STRANGLE TRADE

In this blog we discuss how we found which option side to lean into prior to Twitter’s (NASDAQ:TWTR) earnings release the following day – 10/27/2015.

It never amazes me when the predictable is always the unpredictable when it comes to trading options around earnings.  The “zero sum” outcome and randomness of the efficient market indicators are equally reliable to be unreliable.  What goes down must come up.

And paradoxically, TWTR posted a plus in earnings, though minuscule by our standards, market makers obviously have inventory lined up to short TWTR, proving that our PUT weighed values were correct: but only momentarily since TWTR returned to the breakout price on during intraday trading on 10/28.

Posted Table on October 26, 2015 the day before Twitter posted earnings.

Estimate is -0.24 cents and actual was 0.10 in After Market Reporting.  What transpired as to the volatility of movement provides excellent feedback as to why you’re flying blind, even with statistical evidence to support a “mechanical” risk defined trade.

In this table below you’ll see our goal post statistical data indicator’s comparison between the NOV 2015 Call/Put analytic matrix that is calculated by our Codex.qbt* formula.

How to read this graph:  On both left and right sides we have Call and Put coinciding indicators: Premium (Ask), our entry price (calculated for a limit order entry), Bio premium price, Delta Hedge (not direct Delta, but our own calibration), Gamma, Implied Volatility at the Strike, Probability Out-of-the-Money, Strike, Number of contracts in hundredths, Probability of Profit (calibrated to our own formulary), P/L, and Skew price.  Note: Intrinsic is purposely left blank as this is a short term trade.

In the middle are the Logic signals:  Delta Hedge shows “Call” and Implied Volatility shows “Put”, a contradiction that played out accordingly.  The “Spread .03” Alert is to signal us when the spread between the Bid and Ask expands greater than two cents.

Stock quote and option quote for TWTR on 10/26/15 08:13:03
CALL P/L Strangle PUT P/L
$38.00 $260.00 $222.00
NOV 15 (25) 100
CALL OFFSET** PUT
Premium 1.98 $260.00 Premium 2.060
Entry Price 1.78 DELTA Entry Price 1.931
Bid Price 1.93 PUT Bid Price 2.07
Delta Hedge 0.3381 Delta Hedge 0.427
Gamma 0.0887 IV Gamma 0.1272
IV 0.743 PUT IV 0.760
Prob OTM 0.61 Prob OTM 0.52
Intrinsic Spread > .03 Intrinsic
Strike 32.00 CALL Strike 30.00
Contracts 100.00 ALERT Contracts 300.000
Prob of Profit 0.1921 PUT Prob of Profit 0.1935
Profit/Loss $38.00 ALERT Profit/Loss $222.000
Skew Price 1.94 Skew Price 2.209

What sticks out is that the Implied Volatility is .743, well above our .45 threshold for mean reversion of a Buy Call signal; and that the Put indicators out weigh the Calls.

With a favorable out come of TWTR going short, we executed a cost reduction limit order with 3 Long Put contracts and 1 Long Call contract, to protect the upside, so not to diminish our profits.  You’ll notice we were pretty close in matching up the premiums for pairwise management of risk to reward ratios.

twtr earnings
Entered around $30.89. Surged up for a Call scalp profit and closed out at closing bell. Held the Put side to the opening bell on 10/28 to lock in profits at $28.80.

TOS “think back chart” (The outcomes are not as accurate given the intraday subtleties involved in our trade executions.)

The totals are listed in the above graph: Call profit was $38 on one contract and Put profit was $222 giving us a $260 pay out minus the per contract fees.  The whipsaw volatility on price formation was foretold by the OTM percentage.

*Codex.qbt is our bootstrapped Excel quantitative statistical model name.

It is in the Proof of Concept phase; based on the hypothetical Qubit “superposition” of categorical data inputs compiled into statistical data bins then calibrated for a “measure of certainty” outcome.

**Offset is the combined profit/loss between the Call and Put positions.  This is an excellent visual for “Strangles” and “Straddles” as you can see how both positions can become profitable at the same time.

Do you use TOS?  Would you like to have our Open Source Excel spreadsheet models for your own use?

Available for MSN Excel 2010, Apache Open Office and Google Spreadsheets.  These spreadsheets can be customized for your own trading style and watch list selections.

Inquire at: grtsmarket@gmail.com for a list.

Peace.

RK

Disclaimer:  The above information is for educational purposes only.  We make no claims of validity or suggestion for trading the assets listed.

YOU NEED TO READ THIS IF YOU ARE AN OPTIONS TRADER

The log-linear rule falls in between the “traders” price and the “net orders” affecting the price action.”  Prof. Doyne Farmer and Prof. Shareen Joshi*

Let’s be absolutely clear:  The National Best Bid and Offer (NBBO) is meant to protect the retail trader from pricing manipulation by their counter-party that could cheat them out of their profits, while benefiting the brokerage, proprietary dark pools and/or High Frequency Trading driven by their respective algorithms.

So I ask: Have you ever experience a “price dislocation”?  What I mean is that the price that you executed your exit at was blatantly offset so much – say over five cents – that an elephant could walk through it?  Well, you’re not alone.  Unless you the means of tracking this, say with an excel spreadsheet that is plugged into a brokerage house platform, you won’t know the origin of the “offset” that cut your calculated profits before closing.

EVIDENCE – PRICE CHANGE VALUES

Here is the comparison between the Thinkorswim (TOS) platform’s option chain for AAPL (Apple, Inc) premium prices and my Sharebuilder (SB) close price.  I traded AAPL at the APR option chain, the Strike price was 127.14.  My entry as shown below from the SB transaction history was a scaled in 2 contracts per 2 trades with a Long Call position.

My target limit was 2.05 on the Ask premium.  When 2.05 was hit I executed my close on the SB positions, but was you see, even though there was a drop in the premium on the TOS platform, the SB platform – connected to the BATS exchange – didn’t give me “best price” in accordance to NBBO rules.

sb aapl.jpeg (2)

 

Above is the SB transaction history.  My closing premium for all 4 contracts was 1.93, not anywhere near what the TOS platform was showing at the same Strike price.

2015-03-26-StockAndOptionQuoteForAAPL (2)

 

Just below the yellow highlighted ban is the current premium prices, last price and mark price, which all are well above the 1.93 closing price that SB gave me.  My profit loss was over $50 on the four contracts, leaving me with $16 in net profit.  Moreover, SB’s real-time price at this Strike price was previously held at 1.86 while the TOS platform’s Call premium price increased dramatically toward 2.05.  The lag time on the SB to catch up, and then not even matching “best price” as shown on the TOS platform didn’t exceed 1.96.

OFF THE GRID

Whose the culprit behind this?  Conniving Leprechauns?  Pesky GPU malfunctions?  You may be surprised to learn that it boils down to High Frequency Trading algorithms (HFTs) trolling the exchanges for an opportunity to “flash trade” off of your executed trade; either when you open or close.  Since HFTs have direct access to contracted co-location to Wall Street exchanges, primarily located in New Jersey, their latency is measured in nanoseconds, whereas yours and mine are measured in milliseconds.

I AM THE WALRAS

If you’re inspired to build an excel spreadsheet that will expose this detrimental price aberration you could turn to Walras’ formula:

dp over dt = -Beta D(p, …)

Or Kyle’s model formula:

P t+1 – P t = ω

But let’s keep it simple, as my point here is to just make you more aware of the fact that virtual pricing is overtaking your “true price” formation.  Take into consideration the first element in their formula concerning an asset or option premium’s price formation:

f”Form

Form has two components that determine to be path dependent based on the price range (Bid/Offer) inputs provided by any one of the 13 market exchanges at any one second that eventually shows upon your computer screen.

The origin of the asset’s  “price” is fundamentally started at the opening of the market session and then sequential accumulation of both Ask and Bid share orders can be calibrated to determine intraday price trends.  That means if you set up an excel generator to record any equity Ask and Bid share orders, you can scale out a directional price movement forecast using the appropriate computational statistical mathematics.

According to Farmer & Joshi:

“a. This defines the weighted side which in turn shows the propensity toward formulating a trend that is either Bullish or Bearish.

b. Exponential Distribution equation defines the next calibration that is probability density accumulation.”

High Frequency Traders Can Shift “True Price”

There are 24,000 seconds during the Wall Street scramble to trade in one day session.  Within those 24,000 seconds, High Frequency Trading (machines talking to machines) causes 2.4 price dislocations, most often times cheating retail traders out of a few pennies on the equity’s Bid/Offer spread, including option’s premiums. That comes out to 57,600 price dislocations per trading day.

HACKING HFTS

I have built a deterministic trading strategy that incorporates a quantitative excel spreadsheet “real-time” data input, calibrated to a set of parameters that eliminate the “noise” while showing the directional price formation of the underlying asset correlated to the options premium.  The most telling function is the price shifts and comparative profit between simulated Call/Put profits during intraday trading that are depicted on the GRTS Tactical Trader.

Below is a screenshot of the GRTS Tactical Trader spreadsheet:**

screenshot-{domain} {date} {time} (1)

NBBO CROSS CHECKING

I currently use TD Ameritrade, Thinkorswim, Dough, and Capital One Sharebuilder.  The reason is for the very reason I mentioned at the beginning of this article: tracking price dislocations, i.e. “flash trading” by HFTs that cause “virtual price dislocations” giving them a profitable edge on my trade executions, while I take a greater loss.

Peace.

Rich K.

* “The dynamics of common trading strategies”, Farmer, Doyne, J. & Joshi, Shareen

** For TOS traders, the GRTS Tactical Trader is currently available in the Apache Open Source Excel format, for a token donation.  Inquiries via email are welcomed for further information and explanation.  This is for advanced users of excel and day traders.

ONE SIMPLE WAY TO SEE IF AN ASSET IS VOLATILE

This is a “cut-to-the-chase” solution oriented task to find out if your chosen golden asset is volatile enough to make it a profitable option choice and what is its correlation to similar assets within its sector/classification?

DIY
Take the past history of the “asset” for the last 40 days (it’s metaphysical) from Google or Yahoo finance’s prices.

Paste into an excel spreadsheet workbook. Copy only the close price and paste into the second spreadsheet. Leave an empty cell above so you can put in the ticker symbol

Next to the price column, starting on the second cell below the first price, put in the Excel =stdev(First Price;Second Price) formula.

Fill out the remaining cells to obtain the standard deviations.

Take the “Line Graph” and use “Lines Only”.

Fill in the graph with the STDEV outcomes.

Here’s an example comparison between AAPL and IBM.

IBMTOAAPLSTDEVVOLATILITY COMPARISON

The blue line is AAPL and IBM is the orange line.  My take away is that IBM and AAPL would be a good selection for a portfolio.  Why?  They are diversified enough as you can see, they nearly move in opposite directions that translates into protecting your asset allocated profits.   IBM surprisingly to me is more volatile so there might be more option premium volatility versus AAPL.  This is something I’ll need to look into.

Meanwhile, keep the excel spreadsheet handy.  You can check just one asset to get a reality check on its percentage moves and volatility characteristics that will save you a lot of headache in tying up your occurrences with marginal volatility.

 

Peace.

Rich

 

 

COVERED CALL – PUTTING CONTEXT IN REDUCING YOUR COST BASIS

Cut-to-the-Chase Formula for Long Call/Put Analysis.

(Read this so in the future you’ll understand how we get our Limit Entry premium for going Long either with a Call or Put and/or reverse your position by Selling – creating appropriate option spreads.  The original contents of this post was posted on a prominent trading brokerage platform that  immediately censored – blocked and deleted my post – citing that it broke their forum posting rules.)

Note:  Credit goes to Tom Sosnoff and his brilliant staff at Tastytrade/Dough for the initial presentation of this options trading methodology. I have tweaked it a bit only as a means to augment the fundamental inputs.

The Covered Call Strategy

We present a qualified simple formula to reduce your limit price entry cost.  We’ve posted our excel spreadsheet data to show how it works.  The key to our work is “transparency” with the exchanges Bid/Ask pricing – e.g. BATS has laggard price formations versus, say NASDAQ.

For tomorrow, we’ve set up a SEPT (21) Limit Entry Long Call for FITB.  This is based on our preliminary scan – from our proprietary NQ2 model.

OPT TRADE STRIKE CURRENT LIMIT ENTRY TGT P COST CLOSE
CALL BUY 20.00 0.49 0.42 0.66 131.76 207.51
PUT SELL 0.10 0.09 0.49 34.08 137.30

SEPT OPTION LONG CALL:  FITB (Fifth Third Bancorp)

From Left to Right the above graphic is explained:

“OPT” designates the Call/Put rows; Trade Signal which is verified to be a Long Call, since the Put signal is “Sell” (based on a volatility calculation); Strike Price is listed for the Call Premium that is next under “Current”. (FIFTB close price is $20.25, that gives us a $0.25 edge since we’re going to be executing a debit trade.)

“Limit Entry” is a proprietary calculation that we use to reduce our cost basis – anticipating what is most likely the pull back premium price for tomorrow’s opening – typically during the first hour.

This is so we capture (most times) a profitable position and/or set up a “buffer” or “risk aversion” entry.  The “TGT P” is the calculated Target Price based on the underlying liquidity.  This will change during the day, but it gives us something to shot for and moreover to compare to the chart for technical moving averages overlay price levels.  “Cost” is our initial capitalization and “Close” is what the amount gained.   Our potential profit is $75.75, having taken out our commission fees.  We calculated our risk aversion cost (not shown here) to be $17.33.  The Call Ask/Bid spread is 0.4 (four cents); whereas the Put spread is currently .11 (11 cents).

Covered Call Formula & Limit Entry Price Calculation to Reduce Cost Basis

What we want to know over all with the underlying asset is its “Liquidity”.  Thus, we calculate this by simply dividing the assets volume to shares.  If “Liquidity” is below .50% than it is considered “LOW” and there will be little price action until the Liquidity goes up.  (1% or higher is preferred for determining the Premium’s price movement and Ask to Bid spread.)

The “TREND” is determined by the current price compared to the “OPEN” price when the market opened for the day.  The “IV SIGNAL” is a calibrated formula using Implied and Probability statistical equations to determine which side of the assets option chain to lean into.  We’re searching for “robust” Long Calls.  Robust is defined as being above average in performance that moves individually from the overall market performance.

LIQUIDITY* TREND IV SIGNAL
0.16% LOW BULL CALL

DERIVATIVES – COVERED CALL

Call Return 0.67 Inverse 0.33 Monetized 1.34
*We are writing this “after hours” when the market is closed.  Thus, the “Liquidity” is skewed because the necessary input parameters are not operating within the intraday activity – correlated to the market indexes performance.
Taking the “underlying asset” into account, below is our data inputs and parameters to watch for validation, continuation of our chosen directional move and/or a pending reversal.
The “Price H/L” price is above is a positive sign that the price will continue upwards.  The “Average” is the Mean, and the “Offset” is a calibration from our formula set; similar to One Standard Deviation of the underlying price.  Currently, this is above the “Last” price that validates the probability of a profitable Long Call.
This price will drop below the “Last” during intraday trading.  The key is to the number of occurrences that occur; that signal a continuation of the Trend, or a soon to come reversal.  (If we notice a “Flash” with this price – that is a “ping” that causes an anomaly of the price range, than it’s a signal that High Frequency Traders are testing the market to “bait” Institutional investors into unloading large inventory orders.
That brings us to the “Decay”.  This is rather ingenious: a hybrid calibration of Time Decay and Duration formulas.  Right now, with the market closed it is a high percentage, because it is tied to the Bid and Ask spread of the underlying asset.  What we ideally are looking for is a value around .25% to .45%.  Moreover, what is not shown here is our NQ2 Greeks – the Alpha, Beta, Sigma and Omega value parameters that validated FITB to invest in with a Long Call option.
EQUITY – FITB
Last $20.25 Average $20.13
Net $0.15 Offset $20.30
Open-Last $0.17 Decay 2.64%
Price H/L $20.51 $19.99 $20.16
TECHNICAL CHART ANALYSIS
FITB TECH CHART
Above is the FITB Day Chart.   The breakdown is this:
EMA Overlays Price Levels
The Line Trend has bounced off of the 377 EMA (Green Line) going upwards toward the 34 EMA (Red Line) having crossed over the 13 EMA (White Line).  Above this is the 144 EMA (Yellow Line), tied in the 89 EMA (Blue Line).  There are not Binary Events posted (Earnings or Dividends).
Price is Everything
The 377 EMA has set the Support Price Level at 19.51; 34 EMA Price is 20.37 – about 0.10 above the current “close” price of the day 20.25.  This gives us some breadth for more upward movement.  The 34 EMA (Red Line) can become the Resistance Price, which we will watch for during tomorrow’s session.  Above this is the 144 EMA and 89 EMA that set the farthest out Resistance price at 20.77.   The 13 EMA (White Line) is at 20.01.
Taking a look at our “Equity” block – the Average Price is 20.13 that falls within our “Price H/L of 20.51 and 19.99.  Our “Offset” is 20.30, close to the 34 EMA price at 20.37, so we still have a playing field for a scalp play, if necessary.
Oscillator
The DMI oscillator shows the beginning of a Golden Cross – Bullish Signal.
Price to Premium
The current premium for a Long (Ask) Call at the Strike Price of .49 with a 0.4 spread.  (Incidentally, this is a good sign when the market is closed, showing that the Bid/Ask spread remained tight, reflecting the fact that there is still a truckload of inventory waiting to be exercised on the trading desk.)
Trend Percentage
Not shown on the chart (it wouldn’t show up) is the Trend move from the point the Line Trend hit the 377 EMA (Green Line); and in “fractal”** increments, moved +4.05% or +$0.79 (11 Bars) over the past 14 days. (Todays move was +0.76% or +0.15.)
If FITB pulls back in price tomorrow – most likely it will be to 20.01(13 EMA) or 19.99 as our “Equity” block shows.  That is roughly a .25 cent pull back, or .017 in premium terms, without calculating Delta and Theta.  Thus, we came up with .42 as our Limit Entry order to reduce our cost basis, and brings us into a profitable position… because, the DMI is signaling a Golden Cross. (This is a contrarian method to the traditional arithmetic of finding the mean price between the Bid and Ask to be the Limit Entry Price.)
Lastly, that “Green Oval” on the chart is our Long Call Limit Entry Order position, right between the 34 EMA and 13 EMA.
Time Horizon
With the 144 EMA gapping above the 377 EMA, there is a consolidation of price forming.  With the sufficient drop back on July 16 – we’re over a 30 day window – coming into the final 15 days of our 45 day time horizon.  So, we’re coming in on the tail end of the price volatility, before a new directional pattern forms.
** In consideration of Nodes and Edges physics, we are working on a new math formula that is based on quasicrystal formularies – addressing Hilbert’s 13th Problem.  This is mainly to prepare for the Quantum Computers programming that takes the binary code and translates it into “Qudits”.
Below is our excel spreadsheet formula solution set that automatically calculates the Covered Call Return percentage.  “C-RTN” is 0.67 which is the value signal that validates a lean into the Option Call.  “Inverse” 0.33 is the opposite value.  If we have a near equal C-RTN to Inverse then we are cautious about a mean reversion and or the underlying is starting a price fade phase.  If the Inverse were 0.67 and C- RTN was 0.67 then we would consider purchasing a Long Put at the OTM Strike Price premium. (Still, one must consider the Bid/Ask spread, looking for a tight, consistent spread, which is another validation that Open Interest is keeping the volume momentum above average.)
For C-RTN price entry, we take the At-the-Money Strike Price for our chosen option month (10 to  45 days out).
The “Context” is Out-of-the-Money (OTM) and “In-the-Money” (ITM).  We want the ITM value that is larger than the OTM comparatively 0.59 to – 0.73.  The Intrinsic Value is calculated based on the “Monetized” formula, and below this “MON VALUE” is the high and low price range during intraday trading.
COVERED RETURN
MONETIZED C-RTN Context INTR VALUE
1.34 0.67 OTM 1.25
MON VALUE Inverse 0.59 EXT VALUE
21.78 0.33 ITM 0.04
18.72 0.87 0.73
Covered Call Excel Formula
A1-5 are Labeled.
A1 – TICKER;
A2 -CYCLES;
A3 – MONETIZED;
A4 – COVERED RETURN;
A5 – INVERSE
B1-5 are the Inputs/Equations.
B1  TICKER Symbol
B2 – Type in the number 5 – This is the remaining months in the year called ‘cycles’
B3 – Monetized Formula =SUM(Bid-Ask)/Cycles+Ask
[When the asset is over $100 you’ll need to write the formula as: =SUM(BID-ASK)/Cycles+ASK*0.1]
B4 – Covered Return Formula =SUM(Monetized*Cycles)*0.1
B5 – Inverse  =SUM(1-‘Covered Return’ outcome)
For Example here is a NFLX set up we did earlier this week.
NFLX $468.58 (We’ll take the SEPT (31) Option Chain @ $470 Strike since NFLX shows a robust trend upwards.
B1 – 5
B2  =SUM(12.95-13.15)/5+13.15   Answer: 1.40
B3  =SUM(0.37*5)*0.1  Answer: .70
B4  =SUM(1- .70)   Answer: .30
You’re Take Away is that NFLX has a higher probability of profit if you Buy a Long Call entering ATM.  We used the 470 Strike Price.
Next: Reducing your Cost Basis with a solid Limit Entry Price order.
Generally speaking, once you purchase a Premium, you’ll lose 1/3rd of the value.  Within 15 days the premium decay is another 3rd.  Empirical data shows that 45 days seems to be the bell curve peak for a probability of profit outcome, or when you would considering taking your profits off the table, if you haven’t already.
A simple way with a robust outcome is to divide the at the strike Ask premium price by 16.
For confirmation we calculate the Limit Price difference from the Premium to the underlying price on the chart at 15mins – to determine if the pull back is feasible to take the limit price.  The square root of 252 trading days is 16, thus the use of 16ths that is correlative to any other TC method’s outcome.
The NFLX Limit Order Entry was 11.07 to BUY a SEPT (31) LONG CALL @ 470; x2 Contracts.  Our profit $664.00.
Note: We use a hybrid Time Decay Formula calibrated to ‘Duration’ that provides an explicate outcome.  At the time of our trade it was .24%.
(Disclaimer: We are not recommending trades and will not be held liable as such.  This post is strictly for educational purposes and posting the development of our NQ2 Model. The reader agrees to taking responsibility for their own trading regardless.  The formula(s) presented are “hybrids” so one must take extreme caution in understanding the “bootstrapping” aspect of this post.  Constructive questions, feedback , insights are welcomed. We encourage you to use the Santa Fe Institute – Complex Systems curriculum for more academic information and insight.)

IN PLAY – MSFT LONG CALL

Using our NQ2 Model, we identified MSFT as a robust LONG CALL option play – SEPT at the Strike price of 44.00.  This is solely based on the data posted below.

The matrix below displays our current trade that was entered on a Limit Entry @0.95 on 8/15/14.

The strength signal is based on the Covered Return – shown below  under Derivatives.  What is important to note here is the Ask-Bid spread and the “C PROB” (Call Probability) that is a calibration of the Implied Volatility formulary set.

MSFT – IN PLAY
Liquidity Time Decay Trend
1.18% 0.27% BULL
DATE OPTION STRIKE
08/15/14 CALL 44
PREMIUM COST DAILY RTN
$0.95 $197.45 $110.55
P TGT GAIN P/L
$2.77 $545.82 $478.10
C RTN INVERSE C PROB
0.77 0.23 3.59%
P TGT PROFIT ASK-BID
$2.77 $348.37 0.02

The chart shows the “robust” trend that was identified by our model’s calibrated formula set.  The data box shows the trend to be at 96 Bars with +105.26% increase at an upward slope of 15.32 degrees.

msft call sept

Liquidity is key to both price momentum and the Bid/Ask spread.  Thus our model provides us with the most accurate Liquidity percentage validated by the “TREND” and “IV SIGNAL”.

LIQUIDITY TREND IV SIGNAL
1.20% HIGH BULL CALL

What we’re looking at here is primarily the Covered Return Ratio to the Inverse.  Currently at .77, this means a Long Call will remain robust.  If the Inverse would start to shift upwards, that would be a signal that the premium is going to start to fade, out of our favor.  Thus, we’d close the position.

Since we know that derivative positions can go against us very quickly, this signal is vitally important in keeping an eye on our profitability.

The Option Call/Put price data is real time – and not reflective of our trade, which is posted at the beginning of this blog.

DERIVATIVES
COVERED RTN 0.77 Inverse 0.23 Monetized 1.54
OPTION CHAIN – SEPT 
OPT Limit Premium Target Price Entry Gain Capital Gain PROFIT
CALL $1.27 $2.77* $67.72 $545.85 $478.13
PUT $0.63 $0.72 -$0.36 $136.24 $136.60

We closed our position at 1.54; +0.58 profit, having held this open for 4 days.

*The TARGET PRICE is hypothetical.  It provides us what we call the LIMIT ORDER – or highest price possible for this particular option premium.  Other factors come into play, especially Time Decay.   You will note that we provide the Time Decay in our analysis – the lower the number the more robust the trade will be.

(DISCLAIMER: THIS IS STRICTLY FOR EDUCATIONAL PURPOSES. WE MAKE NO RECOMMENDATIONS FOR TRADING THESE POSTED EQUITIES NOR ARE PROMOTING ANY BROKERAGES OR FINANCIAL SERVICES. THUS THIS NOTICE RELIEVES US FROM ANY LIABILITY ON THE PART OF THE READER’S DECISIONS TO TRADE AND OR INVEST IN THE POSTED EQUITIES.)

NODA QUANTA QUDIT PLATFORM -WFM

It’s a recipe of quantum physics mixed in with some quantitative calibrations integrated with statistical valuations – all calibrated upon the advanced new mathematics of “nodes and edges” in fractal quasicrystal research.  We’re looking into the future of Quantum Computers – based on the latest news that the binary code of 1’s and 0’s will be translated into the “Qudit” via a new and improved silicon chip will be programmed.

Fundamentally, the data inputs and parameters are going to dramatically change.  Meanwhile, we’ve re-calibrated our excel spreadsheet nodes and edges to post some insights.

Derivatives: The data posted is a snapshot of the intraday trading movement;  providing the most important signals for discretionary trading of the equity option chain.  Liquidity ought to be .50% or higher for greater price movement; Trend determines whether to lean into the Call or Put side.  Implied Volatility (IV) Signal is formulated by a number of statistical volatility and probability inputs.

Notable is the “Offset” and “Decay”.  Offset is a determinate of what the book order price is currently at and the Decay is a “Duration” calibration to Time Decay.  The lower the number the more favorable will be the outcome for a Call position and vice versa.

Price High/Low is the range that can be attained during intraday trading.  The far right price is the Harmonic Mean price.

TICKER – WFM
LIQUIDITY TREND IV SIGNAL
0.32% LOW BULL CALL
EQUITY
Last $39.01 Average $38.88
Net $0.45 Offset $39.06
Open-Last $0.18 Decay 3.29
Price H/L $40.16 $38.31 $38.91

Nuts and Bolts

DERIVATIVES
Covered Call 0.86 Inverse 0.14 Monetized 1.72
OPTION CHAIN – SEPT (35)
OPT Limit Premium Target Price Entry Gain Capital Gain PROFIT
CALL $1.34 $2.00 $104.25 $392.26 $288.02
PUT $1.02 $1.19 -$0.66 $230.97 $231.63
OPTION CHAIN – NOV (98)
CALL $3.20 $2.54 $444.57 $499.78 $55.20
PUT $2.60 $2.86 $84.50 $512.55 $428.05

The above post shows the Covered Call Return percentage.  The higher the far left number is to the Inverse, the probability of maintaining a profitable Call will be attained.  This is based on the Strike Ask premium.

We post two months – which is SEPT (35) and NOV (98) hypothetical outcomes – based on a calculated Limit Entry Price.  The Limit Entry Price is calibrated from the Time Decay equation.

(Disclaimer:  These posts are for educational purposes only and are not meant as trade suggestions nor have the intent to be so.  You must discern using your own strategy when investing in the stock market.  We are presenting results from a quantitative model we’ve been working on, providing the feedback data in this blog.)