Search results

Volatility has been so low that a 10% move up is very small. A sharp 50% move in vol, from 12 to 18? Moves like that are not uncommon.

Likewise, physical commodities like beans and oil have positive skew, since gaps are more likely to be on the upside.

For an example of how this thinking is not necessarily best for making money, go back to the thread I started the Sunday before Katrina hit. My thesis was that the Street and the media were underestimating the potential impact of Katrina. Based on my special knowledge of hurricanes (I live...

Yes, but for the most part, FIGURATIVE blood. When the phrase was coined, I think Baron Rothschild meant it for real.

There is negative skew for all stock indices (and, generally, for stocks too). The OTM puts (and, hence, the ITM calls) have traded at a higher IV since the 1987 crash. Funds used to buy "portfolio insurance" (selling futures to make up for losses on stocks) but they now buy otm options...

I wish all brokers would allow this. Interactive Brokers, unfortunately, does not.

Sorry--I did not answer your original question very well. 2 AM here--yawn. Unacceptable levels of risk and acceptable levels of risk are matters of individual taste. Personally I have a hard time dealing with any combination of positions that could easily generate a drawdown over 10%...

There is no free lunch. A steady 2% a month is possible, but unless one is working with an already built-in advantage (selling expensive options and buying cheap options acc to skew), extremely risky. If one just puts on credit spreads without any regard for market timing, the long-term...

A low-risk approach to credit spreads would generate a return around 10-12% a year. Some years more, some years, much, much less. That might not sound like much. Everyone wants 2-3% a month, but that amount is unrealistic. It is possible, of course, but not without unacceptable levels of risk.

Second, make sure that what you are getting full value for the risk you are taking. I used to trade the SPX options, when I did not know better. I would do what Phil does: put a limit order near the middle, and then shave off a point. I became frustrated with the poor fills, and especially...

If you STILL think I am being too conservative, consider this: I know of one professional option seller/hedge fund manager who writes stock index futures options with only four percent of the capital in the fund. For an account of 100K, he will write only 4K in options. I should note that he...

That said, I would recommend credit spreads, but only under the following guidelines. First, margin should be 20-25% of the total capital reserved for the strategy, and returns for the strategy should be based on total capital (the 20-25% plus the 75-80% reserved). In other words, with a...

Some would say that historically there have been few gaps and few sharp moves, so therefore the risk is practically nil with credit spreads. This is a poor argument. First, past has nothing to do with the present. The markets are open systems, and closed. This is not roulette, the odds...

Andy (and Phil, provided that he is open minded enough to listen): There really is no advantage in credit spreads, but if you like to sell options and want to do so with predetermined risk, they will do fine. One warning: you better be ready to lose all of the margin you put down...

Where did I ever say "beware, stay away"? Don't be a Phil and start putting words in my mouth. :-)

I said "it is not a bad strategy." I make valid criticisms of the strategy, and do so in a nice way, and you respond by telling me to go away. How mature.

Yes, I would agree with the Dr. here. His returns had little to do with understanding the vega (vol) of options. He bought (still buys) options as a sub for the underlying. As far as I know he has NEVER traded volatility, as option traders do. He was never a strategist, but a pure gut...

I don't think Cramer is options savvy enough to know anything about what options traders know as volatility, or vega. By "volatility" he probably is referring to the erratic movement of the underlying. In other words the stock is "volatile" in that it "moves around a lot", so one should sell...

Your response is one giant straw man. You are simply distorting what I said. Arguing with you is a waste of time; your mind is already made up (sorry that I confused you with the facts). Btw, credit spreads are not a bad strategy. But you put them on with so much size/leverage you are...

I am not disagreeing with you for the sake of disagreeing. But as a self-proclaimed expert (book, radio show, handle as "option coach"), you really should be more prepared to deal with criticism (handling praise--anyone can do that!). I think you are doing yourself and your readers a...