$200 to $2million Calendar Spread Challenge

A real-life example. The current trade I have open in this account is a $SPY Mar/Feb 114 call calendar spread initiated on Jan 6 at $1.00

As you can see in this attachment, my breakevens are 110.64 on the downside and 117.35 on the upside (these can change with changes in volatility).

If this afternoon, for example, SPY was trading down to 110 (beyond my downside BE), I would exit this trade. My loss would probably be in the neighborhood of 10-15%.
 

Attachments

if we had another 9-11 type day tomorrow, how much would you expect to lose?

and what has been your largest loss trading this system so far?

I don't know anything about spreads, but they sound very interesting, and am I right that once you place your trade you just check the market price once a day?

so that doesn't take a lot of time.
 
I'd be very concerned about a large market slide or pop that would make all of your positions instantly hit their max loss and would wipe out a large amount of your account very quickly.

Just out of curiosity, how do you manage this style of trading? For example, say you have a $100K account. Would you be attempting to incur a debit of say $10,000 of that per month? This would mean that your worst case scenario would be a loss of $10,000 (but only for a 10% gain of $1,000). I'd be very, very worried about the black-swan situation. In fact, I would venture to guess that it wouldn't necessarily have to be a black swan, but rather a gray swan of perhaps a 10 to 15 point pop/slide could wipe out a year's worth of profits.
 
Daytrader2010...

If we were to have another 9/11 tomorrow...there's a very real possibility I could lose 50% of my equity. I am very aware of this. It should be reiterated (was mentioned at the very beginning) that this is an AGGRESSIVE portfolio. Definitely not for the squeamish to try at home.

I stay close to my computer and therefore know whats going on in the market throughout the day. But yes, someone who were to trade this way could theoretically just check in with the market in the last hour of the day to see if any adjustments need to be made. I typically enter new positions in the morning and make adjustments in the afternoon. There is no magic in that...it's just the way that works for me.

sappjason...

I, too, am concerned about a large market move. But my real risk is if it happens overnight in such a way that I never even had a chance to get out at my spot. Like if SPY closes today at 113.50 and opens tomorrow at 102.00. That would be very bad. But the likelihood of that happening is very remote.

Regarding your question about how I manage the account. This account is VERY aggressive and I'm putting all (or nearly all) of my available cash into calendar spreads. So, in your example, if I had a 100K account, I would be putting all of it at risk, attempting to gain 10% overall (or $10,000) in my equity that month. Yes, this isn't for the prudent speculator ;)
 
Took the available cash and bought two $SPY Mar/Feb 114 call calendar spreads at 1.02 for a total cost after commissions of $209.08.

This basically is an add-on to our existing spread. We purchased one of these same spreads on January 6th at 1.00. This brings our average cost of the entire position to 103.87 (including commissions). Therefore, we will treat this all as one trade and our initial price target for this spread is now 1.17 (a 10% net gain)

So, as such, the account now stands as follows:

Value of Open Positions: $306.00
Cash: $22.94
Total Value of Account: $328.94 (64.5% gain since Sept 24).
 
Sean,

I haven't been here at ET for that long, or read all the many, many threads that exist here, but I would like to compliment you on getting through what seems to be 10 pages of REAL trading information.

I just might start one of my own on my favorite thing - covered calls.


Best,
HtW
 
Mr. Bear calls to remind us he's still out there.

SMACK!!! The S&P tanks for 3 straight days and my positions got puked out. A humbling reminder of Mr. Market's intention to figure out the best way for the most Traders to lose.

So, near the close today, I closed all three Mar/Feb 114 call spreads we had on at 81 cents.

The first one was entered on Jan 6 @ 1.00. After commissions, the total loss on this trade was $24.06 or 23%.

The next two were entered on Jan 13 @ 1.02. After commissions, the total loss on this trade was $52.16 or 25%

Ouch.

The account now stands as follows:

Cash: $258.32
Positions: $0
Total Value of Account: $258.32 (29.2% gain since inception).

While this is certainly a good hit, and a little bit more than I'm comfortable with, the big picture is still intact. My (hopelessly?) optimistic goal is to average 10% gains a month. If I can achieve that, then my goal of turning $200 into $2 million will be reached with a decade.

Friday's hit knocks this account a little behind the pace needed to achieve this goal, but not far. An account value of $293 on Jan 24 is the milestone to pass. We are now at $258. So, a little work to do, but certainly not insurmountable. Until this week, this account was trending up at a much higher clip. There will always be potholes along the way, but as long as the account performs as its supposed to in the favorable market environments when they exist - I should be able to maintain pace.

If I do succeed in my quest of achieving my $2 million goal, that will be great. Yes, certainly because of the money, but more importantly because of what I've learned along the way. It is times like this when the market lands a sharp body blow to my gut that I - any trader - learns the best lessons. The main point of this account is to learn lessons that I can translate into my broader trading operations (this isn't my only account).

So I will spend this weekend reviewing my trading journal for insight and will continue to stay positive and focus on the big picture. That is the only thing I can control.
 
Quote from HattieTheWitch:

Sean,

I haven't been here at ET for that long, or read all the many, many threads that exist here, but I would like to compliment you on getting through what seems to be 10 pages of REAL trading information.

I just might start one of my own on my favorite thing - covered calls.


Best,
HtW
More...

HtW,

Thanks for reading and best of luck to you as well. Let me know if you start that journal and I'll follow along.
 
I have been doing put credit spreads on the SPY, so I want to compare your strategy and results to mine. I have looked at cal spreads but havent got to a comfort level with them.

One difference is with a credit spread if it does go entirely my way, I dont have to do any exit action, just let it expire.

With a cal debit spread some follow up action is allways needed.
Have you tried credit verticals and found cal spreads "better"?



Quote from Sean McLaughlin:

I like calendar spreads because I've learned through much trial-and-error that I'm no better than a coin flipper in deciding (predicting) which direction the market is headed next. With a calendar spread the market can go stay flat, go up a little, or go down a little, and I'm ok. If it goes up or down a lot, then I can get out with a manageable loss (in most cases). 3 of 5 possibilities, I make money (if held to expiration, which I never do). I like those chances.

I like that they are debit spreads with defined losses. I don't like Iron Condors. They tie up too much margin with too little reward (and the occasional and bad beat)

Calendar spreads are only two-legged animals, whereas butterflies, condors, and double diagonals are four-legged. With only two legs, the position costs less in commissions and slippage, and its easier to maneuver out of when its running against me. Plus, I feel more comfortable being long volatility.

I think I've covered most of the reasons for my preference.... ;)
More...
 
Hey Sean: enjoying your journal. I am new to trading spreads and so it is interesting to see how you are managing your trades.

I liked the graphic you posted and am wondering what trading platform you are using. I am trading with IB and do not think they have the same quality of graphics.
 
You must log in or register to reply here.
Back
Top