I have a technical analysis method I have been using for about 20 years that I have a lot of confidence in. I started doing credit spreads, mostly on the SPY and QQQ about three months ago.I am doing very well with a win rate of over 80% currently. My concern lies in the fact that these trades have a terrible win/loss ratio. I use IB to enter the trades and the profile section often tells me that my max win might be $300, but my max loss may be $1,700. I am currently doing spreads with a $5 difference and doing them very short term. 2 or three days is average. I am doing them so short because the market is so choppy right now. I was doing 5 days but found that the majority of the moves happened in 2 or 3 days so I shortened it. I realize I could hedge by buying ES or NQ futures but my win rate is high enough that I would seldom really "need" to do that. Maybe 2 times out of ten. Any other suggestions on how to protect against the black swan losses?
Advice on hedging credit spreads
- Thread starter spinn
- Start date
You're already protected from the "black swan" by using a spread rather than naked short.
If your P/L ratio is 300/1700, you need an 85% win rate just to break even, IF you take the full profit/loss on every trade which you probably don't so win rate can be smaller to be profitable.
If you're usually correct on the direction, move your spread closer to the market price. Improves P/L ratio but might have more losses. Check your previous trades to see what the results would be.
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What do you mean by this? I usually sell a call 3 or 4 points above the top bollinger band, then buy a call 5 points above that. And no, I do not rely entirely on just Bollinger bands.
[/QUOTE]If you're usually correct on the direction, move your spread closer to the market price. Improves P/L ratio but might have more losses. Check your previous trades to see what the results would be.[/QUOTE]
[/QUOTE]If you're usually correct on the direction, move your spread closer to the market price. Improves P/L ratio but might have more losses. Check your previous trades to see what the results would be.[/QUOTE]
If you're usually correct on the direction, move your spread closer to the market price. Improves P/L ratio but might have more losses. Check your previous trades to see what the results would be.[/QUOTE][/QUOTE]
Sell a call 2 pts. above BB. Buy call 5 pts. higher.
Increases profit amount which reduces loss amount.
Win rate might be lower.
Check your historical trades to see how the results would differ.
Your post is confusing..
80 percent win rate, but you have a terrible win/loss ratio?? By win loss ratio,do you mean max reward to max risk ratio?
Then you imply you are selling 20 point verticals for 3 bucks.Or is that your trade profile??
Than you state you are selling 5 pount Verticals for .75.. Does that imply you are selling 4 FIVE point verticals for .75 which would bring in 3 bucks with 17 points of risk???
What's your average win vs average loss??
Whats your initial delta??
80 percent win rate, but you have a terrible win/loss ratio?? By win loss ratio,do you mean max reward to max risk ratio?
Then you imply you are selling 20 point verticals for 3 bucks.Or is that your trade profile??
Than you state you are selling 5 pount Verticals for .75.. Does that imply you are selling 4 FIVE point verticals for .75 which would bring in 3 bucks with 17 points of risk???
What's your average win vs average loss??
Whats your initial delta??
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