Calendar spreads

[ChrisM]

Quote from Maverick74:



Chris,

I'm working on a qqq trading strategy. I agree that the qqq's are not necessarily the best vehicle for flys or condors. I'm going to create a position that basically is going to involve short term trading around a qqq straddle. The basic core of the strategy will be look for support levels in the qqq and buy shares of the qqq's and sell the ATM straddle. This position will be aggressively traded and can be either long or short. The premium from the straddle will be used to offset any directional losses. The reason behind trying to buy support levels is because when the qqq's come in they will have a little more juice on the options and the rallies will take that juice back off. BTW, the sold straddle will obviously be a front month straddle. The position in the underlying will only be held for 2 to 3 days at a time. And a stop will always be placed on the underlying position.

Mav,

maybe you will get more luck because I usually don`t find good trades held for 2-3 days only. It would be great trades, but hard to find.
While Qs are on the upside now, even covered calls on support levels might be good idea. I would place a stop 2 strikes below.
Obviously I would use SSF rather than stock due to lower margins.

 

[Maverick74]

Quote from ChrisM:



Mav,

maybe you will get more luck because I usually don`t find good trades held for 2-3 days only. It would be great trades, but hard to find.
While Qs are on the upside now, even covered calls on support levels might be good idea. I would place a stop 2 strikes below.
Obviously I would use SSF rather than stock due to lower margins.

Well, the trades could last anywhere from one day to one month, the idea is the capture the premium on the straddle and hedge the directional risk at the same time. In fact you really only need one or two good trades a month. The stock is acting more or less as a hedge then as a outright directional position. In fact when you sell a straddle, you have to buy stock and sell stock when you move in that direction to hedge your negative gamma.

 

[Hello_Dollars]

Quote from ChrisM:



HD,

looks like XOE is better vehicle for range trading than Qs, but for me whole thing is how to defend your position. I know that you convert them, but do you find this strategy enough efficient ?
And what happens if the market turns around after converting and going back ?
The basket of horizontal spreads on stocks is nice idea but this takes some work, doesn`t ?

Chris,

A key to trading these positions successfully, in my opinion, is to avoid adjusting them too soon. That prevents the type of whipsaw scenario you described, while giving theta the time to do its job. However, that is far more easily said than done, especially when the market seems to know no direction but up (or down, as the case may be). Trust me when I say that sitting with a large number of short options in the face of a momentum-driven market can be a nervewracking affair, to say the least. Which brings me to another key to trading these positions successfully. That is, it is critical to adjust them before a disastrous loss wipes out a month or two of hard fought gains. Hence, the paradox.

And while I've developed a trading approach to iron condors built on many months trading them, when and whether to adjust usually boils to feel as opposed to any hard and fast rules. Though that approach has worked for me, I'm not sure it would for everyone. Thus, again, as with most trading, in my opinion its how you trade a strategy that makes the difference between win and loss, and not the strategy itself.

Lastly, with regard to my long gamma strategy, I need to correct you on one point. I am not doing horizontal spreads (though I'm not averse to selling some near term options against my leaps from time to time). Rather, I am constructing a long/short portfolio comprised of straight leaps and long/short stock, the individual components of which are being selected based on fundamental, technical and volatility analysis. Yes, this requires work as you said, but it's work I enjoy and which I've done for years, both for myself and for others when I had a "real job". Plus, is there anything truly worthwhile that can be attained without a little industry?

Anyway, feel free to ignore the treacly aphorism. I hope the rest helps.

HD

 

[ChrisM]

Quote from Hello_Dollars:



Chris,

A key to trading these positions successfully, in my opinion, is to avoid adjusting them too soon. That prevents the type of whipsaw scenario you described, while giving theta the time to do its job. However, that is far more easily said than done, especially when the market seems to know no direction but up (or down, as the case may be). Trust me when I say that sitting with a large number of short options in the face of a momentum-driven market can be a nervewracking affair, to say the least. Which brings me to another key to trading these positions successfully. That is, it is critical to adjust them before a disastrous loss wipes out a month or two of hard fought gains. Hence, the paradox.

And while I've developed a trading approach to iron condors built on many months trading them, when and whether to adjust usually boils to feel as opposed to any hard and fast rules. Though that approach has worked for me, I'm not sure it would for everyone. Thus, again, as with most trading, in my opinion its how you trade a strategy that makes the difference between win and loss, and not the strategy itself.

Lastly, with regard to my long gamma strategy, I need to correct you on one point. I am not doing horizontal spreads (though I'm not averse to selling some near term options against my leaps from time to time). Rather, I am constructing a long/short portfolio comprised of straight leaps and long/short stock, the individual components of which are being selected based on fundamental, technical and volatility analysis. Yes, this requires work as you said, but it's work I enjoy and which I've done for years, both for myself and for others when I had a "real job". Plus, is there anything truly worthwhile that can be attained without a little industry?

Anyway, feel free to ignore the treacly aphorism. I hope the rest helps.

HD

HD,

all of these helps. I just reviewed XOE once more and I think that has better potential for non-directional trading.
But I have to say that I would rather trade corrections than convert ICs position, judging just by my experience with indices.
They rarely move fast, do they ?

You said before that you let rarely allow them go into money, right ? But most of such moves come back and staying with open position should bring the profit any time later ?

Obviously, you have much longer experience in trading this, so I might not see everything what you know, but just sharing my impression.

 

[iceman1]

Quote from Hello_Dollars:

Which brings me to another key to trading these positions successfully. That is, it is critical to adjust them before a disastrous loss wipes out a month or two of hard fought gains. Hence, the paradox.

Thus, again, as with most trading, in my opinion its how you trade a strategy that makes the difference between win and loss, and not the strategy itself.

Definitely!

Well said.... thanks!

I love options! Been doing them for a long time. Never bothered to obtain the kind of sophistication that some of the guys on the options forum have, such as Maverick and others. Guess I have always tried to keep it simple. And at times, when I had improper risk/rewards mostly stemming from impatience and therafter failed to repair/adjust promptly... it has offered very frustrating results.

Now I have gained greater motivation to raise my game to the next level that I believe can lead to even greater and more consistent.... profitability! It might be like teaching an "old" dog new tricks (which I am trying to do b.t.w. with my GF's 10 year old Husky with minor success), but I am inspired to do so, thanks to ET's options forum.

I take to heart your thoughts HD (as above) and those of all the other options traders/teachers such as Vega, Trajan, DB, Chris, etc, etc, etc.... who present great thought, debate, commentary and options insight all year on this options Forum and on other forums and in journals (don't mean to leave anyone out by not mentioning their 'name', but you know who you are).

Particularly I want to offer sincere thanks for the consistent insight selflessly provided by Maverick74! He has made a difference IMHO; and I'm sure I speak for many anonymous ET members in this sentiment...

Thanks bro!

I agree with others who believe options offer great opportunities to be highly creative, stimulated, challenged and consistently profitable... ! All traders should incorporate them it into their game to some degree.

Bravo guys!

Good Holidays, and a great 2004 to all (options) traders...

ICe

 

[ChrisM]

Quote from iceman1:




Bravo guys!

Good Holidays, and a great 2004 to all (options) traders...

ICe

iceman,

it was nice.

All the best to you too.

 

[Hello_Dollars]

Quote from iceman1:



Bravo guys!

Good Holidays, and a great 2004 to all (options) traders...

ICe

Ice,

Thanks for the kind words.

Happy holidays and all the best to you in '04 as well.

HD

 

[ChrisM]

Quote from Hello_Dollars:



Chris,

A key to trading these positions successfully, in my opinion, is to avoid adjusting them too soon. That prevents the type of whipsaw scenario you described, while giving theta the time to do its job. However, that is far more easily said than done, especially when the market seems to know no direction but up (or down, as the case may be). Trust me when I say that sitting with a large number of short options in the face of a momentum-driven market can be a nervewracking affair, to say the least. Which brings me to another key to trading these positions successfully. That is, it is critical to adjust them before a disastrous loss wipes out a month or two of hard fought gains. Hence, the paradox.

And while I've developed a trading approach to iron condors built on many months trading them, when and whether to adjust usually boils to feel as opposed to any hard and fast rules. Though that approach has worked for me, I'm not sure it would for everyone. Thus, again, as with most trading, in my opinion its how you trade a strategy that makes the difference between win and loss, and not the strategy itself.

Lastly, with regard to my long gamma strategy, I need to correct you on one point. I am not doing horizontal spreads (though I'm not averse to selling some near term options against my leaps from time to time). Rather, I am constructing a long/short portfolio comprised of straight leaps and long/short stock, the individual components of which are being selected based on fundamental, technical and volatility analysis. Yes, this requires work as you said, but it's work I enjoy and which I've done for years, both for myself and for others when I had a "real job". Plus, is there anything truly worthwhile that can be attained without a little industry?

Anyway, feel free to ignore the treacly aphorism. I hope the rest helps.

HD

HD,

while I am just doing my OEX research couple things took my attention:

How was your previous year (if you don`t mind sharing) ?
IMHO this year is much friendlier for range traders than last year, while in bearish market the breakouts are more dramatical and more common.

 

[stocktrader]

Mav,
first of all thanks to you and all the other regular contributors to this board. If would be wonderfull if all boards were are as good as this one but I guess that would be too much to hope for.

I have a few questions regarding your short term calendar spreads that you make on stocks 1 day prior to earnings realease or what ever event.

1. Do you still make these type of trades?

2. If you do not still make these trades is it becase
(a) Market conditions have changed and they are no longer as profitable as they used to be.
(b) Have you found other strategies that suit you better and are more profitable?

3. You mentioned in an earlier post that you would leg into these type of trades, and so try and avoid paying the spread. Do you therefore take the long position first in order to avoid the risk of having naked positions. If this is the case what happens if you get filled on your longs but can't get filled on your shorts. Would you therefore pay up for the shorts and have to swallow the spread?

 

[Hello_Dollars]

Quote from ChrisM:



HD,

while I am just doing my OEX research couple things took my attention:

How was your previous year (if you don`t mind sharing) ?
IMHO this year is much friendlier for range traders than last year, while in bearish market the breakouts are more dramatical and more common.

Chris,

I was reasonably profitable last year, but I don't think the comparison is valid since I had not fully settled on the iron condor approach until this year, having done a lot more directional credits. Indeed, I didn't even start trading the XEO until this year, having previously traded mostly stock options as well as the SPX and DJX. So this year, which has been significantly more profitable, is the better comparison.

At the same time, I'm fully cognizant of the fact that this has been a favorable year for vega negative strategies, and that partly explains my results (though I also attribute some of that to having developed a trading approach to this strategy and the market I'm focusing on built on experience and a helluva lot of contracts, which I think will get me through any market environment).

But for the reason you cited, my primary focus these days is on the development of a gamma positive trading strategy to hedge the gamma risk of my core IC positions, knowing that market conditions are likely to change in the future. Specifically, as I may have mentioned previously, I'm currently engaged in the construction of a long/short portfolio using leaps.

While I'm comfortable with my stock selection approach based on fundamental, technical and volatility factors, I'm still working through the details of some issues, such as the optimum strikes to use, the setting of profit, stop and time stops, and the specifics of the trading strategy (i.e. when and whether to write short term options against the long leaps). I also need to figure out how to calculate and apply an overall portfolio hedge ratio.

As this is still a work in progress, I'd of course welcome any suggestions anyone might have.

Happy Thanksgiving all!

HD