Conservative Options Trades

in this months Stocks and Commodities Magazine that talked all about managing Iron condors.. Talking about Rolling the trade.. Ideas related to how much gamma exposure is the sign to roll out the strikes.. i've thought about trying it myself.. the example is with the RUT i haven't got alot of experience with butterflys or condors.. but i love the idea of the butterfly being able to be short premium with defined risk .. and a really good profit profile if set up right..
i would definitely check that article out
 
this is an interesting part of the article i'm talking about.. "Queen of condors"

Changes over the years include days to
expiration and entry style. She began with
more customary 30- and 60-day condors,
one of each, but she has now settled on the longer time frame
due to the volatility in the market. She originally legged into
the trade, selling put credit spread side when the market was
down, selling the call credit spread when the market rebounded,
but since then has decided it is simpler, more effective, and
more carefree to put it all on at once, because losses on one
side will be offset by gains on the other.
Unlike many traders whose ambition is to get big as fast as
possible, which for most means 100-contract condors and up, thus
theoretically putting $90,000 and more of risk on the table each
month, Amy Meissner is more stealth. For every 100 contracts
of a typical 10-point condor, she will trade 25 contracts of a
30-point condor instead, cutting her risk to about $65,000.
Why not 10-point wide strikes in her RUT condors, like most
everyone else in options? Adjusting large quantities of contracts
is a factor. Start with 25, roll twice for adjustments, and you wind
up with about 55 to 60 contracts, versus 225 with a 100-contract
start increased twice at 150%. Fifty-five contracts is much more
manageable than 225 contracts, Meissner says.
Her profit target is approximately 80% of the original credit.
If she is taking in $10,000 on a typical trade on initiation (25
contracts x $4 x $100 per point on the RUT), and she can
offset her positions and capture $8,000, she’s out. Often this
is the case after 45 days.
 
Quote from cdcaveman:

................ She originally legged into the trade, selling put credit spread side when the market was down, selling the call credit spread when the market rebounded...........
More...

No such thing as legging into IC's. If the above is true she was lucky timing the market.
 
The method
Meissner’s methods have been refined a bit since she started
trading iron condors, but here’s her latest methodology (Figure
1). Approximately 80 to 88 days out she will sell a Russell 2000
iron condor. She sells the puts at minus 8 delta or so, the calls at
12 delta or thereabouts, and then buys coverage some 30 points
higher on the calls, 30 points lower on the puts. She aims to
generate an approximate $4 credit against a $30 risk. The total
cash credit then would be about $4,000 for every 10 contracts
— that is, $4 credit x 10 contracts x $100 per contract.
Should the market move against her, which is often the case,
she will adjust at -16 delta, meaning that if the market declines,
she will buy in her put credit spread, and then resell it 30 RUT
points lower. She will sell 150% of the original size as well to
make up for the loss (if the original position was 20 contracts,
she will sell 30 on the adjustment). She can do this two or three
times before giving up on a trade and either
taking a loss or scratching out.
If the market declines and the call credit
spread goes to 0.40 or under (from an original
$2 or so), she will exit, and not resell
it lower. This removes the possibility of
whiplash should the market bounce back
up and cause a new call spread to become a
loser very quickly. The process is reversed
to the upside (Figure 2).
Changes over the years include days to
expiration and entry style. She began with
more customary 30- and 60-day condors,
one of each, but she has now settled on the longer time frame
due to the volatility in the market. She originally legged into
the trade, selling put credit spread side when the market was
down, selling the call credit spread when the market rebounded,
but since then has decided it is simpler, more effective, and
more carefree to put it all on at once, because losses on one
side will be offset by gains on the other.
 
Quote from diaoptions:

No such thing as legging into IC's. If the above is true she was lucky timing the market.
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what are IC's i would never think to Leg into a Condor.. thats a recipe for a whipsaw.. nor would i ever leg out of a trade.. i tried that once with a calender strangle and paid for the mistake!
 
LXK:

http://finance.yahoo.com/news/lexmark-warns-2q-letdown-stock-004437512.html

('timing' would seem to favor a bearish trade... see below)

http://finance.yahoo.com/q/ks?s=LXK+Key+Statistics

http://investing.money.msn.com/investments/financial-statements?symbol=lxk

http://finance.yahoo.com/q/bc?s=LXK&t=5y&l=on&z=l&q=l&c=

Trade:
With LXK at 24.31
Jan 20/15 bull put spread for a net credit of $50
Yield = 50/450 = 11.1% in 189 days or 21.4% annualized
Prob = 81%
Expectation = .81(50) - .03(450) - .16(225) = 40.5 - 13.5 -36 = -9

Based on expectation this is not a viable trade. I will look again when the market is open to see if the numbers are any better, or if I can find a better trade. At this point I don't think so.

If LXK were on my list of recession resistant stocks I would be more optimistic, but it is not for the following reason:

http://finance.yahoo.com/q/bc?t=5y&s=LXK&l=on&z=l&q=l&c=&ql=1&c=^GSPC

i.e. LXK is following it's 5 year pattern of being more susceptible to recession than the market as a whole. Not something I want to be in if I think we are in for some down in the economy and the market.

To try to answer some questions:

Are these real trades??

The trades I post here are possibilities not trades. For me this is part one: trade discovery.

Part two is portfolio management.

If I find a trade in part one that also fits my portfolio needs I will try to take it... but I need to get the numbers that my stats specify to make it an actual trade.

What about timing??
I don't pay any attention whatsoever to technical analysis style timing. All the studies that have been published say that technical analysis doesn't work. I don't believe in it and don't follow it.
Yet I do consider my trades timed. My timing is set by the news on the stock and the news on the market. If I am going to do a bull put spread for example I want the stock to have had some announcement that makes it likely that the stock will have a positive bias to it for the length of the trade. e.g. exceeding estimates on earnings, takeover announcements, analyst recommendations etc. Something that will give the stock a positive aura for the length of my trade.

If I am instituting a bear call spread I will want the opposite.

I also want the market in general to support the trade or at least be neutral.

In the Lexmark trade I am anti-timing . i.e. you would think that the recent news would favor a bearish trade rather than a bullish trade. But this is not always so. e.g. Sometimes negative news will drop a basically good stock so as to present an opportunity to enter an advantageous trade that has not been available before.

Also small timing issues such as small spikes on news, while important if I am buying the stock, really have no impact on doing longer term, deep in the money option trades. It just doesn't matter.

Adjustments:
Never. The trade is on or off. I never 'adjust' by for example rolling up or rolling down etc. I don't even think about it.

Success:
In the past five years I have had to bail on maybe 3 or 4 trades... which is pretty good considering I typically carry 15-20 trades at a time. When I do have to bail it is expensive so I try to make my entry carefully. I know all about 'picking up nickels ahead of a steam roller'. It's a dangerous game and you just have to be carefull.

Strategy:
My use of probability and expectation follows exactly what McMillan (and others) sets out in his books and articles. Some people seem to think it is an 'unusual approach' . I think it is quite common and that those people who think it is unusual need to get some reading done.

That's all I can remember now.

Also note: I do not post on this thread to engage in conversations about trading. I would rather keep this thread to be my place to post trades and their rationale so that I can refer back to them while I move about during the day. I have done this for years and it is part of my daily routine. If I have anything to contribute to conversations going on in other threads I will post that contribution there.

In accordance with the above I have all regular posters on my ignore list and will not usually see their posts unless I browse by when I am not logged on... which is what prompted this post.

Thanks

:-)
 
Quote from diaoptions:

Looks like the tree is starting to bear fruit. The trades that danshirley posts are mostly - if not all - long term trades and you can have a quick look at the results. I did a quick look and found zero losing trades, but because of the high risk/reward ratio in the individual trades you do have to be alert as one bad trade can wipe out 10 good trades.
So far though it looks good.


:) [/B]
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The high frequency of trades, the number of high priced stocks, the slow frequency of trades expiring, the number of stocks trading at or near all time highs on initiation day, treating all spreads as equals regardless of price, not taking advantage of time decay, and so on..... tell me most of the trades are theoretical. Not actual.
Particularly since he rarely makes it clear whether the trade was actually initiated.
Again, nothing wrong with that. I like getting suggestions to consider. I view it as a fun and useful experience. And I don't mean to sound insulting.
I just don't believe most are actual trades.
 
Quote from Put_Master:

The high frequency of trades, the number of high priced stocks, the slow frequency of trades expiring, the number of stocks trading at or near all time highs on initiation day, treating all spreads as equals regardless of price, not taking advantage of time decay, and so on..... tell me most of the trades are theoretical. Not actual.
Particularly since he rarely makes it clear whether the trade was actually initiated.
Again, nothing wrong with that. I like getting suggestions to consider. I view it as a fun and useful experience. And I don't mean to sound insulting.
I just don't believe most are actual trades.
More...

I just read his post stating that his trades are just "possibilities".
So please forgive my post above.
 
I don't get offended easy.. And I understand that this is your place the poster theoretical trades. Technical analysis or the idea of technical analysis is sort of ambiguous that you're using technical analysis if you're analyzing volatility graph or anything on a graph you are but I understand you're saying if your talking about in the typical sense with head and shoulder patterns in all the other patterns in randomness the most densely mean nothing
 
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