Do you input your desired trade/price or do you scour options chains for opportunity?

[darkshogun]

If you regularly trade a certain strategy (butterflies, condors, vertical spreads, etc.) do you set up your trades at the desire dplace and price (ex. - you're determined to trade a SPY unbalanced butterfly at 170/175/180), or you do you look through the options chains on your preferred underlying and look for the best prices and trade mainly on price, as long as the parameters of your strategy are met and you are getting more safety for your risk? (ex. - you will trade an unbalanced butterfly at different strikes, say 160/165/170, if you're getting a sweet deal).

I guess what I'm asking is, looking through SPX chains, there are trades that you can be safely OTM about 150 to 200 points or more on a weekly option with 10 days to expiration, and that offer a .05 - .15 or more credit or more - at least after the markets are closed on a TOS demo. Though most midpoints that far OTM are at 0 or less. Not sure how well this works in reality.

 

[optstack]

Personally, I take an overall portfolio approach, rather than an individual trade approach. I look at the various risk parameters of my overall portfolio, such as Value At Risk (VaR), Greeks, Expectancy, etc.. When I enter a new trade, I examine how the new trade will impact the overall risk / reward of my portfolio.

For example, I trade various butterflies, both traditional and unbalanced / skewed variations. I layer into the butterflies at various strikes and different points in time. As the market moves and time passes, I re-examine my portfolio and adjust existing flies or enter new flies based on how my overall portfolio is doing. I'm not so concerned about any individual trade, but rather the aggregate portfolio performance.

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[StarDust9182]

Exactly what optstack said.

I don't trade "flies" but I also keep in mind my entire portfolio when making any kind of trade. My intent is to increase my capital, not get the best entry price possible. I select my option trades on price versus greeks. Essentially I ask myself, am I willing to take this risk at these greeks levels today.

Precisely like optstack says, I also let some time pass, re-evaluate my portfolio and look for other kinds of spread trades (using my forecast) based on what the market is doing since my last entry. Portfolio is the key not any one trade in particular. I don't know for sure what the market will do and I don't really care.

If you set a price, you will often be filled for bad trades and not filled for good ones in my experience. Price is rarely material, only is it what I need or want today for to improve my portfolio.

Chess is similar at the top levels we don't run in for the kill since we assume the opponent is equal or better to us. We act like a python, seizing whatever advantage is offered and converting it to a larger and larger positional advantage until the opponent cracks under the pressure and his position collapses.

Diversification is important as well.

 

[optstack]

Exactly what optstack said.

Diversification is important as well.

I agree with StarDust9182 that diversification is important. In fact, there are many ways to diversify when it comes with options.

Simply layering your trades at different times and at different strikes is one form of diversification.

Using different strategies that have respond to different market conditions is another form of diversification, such as combining market neutral iron condors with directional verticals.

And using different, preferably uncorrelated, underlying instruments is another form of diversification as well.

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[xandman]

Yes, I have restructured a spread when I saw a bid or offer in the chain. But I trade retail. Sometimes, in illiquid markets.

I diversify my strategies as well and employ the various ways mentioned.

I recently plotted my total pl curve and I realized that all my trades could have been simplified with 2 strategies, a bear ratio combined with a cash secured put (at least for this current environment). Of course who wouldn't want a v shaped long gamma trade that's bringing in premium that's also above the net positive line, but that's not possible unless you go multi-modal.

The point I'm making that a graphical format really helps you understand your exposures.

 

[darkshogun]

Exactly what optstack said.


Chess is similar at the top levels we don't run in for the kill since we assume the opponent is equal or better to us. We act like a python, seizing whatever advantage is offered and converting it to a larger and larger positional advantage until the opponent cracks under the pressure and his position collapses.

Nice description, but I would think the person on the other side of the trade probably left it long before his position collapsed and parts of the trade where taken on by other people with different strategies.

 

[StarDust9182]

Nice description, but I would think the person on the other side of the trade probably left it long before his position collapsed and parts of the trade where taken on by other people with different strategies.

Of course I was speaking in analogy as an example of how I think about opportunities. I will never trade for you, nor will I release any information on my actual positions since it is not relevant to your trading. (in fact only one person has seen live trades on this site as far as I remember. That one person and I were talking specifics. While we followed the examples, I had completed dozens of other trades, and so had he.)

In chess there is a clear zero sum game with your opponent on the other side. This is how I would play to have a better chance against equal or superior opponents. There is an obvious way in chess to predict the most likely ranking of your opponent. However, in really top flight chess games, you are really playing yourself in a similar way to the markets.

In trading there is really nobody on the other side, it is all about you and your own psychology as far as your portfolio and cash position are concerned. (Practically there is someone on the other side.) In options it is clearly a zero sum game (ignoring commissions). It is a series of moves and decisions leading to an outcome of profit or loss. So opportunities per sec don't matter as much as some would have you believe. More importantly is your own psychology and purpose when you enter and exit and manage your trades.

 

[drownpruf]

Exactly what optstack said.

I don't trade "flies" but I also keep in mind my entire portfolio when making any kind of trade. My intent is to increase my capital, not get the best entry price possible. I select my option trades on price versus greeks. Essentially I ask myself, am I willing to take this risk at these greeks levels today.

Precisely like optstack says, I also let some time pass, re-evaluate my portfolio and look for other kinds of spread trades (using my forecast) based on what the market is doing since my last entry. Portfolio is the key not any one trade in particular. I don't know for sure what the market will do and I don't really care.

If you set a price, you will often be filled for bad trades and not filled for good ones in my experience. Price is rarely material, only is it what I need or want today for to improve my portfolio.

Chess is similar at the top levels we don't run in for the kill since we assume the opponent is equal or better to us. We act like a python, ooohh baby, strike! Seizing whatever advantage is offered and converting it to a larger and larger positional advantage until the opponent cracks under the pressure and his position collapses.

Diversification is important as well.

I'd be surprised if you could populate a chess board. Please, more animal metaphors. They are awsum.