How long $3000 will last option trading
- Thread starter skanan
- Start date
Thanks!
I agree that selling spreads involves two commish. It also means twice negative expectancy. One from commish + b/a spread of buying and one from commish + b/a spread of selling. If I am not too chicken, I'll probably go with naked call/put to minimize the that effect.
My goal is not to loose money first or not loose too much. I realize that my position sizing is not that great.
From my current captial, I'll probably earn more from T-bill than doing this.
What percentage does she allocate per trade?
Thanks
Don-
Sorry the xeo didn't work so well...I agree you need to be well capitalized to do credit spreads on the index (s)...I do find with a smaller amount (less than 50,000) it is more difficult but not impossible do have some success in options. I do think you have too much on your plate. (too many options ...no pun intended!)I would narrow your focus...after some of these expire start to rate each candidate 1-5 in terms of how you predict the probability of success then take the top 2 and do it with more contracts (again with cash cushion)
according to McMillian (sp?) a spread is NEVER the worst outcome! However if I'm very bullish I will do a straight call...bu will also close it out quickly. when you do spreads you really need to hold for maximum value. Also you need to have the attitude that your goal is to MAKE money not NOT to LOSE 
flyers&divers
Guest
I disagree with people who think you are diversified too much and there are some comments from people who do not understand the essence of credit spread trading.
They are legions of people who believe that trading is a zero expectancy game and in this case the $1.50 reward for $5 risk is not high enough.
First, in a credit spread trade you are dealing with out of the money options and time decay is also in your favor. In addition
even the use of the simplest TA such as volatility bands and MA's increases positive expectancy of the trade and you can use all kinds of other info as well like ZAKS and S&P ratings, seasonals, sentiment, special events etc. and you are no longer shooting fish in a barrel like it is assumed in these conversations.
People don't realize or I have not seen it mentioned that there is a different relationship to expectancy here: unlike outright positions credit spreads work most of the time and one's focus is not on cutting one's losses and letting one's profits run but minimizing the effect of the occasional large loss.
Sometimes when the stock moves against the position one can wiggle out of it or adjust or simply take a(complete or partial)loss. The worst case is a takeover or delisting or adverse guidance. In that case you are toast, and this is why it is good to be broadly diversified.
I am a swing trader and along my outright positions I always have opportunistic spreads on for a turn. Recently I had some on in the gaming stocks battered by Katrina, in the poultry and bio stocks playing the Avian Flu theme, I also had put spreads on gold stocks which I just took off and I am starting to put on bearish spreads on the indices because based on my TA and sentiment work the markets may be trading from sideways to lower from here on. Of course, one has to pay attention to TA with these trades too.
Someone could say that in a larger sample of trades the win-loss ratio would stay constant therefore diversifying further is not productive, I say that the occasional large losses would be likely spread out in a larger sample so it would still help smoothing the equity curve.
The truth is, and most people are not willing to face this (even people in the business), that you should not trade at all until you figured out a method or technique that gives you and edge and beyond that you need to manage yourself and trades well to be successful. Still, the possibility of surviving trading spreads is enhanced by the the benefit of time decay.
They are legions of people who believe that trading is a zero expectancy game and in this case the $1.50 reward for $5 risk is not high enough.
First, in a credit spread trade you are dealing with out of the money options and time decay is also in your favor. In addition
even the use of the simplest TA such as volatility bands and MA's increases positive expectancy of the trade and you can use all kinds of other info as well like ZAKS and S&P ratings, seasonals, sentiment, special events etc. and you are no longer shooting fish in a barrel like it is assumed in these conversations.
People don't realize or I have not seen it mentioned that there is a different relationship to expectancy here: unlike outright positions credit spreads work most of the time and one's focus is not on cutting one's losses and letting one's profits run but minimizing the effect of the occasional large loss.
Sometimes when the stock moves against the position one can wiggle out of it or adjust or simply take a(complete or partial)loss. The worst case is a takeover or delisting or adverse guidance. In that case you are toast, and this is why it is good to be broadly diversified.
I am a swing trader and along my outright positions I always have opportunistic spreads on for a turn. Recently I had some on in the gaming stocks battered by Katrina, in the poultry and bio stocks playing the Avian Flu theme, I also had put spreads on gold stocks which I just took off and I am starting to put on bearish spreads on the indices because based on my TA and sentiment work the markets may be trading from sideways to lower from here on. Of course, one has to pay attention to TA with these trades too.
Someone could say that in a larger sample of trades the win-loss ratio would stay constant therefore diversifying further is not productive, I say that the occasional large losses would be likely spread out in a larger sample so it would still help smoothing the equity curve.
The truth is, and most people are not willing to face this (even people in the business), that you should not trade at all until you figured out a method or technique that gives you and edge and beyond that you need to manage yourself and trades well to be successful. Still, the possibility of surviving trading spreads is enhanced by the the benefit of time decay.
FWIW, I think you're on the right track. Ignore people who say you are too diversified. I traded the same way you are, for about 7 to 9 months and generally did "ok". The nice thing about selling credit spreads over a diverse range of stocks is that even if your stock selection strategy has a long term negative expectancy, you'll more than likely make money anyway over the short term so it's a good safe way to learn as long as you don't have the majority of your margin invested.
(Disclaimer: I'm not expert so take what I say with a grain of salt.)
(Disclaimer: I'm not expert so take what I say with a grain of salt.)
Simply put: there is no options strategy (including credit spreads) that works better than the other strategies (except arbitrage) in all market conditions.
I'm one of the people that concluded that any options strategy has a negative expectancy because of the slippage and commissions.
In order to make money from options trading you have to correctly forecast either one or both of the underlying price and future implied volatility of the options you're trading.
Selling credit spreads to enjoy the negative theta is an illusion for those who don't understand the risk they're taking.
Selling naked options is not riskier probabilistically, but sets you up to be hit by one of those outliners (called also black swans) that will ruin you.
I'm one of the people that concluded that any options strategy has a negative expectancy because of the slippage and commissions.
In order to make money from options trading you have to correctly forecast either one or both of the underlying price and future implied volatility of the options you're trading.
Selling credit spreads to enjoy the negative theta is an illusion for those who don't understand the risk they're taking.
Selling naked options is not riskier probabilistically, but sets you up to be hit by one of those outliners (called also black swans) that will ruin you.