How to make decent $ with conservative vertical spread?

[a529612]

Account size: $100k
Target profit per month: $5k
Trade size: 5-10 contracts per position.
Max # of positions: 5

Currently I trade semi-naked deep OTM (10% or so "buffer" below market) front month short put on strong up trending large cap stocks and it has been a very profitable strategy for me so far. I don't have problem hitting my target profit each month, especially with theta to my advantage. But sooner or later the market will be less accommodating and a black swan will come and blow up my account.

My question is: how do I make the same amount of $ per month using conservative (high probability) vertical spreads with capped risk because they typically pay peanuts like 0.5 or less for 5 pts spread? I don't want to trade a ridiculous # of contracts to "worth my while" nor I want to increase the # of positions. Any thoughts or there are better strategies to implement to reach my goals? Thanks!

 

[FT79]

trade a portfolio of income generating option strategies like condors, diagonals, calendar, ATM butterflies and you will easily get 5% per expiration month

 

[El OchoCinco]

Quote from FT79:

trade a portfolio of income generating option strategies like condors, diagonals, calendar, ATM butterflies and you will easily get 5% per expiration month

Two questions:

1. Define what is "easily"

2. Based on your statement I assume you make over 50% a year regularly or shall I say... easily.

 

[Pa(b)st Prime]

Quote from optioncoach:

Two questions:

1. Define what is "easily"

2. Based on your statement I assume you make over 50% a year regularly or shall I say... easily.

The word "trade" in FT79's post might be operative as well. I always' know there's a hitch whenever I hear, "you'll just need to make an adjustment if that occurs......"

 

[forex-forex]

Quote from FT79:

trade a portfolio of income generating option strategies like condors, diagonals, calendar, ATM butterflies and you will easily get 5% per expiration month

5 years of trading:

• $100,000.00
• $171,033.94
• $307,152.38
• $551,601.54
• $990,597.11
• $1,778,970.09

 

[FT79]

Quote from optioncoach:

Two questions:

1. Define what is "easily"

2. Based on your statement I assume you make over 50% a year regularly or shall I say... easily.

Whow, I started something , but ofcourse trading is not easy!!! I have lost a lot of money, I have made a lot of money when trading. I have found my comforts trading covered selling of options because I don't have to know what the market is doing but only manage the positions (this is my system and it works for me). with current market volatility income generating strategies should be properly managed to minimize loses or still have a decent/small profit (there's no holy grail). Risk is the only important variable for me, profits will come if I manage my risk properly (important: my system and it works for me).

 

[FT79]

Quote from Pa(b)st Prime:

The word "trade" in FT79's post might be operative as well. I always' know there's a hitch whenever I hear, "you'll just need to make an adjustment if that occurs......"

Adjustments keeps you alive with current market volatility. setting up a position and then closing your eyes till expiration is not the way trading these kind of strategies

 

[FT79]

Quote from a529612:

Account size: $100k
Target profit per month: $5k
Trade size: 5-10 contracts per position.
Max # of positions: 5

Currently I trade semi-naked deep OTM (10% or so "buffer" below market) front month short put on strong up trending large cap stocks and it has been a very profitable strategy for me so far. I don't have problem hitting my target profit each month, especially with theta to my advantage. But sooner or later the market will be less accommodating and a black swan will come and blow up my account.

My question is: how do I make the same amount of $ per month using conservative (high probability) vertical spreads with capped risk because they typically pay peanuts like 0.5 or less for 5 pts spread? I don't want to trade a ridiculous # of contracts to "worth my while" nor I want to increase the # of positions. Any thoughts or there are better strategies to implement to reach my goals? Thanks!

But to keep things going, buy the book of Natenberg and Charles M. Cottle (Option Trading; the hidden reality) so you know the good/bad side of the mentioned strategies and start trading them with SPY with just 1 or 2 contracts to learn the craft, If you are profitable and felt the pain when thinks go wrong increase your size or start trading RUT, NDX, OEX (or if you from Europe like me DAX, DJ EuroStoxx50). Imho you should trade only one product so you get familiar with the product. IMPORTANT: have a plan and write it down (I have one till december 2008). Don't try a iron condor, calendar or diagonal, imho you should trade a portfolio and but them on every single month. Treat it as a business!!

 

[nikko309]

Based on your statement I assume you make over 50% a year regularly or shall I say... easily.

Making over 50% per year is a no brainer because successful traders are allowed 29% slippage per annum (making 5% per month is a compounded 79% per year)

LOL. But of course, only on the internet...

 

[nikko309]

Currently I trade semi-naked deep OTM (10% or so "buffer" below market) front month short put on strong up trending large cap stocks and it has been a very profitable strategy for me so far. I don't have problem hitting my target profit each month, especially with theta to my advantage. But sooner or later the market will be less accommodating and a black swan will come and blow up my account.

My question is: how do I make the same amount of $ per month using conservative (high probability) vertical spreads with capped risk because they typically pay peanuts like 0.5 or less for 5 pts spread? I don't want to trade a ridiculous # of contracts to "worth my while" nor I want to increase the # of positions. Any thoughts or there are better strategies to implement to reach my goals?

If you are hitting your profit target each month, what's the problem? Oh yeh, I know the answer - you mentioned that you're concerned about a black swan event.

Risk and reward go hand in hand. If the black swan concerns you, then you have to give up some of the reward to reduce the risk. That's just the way it is.

As you noted, high probability capped risk vertical spreads pay peanuts. Did I mention that risk/reward trade off thing? You can't have high probability spreads with high reward.

As far as better strategies, that's a tough one. You utilize strategies whose risk/reward profile is acceptable and with which you are comfortable with (implementing and adjusting if necessary). It's not a case of the strategy being better but one of selecting the strategy for your outlook and ability.

Since a black swan is the focus of your post, perhaps doing some bearish vertical spreads (or other bearish strategy) will add to your yield and reduce the downside. Though not impossible, it's kind of tough to lose on both sides if you're adjusting both sides.