HowardCohodas Index Options Credit Spread Trading Journal

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Quote from falconview:

Howard

That does enlighten me a bit. If one side of your Iron Condor loses 20% of the trade capital you close it and take the loss. At the same time, then such index movement would also make the plus money spread in the Iron Condor, probably reach 80% or better of cap maximum, so you roll it.

Now why would you bother to roll a winning trade? A win is a win! Why roll into another month, in which possibly the location of the spread may not be favorable. Why not wait until you can pick your time and location for the next spread?

I can see diversifying across different indexes allows you to trade more trades, I.C.�s and keep your trades smaller capital amounts and avoid confusing the software with mixed Iron condors in one index. The smaller amounts involved for your gross capital would be protected as any loss would be relatively small on any individual trade that way.

Still I have seen the OEX run 15 or 20 points in half a day. You would have to be moving pretty fast to get out at the 20% of trade capital for a spread in such a case. But the 20% does answer one valuable question anyway, on your methodology.
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Quote from falconview:

Howard

I didn�t get the situation in which you were worried about a GAP, or
the comment about the spread expiring worthless. Meaning I presume you closed it because it lost 20% of capital of the trade ?

I can guess the increase of the good side of the IC would be more than the 20% loss though. A rollover I understand saves money instead of closing the winning spread? Which may have something to do with the profit balance eliminating some commissions,etc. Never tried a rollover.
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Obviously, I was not clear. Let me try again.

If, on the last day of trading, the PoT is greater than 10%, I will close the spread. Sometimes that yields a loss. So far, I have incurred a loss on a spread three times in the 66 spreads that have closed or expired. In these cases, the Iron Condor was still profitable.

In one spread, I was overrun. I placed a market order to close the spread. It was filled at a 30% loss. The Iron Condor showed an overall loss of 20%. This loss was particularly troublesome to me because it was largely the result of an unforced error when I entered the spread. None the less, it is what it is.

I have yet to navigate a circumstance where the market moved in such a way that many, if not all spreads on one side of the ICs would be in trouble simultaneously. I have circuit breakers to close spreads if the underlying gets within one percent of the short strike. Unfortunately, there is not a way to set the circuit breaker based on the loss on capital at risk. Circuit breakers are important because I may not be available to take action when these market moves occur.

I roll winning trades because it lets me earn another credit on the same quarantined funds. Rolling has allowed me to earn up to 50% yield on a spread that would have yielded about 9% without rolling.

If you look at my Dashboard you will note that IC #15 has had 8 spreads as part of it. All, but one spread was due to my rolling rules. One was done because I misread the PoT when choosing the short strike. I got out as soon as I realized it. Luckily at a small profit. When this IC expires this week I will give my usual recap. At the moment, as an Iron Condor the yield is 56% on capital at risk in the 60 days since it was established.

Looking at the history of IC #15 should put my rolling rules into real examples.

Did I miss anything?
 
Correct me if I'm wrong, but my understanding is that when you "roll" a spread you buy back the old spread and sell a new spread for the same expiration month, but at different strikes. E.g., if you buy back a put spread in a market trending up you'd sell a new put spread at a higher strike. Am I right?
 
Quote from rew:

Correct me if I'm wrong, but my understanding is that when you "roll" a spread you buy back the old spread and sell a new spread for the same expiration month, but at different strikes. E.g., if you buy back a put spread in a market trending up you'd sell a new put spread at a higher strike. Am I right?
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Yep.
 
Howard

You are still losing me?

If you have an Iron Condor and one side is closed as it is threatened and loses something. ( e.g. -20% ) The other side is rolled, even presuming full profit of 3%. Both sides in that Iron Condor would normally come to +6% profit, give or take some variation. Perhaps in total as much as 10% due to volatility increasing premiums when you put them on.
Your loss then, on that Iron Condor assuming a loss of -20% on the lower side, would give you a result of average +3% - 20%, or a total loss of -17%.

Now if you roll the one side, the winning 3% side, it will be now a NEW TRADE presumably in another month and the start of a NEW Iron Condor, which would have to be judged on it´s own merits. All you are saving is some commission costs in the rollover as I understand it.

How you are evaluating the win or loss is so far, beyond me. You cannot close one side of a same month Iron Condor without incurring a loss would be my amateurish thought. Even though one side is rolled into the next month. As that one would be a seperate bet now? Unless you are not contemplating completing a NEW IRON CONDOR with that rolled over spread and wish to just leave it and calculate it seperately as a win or loss, depending if the new month premium collected. But even if you do that latter point, your win should you get maximum of + 3% out of it in this next month, would still leave you an overall deficit on of - 20% * 6%, give or take a bit dependent on premiums? Even if the rollover contributed a saving of 3% in commission costs on that spread, you stgill come to an original loss of -9%, if you had suffered a loss on that Iron Condor in the previous month of 20%.

Interesting conversation, but I´m not following the calculations. I´m not sure what a POT is? The closing the spread if POT is greater than 10% I didn´t catch the comprehension on that.
 
falconview,

PoT is Probability of Touching, one of the columns in the Dashboard.

All the rolling I do is in the same series. See IC #15 for examples of several rolls conducted in the same series.

Reread my analysis of the one credit spread where I took the max loss. It is not a roll example.
 
Howard

Okay I catch your reference now on POT, probability of touching. You talk of rolling over in the same series and doing it two or three times. If you are trading 2 month out options I can certainly see where that would be possible, presuming you are rolling over into the same second month series. You would in effect be adding premium. Though probably leaving you exposed closer to being threatened in a market reversal. Some months that would indeed be worthwhile and if you are rolling over into the same month ( 2nd month ) that would increase your overall gains, shall we say +3% each time on average. I can figure that out. The word series and what you are referencing to left me puzzled as I was re-looking at your chart. I presume series means a rollover into the same month ( 2nd month options ) So you are basically taking profits on a spread when you have them. But keeping an Iron Condor intact is my presumption?

I know BRAD on his four year accounts, shows a year of 4 month zero,, wins/losses in at least one and maybe couple of other years. I was told by somebody else using his referrals, this was due to his beiing able to offset a loss, by gaining credit this way. Similar to what you are doing. Net result he was able to work the losing months out by getting more credits. Though I believe he is using one month options. On a 12 month annual basis, he was able to control his losses and subtract them from his overall annual profits and still come out ahead. In some bull markets actually able to return 90% a year of his total dollar account.

I have not yet tried trading monthlies, or in your case 60 day, or two monthly spreads, so my reference mentally doesn´t picture the way it works very well yet. I´m having trouble visualizing the actions.
Though I do have my straight buying system now in place and it is working as I expected. This only gives me 1 to 4 trades per month. So I have weeks when there is nothing to do.
So perhaps I will try paper trading credit spreads again. So far, I do not yet completely understand your methodology yet, to give it a whirl. When I can understand the mechanics of it, will try it and report to you how it works out.
 
Quote from falconview:

Howard

Okay I catch your reference now on POT, probability of touching. You talk of rolling over in the same series and doing it two or three times. If you are trading 2 month out options I can certainly see where that would be possible, presuming you are rolling over into the same second month series. You would in effect be adding premium. Though probably leaving you exposed closer to being threatened in a market reversal. Some months that would indeed be worthwhile and if you are rolling over into the same month ( 2nd month ) that would increase your overall gains, shall we say +3% each time on average. I can figure that out. The word series and what you are referencing to left me puzzled as I was re-looking at your chart. I presume series means a rollover into the same month ( 2nd month options ) So you are basically taking profits on a spread when you have them. But keeping an Iron Condor intact is my presumption?

I know BRAD on his four year accounts, shows a year of 4 month zero,, wins/losses in at least one and maybe couple of other years. I was told by somebody else using his referrals, this was due to his beiing able to offset a loss, by gaining credit this way. Similar to what you are doing. Net result he was able to work the losing months out by getting more credits. Though I believe he is using one month options. On a 12 month annual basis, he was able to control his losses and subtract them from his overall annual profits and still come out ahead. In some bull markets actually able to return 90% a year of his total dollar account.

I have not yet tried trading monthlies, or in your case 60 day, or two monthly spreads, so my reference mentally doesn�t picture the way it works very well yet. I�m having trouble visualizing the actions.
Though I do have my straight buying system now in place and it is working as I expected. This only gives me 1 to 4 trades per month. So I have weeks when there is nothing to do.
So perhaps I will try paper trading credit spreads again. So far, I do not yet completely understand your methodology yet, to give it a whirl. When I can understand the mechanics of it, will try it and report to you how it works out.
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Rolling to a new spread closer to the underlying instrument price need not add any risk. That is because the same rules apply with respect to PoT and credit received. Since time has passed, all other things being equal, the same PoT will be closer to the underlying instrument price when the roll occurs.

In tonight's trading summary I did a roll. See if a trade that happened today will resonate.
 
2011-01-18_p_journal.png


18 JAN 2011 Trading Summary

A roll was executed within Iron Condor #22 by closing PUT spread #58 and opening PUT spread #79 which is closer to the NDX price. Notice that the PoT at the close of trading today of spread #79 is 16% and I received a credit of $2.00 which will provide a capped return of 8.7%. Both of these key selection criteria are met by the spread we rolled to in the same fashion as when spreads are first entered in a new series (expiration date).
 
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