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HowardCohodas Index Options Credit Spread Trading Journal
- Thread starter HowardCohodas
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Quote from emg:
make sure u explain the substantial risk involve trading credit option spread. otherwise, u will be turned in to the CFTC and SEC
Warning:
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Although the process I describe is deceptively simple, there is a lot of study and testing that went into developing the strategy. There is risk in trading options. One can lose one's entire amount of capital at risk. These details cannot effectively be communicated by just watching me trade.
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Quote from HowardCohodas:
This will sound absurd, but in back-testing (5 years of data) and 5 months of paper trading I've had quite a few losing spreads, but not a losing month. During paper trading my poorest month was 3.5% and my best month was 23.4%. That included spreads on stocks as well as on indexes.
Who is the provider of your historical options data? Is it EOD or intraday? Does it include bid/ask quotes or just prints?
Quote from bs2167:
So let's say you're starting from a clean slate with no open positions....how do you select and evaluate a credit spread to determine if the risk/reward is acceptable enough to initiate a trade? An example with real numbers would be great. Thanks
Once managing trades has been digested, we will address criteria for entering spreads. Probably a week or so depending on number and depth of questions.
You patience will be rewarded.
Knowing that you ultimately intend to teach this subject, I thought I might offer a suggestion: Wouldn't it be easier for an audience to first understand why you choose to enter a trade and then from there how to subsequently manage them? There are fewer variables at play when you are making decisions with an empty portfolio - so why not clearly illustrate the edge you are looking for with a new trade, then later build on that logic with the risk management discussion? Seems like you're jumping to calculus without first covering algebra.
Quote from bs2167:
Knowing that you ultimately intend to teach this subject, I thought I might offer a suggestion: Wouldn't it be easier for an audience to first understand why you choose to enter a trade and then from there how to subsequently manage them? There are fewer variables at play when you are making decisions with an empty portfolio - so why not clearly illustrate the edge you are looking for with a new trade, then later build on that logic with the risk management discussion? Seems like you're jumping to calculus without first covering algebra.
Great point.
Quote from bs2167:
Knowing that you ultimately intend to teach this subject, I thought I might offer a suggestion: Wouldn't it be easier for an audience to first understand why you choose to enter a trade and then from there how to subsequently manage them? There are fewer variables at play when you are making decisions with an empty portfolio - so why not clearly illustrate the edge you are looking for with a new trade, then later build on that logic with the risk management discussion? Seems like you're jumping to calculus without first covering algebra.
A good case can be made for both approaches. My belief is that the strategy is easier to understand by first observing its management. Some of the preference for approach depends on one's learning style.
Please bear with me and take the time to understand the positions I have taken and the decisions that go into their management. The "why" will come soon enough and then we can both discuss the merits of each approach from a stronger position of knowledge.
Quote from bs2167:
expecting that it will be waaay different that the 1000 other credit spread/condor threads in the archives. So what is your source of edge? Do you predict the underlying's direction? Or do you predict future volatility?
What would make this -- or any -- option spread thread "different" would be if the author recommended an equal amount of <i>credit</i> and <i>debit</i> trades -- i.e. was <i>premium-neutral</i> in aggregate, so readers could distinguish real alpha from being short premium during a low realized-vol period in the market. (Of course, Dr Cohodas is under no obligation to do so.)
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