HowardCohodas Index Options Credit Spread Trading Journal

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HowardCohodas

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No trades today.

Iron Condor 13 expired. Profit profile:
Spread 56 - 3.5%
Spread 30 - 6.9%
Spread 54 - 8.4%
Spread 66 - 4.6%
As an Iron Condor: 28.6%
 
This is the first and last thread of 2010 I am going to follow. Intriguing subject and a quality op from what I have seen. Good luck and Merry New Year Howard.
 
Quote from startraitor:

This is the first and last thread of 2010 I am going to follow. Intriguing subject and a quality op from what I have seen. Good luck and Merry New Year Howard.
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Thank you kindly.

Live long and proper.
 
Hi Howard-

Really looking forward to this one - I'm 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?
 
Quote from bs2167:

Hi Howard-

Really looking forward to this one - I'm 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?
More...

Thank you for your interest.

In the next week or so I will put up some posts here that outline my strategy, how I came to it, what I understand about it and what I don't understand. I've learned a lot from some pretty smart people. Part of what I've learned is that I don't completely understand my edge in terms of classic options analysis. And those offering comments don't understand it either. Oh my!

Frankly, I still trade with an eye over my shoulder to see if I've missed anything and if there is something that is about to bite me in my ASSets.
 
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31 DEC 2010 Trading Plan

From the Dashboard above I have the following trading plan for tomorrow. Compare the plan with the Dashboard as I will eventually just post the Dashboard Image.

Code: 
[b]Opportunity[/b]
    Incomplete Iron Condors
        26

    Roll Candidates
        35

    New Spreads
        None

[b]Jeopardy[/b]
    Probability of Touching
        None

    Days Until Expiration
        None

    At Risk P/L
        None

For readers of the journals where I post this material, I will eventually provide access to a live version of my Dashboard. You will then be able to view all the active and archived trades in the different ways the controls permit. Available probably sometime in late January.
 
31 DEC 2010 Trading Summary

When coming up with my trading plan for today day, I forgot that new weeklies would become available.

There were no trades from my plan, but I opened the following credit spread:
SPX 1225/1200 PUT spread for $1.10.
 
Month_on_Month_Return.png


2010 Trading Summary

The account I report on is exclusively devoted to trading Index Options Credit Spreads. The first trade was made 2 AUG 2010.

A breakdown by index and series type (Weekly, Monthly, Quarterly).

Format - Total(Losses)

Code: 
         W       M       Q   |   Tot
SPX      5       5(1)    4   |  14(1)
RUT      -      16(1)    -   |  16(1)
NDX     11(1)   14(1)    -   |  25(2)
-------------------------------------
Tot     16(1)   45(3)    4   |  55(4)

Of the 55 closed spreads, 3 are part of a series that has not yet expired.

The remaining 52 closed spreads were part of 20 series. 19 series were profitable, 1 was a loss.

4 series had 1 spread (Iron Condor not formed)
8 series had 2 spreads
2 series had 3 spreads
4 series had 4 spreads
2 series had 5 spreads

Average 2.6 spreads per series
92% of the spreads were part of an Iron Condor
95% of the series were profitable
93% of the spreads were profitable
 
In 5 months you are up about 63%. Is this correct?. Nice head start.

What does a losing month look like with your strategy?. Do you have more past real/simulated history of your strategy?.
 
Quote from eudaemon:

In 5 months you are up about 63%. Is this correct?. Nice head start.

What does a losing month look like with your strategy?. Do you have more past real/simulated history of your strategy?.
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That was a great estimate by just looking at the chart. The actual number is 64.9%.

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. I decided that I didn't like the wide variance, so I have only traded indexes with real money.

We all know there are sever limitations in back testing and even in paper trading, so I am hesitant to even mention the results except to say I went through the process to get to real money trading.

I will be posting more detail about my methods in the next couple of weeks. Here is a quick overview at the risk analysis.

Since most of my spreads are paired to form Iron Condors, if the market trends, only half will be in danger. The other half, in fact, provides more opportunity for profit. When a spread reaches 80%+ of its potential profit, it becomes a candidate for rolling. I close the profitable spread and open a new one closer to the underlying instrument price and collect a new credit without increasing my quarantined funds.

My circuit breaker on a losing spread is to bail out with a market order if the loss exceeds 20% of the capital at risk. Leaving room for unfavorable fills, let's set the loss at 30%. This has only happened to me once so far in real money trading.

The second thing about the way I trade that helps mitigate the risk is that, except for weeklies, I am in a 60 day cycle. So, in any given month, only half my Iron Condors are at risk excepting a black swan day.

More detailed analysis shortly.
 
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