HowardCohodas Index Options Credit Spread Trading Journal

[falconview]

Since I´m not trading credit spreads anymore, I'll add this little tidbit. 6% on the weeklies deviation, was a guarantee of success. The difficult part is getting the premiums in the OEX. Some of the other indexs with small strikes allowed you to get out that far in premiums. Though I found percentage wise for profits, it worked out the same as the OEX.
5% deviation was about 97% profitable most of the time and 4% deviation worked most of the time. 3% which is easier to get as deviation worked fairly consistantly, except you would get hit once or twice a year.
I didn´t have a strategy of rolling over on the weeklies. Not possible.

I' m still interested in credit spreads, but until somebody figures a 100% way of making consistant money at it, not very interested. Nor can I afford another year of experimenting and learning. I´m back to straight buying of options. The risk reward ratio is much better. The only problems being GREED, IMPATIENCE and BOREDOM with mundane winning strategies.

I read a website the other day where some guy traded one trade a month, and made 800% a year. Based on volume and trend change forecasting. I've never been able to get volume work for me as a trend change type analysis, at least not with consistancy. I´ve lost the site anyway, so it is probably just as well.

I definitely am going to have to open a second TOS account, to experiment in. Mixing impatience and trying new ideas is making a mess of my successful trades.

 

[nLepwa]

Quote from HowardCohodas:

When Iron Condors are formed, which is most of the time, the portfolio is nearly delta 0, and slightly negative gamma, but hugely negative vega. Vega dominates and, I believe, is the primary driver in the success of this strategy. Expectancy requires some detail in understanding the risk mitigation measures. I have a module on understanding the risk of this strategy.

Being negative vega in itself doesn't guarantee positive expectancy.
When IV raises you loose money, when it falls you earn money.

But markets are mostly efficient (especially when it comes to index options) and short or long vega have the same expectancy.

Beating the market consistently on the IV forecast is very hard. Simply fitting a GARCH model won't do.

Ninna

 

[nLepwa]

Quote from trefoil:

That's fine. It's just that the god of IC's makes 5% monthly consistently, or claims to anyway, and my own experience is that 2% is doable, 3% if you stretch it, and anything beyond that takes more risk than should really be taken by ordinary mortals.
That's before taking into account the inevitable huge drawdown, of course, which is always lurking just around the corner with these things. Once that happens, the returns get more realistic.

Or you blow up.
There's no free lunch.

If you have that kind of returns you're taking a huge amount of risk.

Ninna

 

[nLepwa]

Quote from falconview:


I' m still interested in credit spreads, but until somebody figures a 100% way of making consistant money at it, not very interested. Nor can I afford another year of experimenting and learning. I´m back to straight buying of options. The risk reward ratio is much better. The only problems being GREED, IMPATIENCE and BOREDOM with mundane winning strategies.

You need to understand that options and spreads are instruments. They are tools to achieve your goal.

An IC is not a strategy. It is a tool.

The IC tool allows you to play IV. The source of your positive expectancy comes from better forecasting IV than the market, not from the IC itself.
By simply selling or buying an IC you're entitled to nothing except zero expectancy minus costs.

Ninna

 

[HowardCohodas]

Quote from nLepwa:

You need to understand that options and spreads are instruments. They are tools to achieve your goal.

An IC is not a strategy. It is a tool.

The IC tool allows you to play IV. The source of your positive expectancy comes from better forecasting IV than the market, not from the IC itself.
By simply selling or buying an IC you're entitled to nothing except zero expectancy minus costs.

Ninna

My portfolio is hugely Theta positive. Why does this not contribute to positive expectancy?

 

[HowardCohodas]

Quote from nLepwa:

Or you blow up.
There's no free lunch.

If you have that kind of returns you're taking a huge amount of risk.

Ninna

My portfolio is roughly 20% cash, 40% long spreads and 40% short spreads. The long and short spreads are matched to form Iron Condors.

A black swan event, for which I would lose 100% of the capital at risk for the spreads on the adverse side would still only collapse 40% of my account. Furthermore, the spreads on the other side would be near 100% of their capped return. Although rolls would be theoretically possible, it would probably be unlikely in these circumstance.

40% is not a happy event, but is recoverable.

 

[nLepwa]

Quote from HowardCohodas:

My portfolio is hugely Theta positive. Why does this not contribute to positive expectancy?

Because theta is priced in, obviously.

I think that you need to learn alot about options...

Ninna

 

[nLepwa]

Quote from HowardCohodas:

My portfolio is roughly 20% cash, 40% long spreads and 40% short spreads. The long and short spreads are matched to form Iron Condors.

A black swan event, for which I would lose 100% of the capital at risk for the spreads on the adverse side would still only collapse 40% of my account. Furthermore, the spreads on the other side would be near 100% of their capped return. Although rolls would be theoretically possible, it would probably be unlikely in these circumstance.

40% is not a happy event, but is recoverable.

A not expected 40% loss would be considered a blowup for any institutional hedge fund.

You are obviously taking huge risks. I wouldn't trade something as risky because I'm looking for consistency and low drawdowns. But my objectives might not be representative for all traders.

How many months would you need to get back to break even after a 40% unhappy event (provided that you don't get another one inbetween..)?

Ninna

 

[HowardCohodas]

Quote from nLepwa:

A not expected 40% loss would be considered a blowup for any institutional hedge fund.

You are obviously taking huge risks. I wouldn't trade something as risky because I'm looking for consistency and low drawdowns. But my objectives might not be representative for all traders.

How many months would you need to get back to break even after a 40% unhappy event (provided that you don't get another one inbetween..)?

Ninna

My account increases an average of 10.5% a month. Since I've only been doing this strategy with money in this account for 5 months, that has marginal statistical significance.

I chose the worst case of a black swan event. I know of no case of two black swan events occurring that close together. Do you? But as you point out, I have a lot of learning to do.

A black swan event is the worst case. I'll shortly publish in this thread my risk analysis based on the methods I use outside of a black swan event. Hopefully you will continue to make me smarter.

 

[HowardCohodas]

Quote from nLepwa:

Because theta is priced in, obviously.

I think that you need to learn alot about options...

Ninna

I agree, but as the option nears expiration Theta seems to dominate. As long as the options remain OTM, they must expire with zero value.