HowardCohodas Index Options Credit Spread Trading Journal

[HowardCohodas]

Quote from falconview:

Howard

In my limited one year experience of trading credit spreads, last year, there is no difference between indexes when a Volatility rise occurs, or Bear Plunges. So being spread between indexes does not protect at all. Just my limited view.

Whats the saying? All ships float equally with the tide.

See response above to sellindexvol66. The only way I can use your cautions is to actually experience them even if only with back testing. I did use data from 2005 through 2009. But I did not see the difficulties you describe. Could you narrow down the search space by telling me the underlying instrument, your trades and the series you traded. Otherwise I am unable to use your experience effectively.

 

[Stok]

Is PoT only available in TOS?

 

[HowardCohodas]

Quote from Stok:

Is PoT only available in TOS?

Yes. But you can also use delta as a good proxy. I like PoT because it directly represents my chances of having to close the spread rather than let it expire worthless.

 

[stevegee58]

If you open a ThinkOrSwim paper account you can see the PoT reading alongside the delta on an option chain. My observation has been that the PoT of 20% is approximately a delta of 0.10.

 

[Stok]

Quote from HowardCohodas:

Yes. But you can also use delta as a good proxy. I like PoT because it directly represents my chances of having to close the spread rather than let it expire worthless.

Ok, I do see you use it as one of your criteria to enter a spread as well. I know Delta, but from your experience, what ratio seems to be about right of Delta to PoT?

 

[HowardCohodas]

Quote from Stok:

Ok, I do see you use it as one of your criteria to enter a spread as well. I know Delta, but from your experience, what ratio seems to be about right of Delta to PoT?

For the volatility strategy I use (Fixed volatility per expiration date) a PoT of 20% is equivalent to a delta of approximately .10. However it is not symmetric with PUT and CALL sides and I don't know how close the relationship holds between PoT and delta in higher volatility regimes.

P.S.
I just used ThinkBack to view PoT in June 2010 when $VIX was about twice what it is now and there a difference of about 1% delta.

October of 2008 when $VIX was 4 times what it is today, 20% PoT was equivalent to .07.

It would seem that PoT takes into account implied volatility differently than delta.

 

[stevegee58]

I think the "Fixed volatility per expiration date" calculation for PoT might be just statistical/historical volatility. I also observed several instances where the delta was a little far from expected as compared with PoT. If my theory is correct you'd see more of a difference with puts than same-strike-distance calls because IV is generally skewed with puts. Delta uses IV.

Since PoT is proprietary, who knows what goes into it.

 

[Stok]

Quote from stevegee58:

If you open a ThinkOrSwim paper account you can see the PoT reading alongside the delta on an option chain. My observation has been that the PoT of 20% is approximately a delta of 0.10.

Can you open a paper account without giving all your personal information? I searched around and seems not ?!?

 

[HowardCohodas]

Quote from Stok:

Can you open a paper account without giving all your personal information? I searched around and seems not ?!?

I don't recall. However, I paper traded for 5 months before funding my account without any hassle.

 

[Stok]

Here is a pdf file discussion from the guy who invented the PoT for TOS:

http://mediaserver.thinkorswim.com/transcripts/touching.pdf