HowardCohodas Index Options Credit Spread Trading Journal

[Maverick74]

Quote from stevegee58:

I know, I'd be inclined to pull the plug and just take the loss myself. I'm just saying that you have "options" as an options trader that a long stock trader doesn't have.

No, you really don't. Sure you can always add new trades. So can a stock trader. Say I'm long apple and it's going against me, so what do I do, I short some NQ futures. Maybe I short some AMZN. Look, we can make this as complicated as you want. Both stock, option and future traders can add all sorts of trades to "hedge" out their risk. And that's perfectly fine if you can defend taking all those trades on their own merit.

But if you are an iron condor trader you just have to admit to yourself that you probably can't trade your way out of a paper bag (that is why one focuses on them) and when shit goes against you, just take it off. If you are claiming you have some special skill to manipulate your trades and hedge the underlying, then you are probably better off just trading the underlying.

 

[u21c3f6]

Quote from Maverick74:

The best hedge for a credit spread is to buy it back in its entirety. Don't try to make things more complicated then they are. Ego has sunk many a trading ship.

Quote from Maverick74:

No, you really don't. Sure you can always add new trades. So can a stock trader. Say I'm long apple and it's going against me, so what do I do, I short some NQ futures. Maybe I short some AMZN. Look, we can make this as complicated as you want. Both stock, option and future traders can add all sorts of trades to "hedge" out their risk. And that's perfectly fine if you can defend taking all those trades on their own merit.

But if you are an iron condor trader you just have to admit to yourself that you probably can't trade your way out of a paper bag (that is why one focuses on them) and when shit goes against you, just take it off. If you are claiming you have some special skill to manipulate your trades and hedge the underlying, then you are probably better off just trading the underlying.

The above is spot on and worth many thousands of dollars to those that understand the concept being conveyed.

Joe.

 

[falconview]

Ah ahhhaaaa! So my underlying amateur premise is right. You go bad, close the trade and take the loss?

Congratulations by the way, to those cynical old farts out there that kept a civil tongue in their head, this go around. Excellent debate.

 

[daveyc]

I just wanted to add to the last few posts and just stress a bit more that if you are not comfortable with a current position that is showing a loss to simply close it. Its not necessary to stress yourself out over a losing position. This is not an easy game to play and you should not beat yourself up over taking losses before they get out of hand. There will always be tomorrow (we hope).

My questions were to get a feel for what Howard was looking for in regard to adjustments on Iron Condors or credit spreads. And for others here to add as well if you like. I am not new to option trading but the market has humbled me on more than one occasion.

I always attempt to adjust a position instead of closing it down. Trading in options is definitely an art. A lot of traders get scared out of a trade and don't know what to do and for that reason I would probably get out as well. If this is you, maybe you should consider paper trading for a longer period of time. There are so many possibilities to adjust and I play to win and so should fellow traders.

Yes, sometimes adjusting means adding to margin or taking on another position that correlates with the underlying but this is what trading is all about, right? You have to manage your risk in your positions. You also have to manage size. Most importantly, you should not be trading credit spreads until you have reached your comfort level and are not intimidated by any move. Actually, you should always be anticipating the big moves and just be ready always.

Happy trading,
Dave

 

[arabianights]

Quote from Maverick74:

But if you are an iron condor trader you just have to admit to yourself that you probably can't trade your way out of a paper bag (that is why one focuses on them) and when shit goes against you, just take it off. If you are claiming you have some special skill to manipulate your trades and hedge the underlying, then you are probably better off just trading the underlying. [/B]

Thoughts, Howard?

 

[Rodney King]

Quote from arabianights:

Thoughts, Howard?

He's probably thinking, "why don't these clowns start their own threads and propose their own trades, rather than flaming me?"

 

[arabianights]

Offer 555 in ERM1 and take half a tick.

See, that was easy!

He isn't being flamed anyway. Do you think he'd last 1 minute on the CBOE floor?

 

[falconview]

Well as an amateur trading credit spreads last year, I bombed out twice and lost it all each time. Mind you I was trading weeklies where the action is.

Realistically I got attracted to credit spread trading through all the HYPE about how SAFE it was and how you could earn a steady income with your 3% a month, or per trade trades. Small gains, which you could compound and still stay safe.

The conclusion I came to, was it is a heck of a lot SAFER just buying and selling straight options. You could control your losses and the unlimited potential instead of having a small cap on profit, gave you the opportunity to hit a bonanza once in a while, which would make your whole account zing.
I realized credit spreads are not SAFER. In fact, I came to the conclusion they are less safe. The whole sales pitch is a bunch of hype. Factor in the terrible risk to reward ratio and the inability to really act on cutting losses short, then it seemed to me to be a suckers game. The one thing going for it, was COMPOUNDING. The ability if you didn´t get hit, to make a 100% or better a year.

The thing with compounding is it is sort of like rolling dice on a crap table and letting your winnings ride each time. If you get a long streak of wins, you are going to make a bundle, but if you keep letting your winnings ride as in compounding, you will lose it all. As Harold says, his starting balance is small enough it won´t hurt. That may be, but presuming you compound for 3 years on your run of luck, what you lose may be your beginning few thousand dollars and all the gravy say a $100,000 you lose didn´t cost you anything. But what I resented last year from my experience was my 8 or 10 months accumulating and compounding and when it got lost twice, I realized I had lost a section of my life span, I could have been doing better things. I lost the best part of a year of my life. I might as well have been in jail.

So the lesson is compounding is what hurts the credit spread trader. Unless you take money out, say every 25% or 50% of your trading in credit spreads, you are just not going to get ahead over the long term. Plus the time lost in your life span, where you could be smelling the roses or something.

Just some thoughts. It is nicer to win or lose in a day, or 4 days, or whatever and have the result over and done with and do it again.

 

[Maverick74]

Quote from falconview:

Well as an amateur trading credit spreads last year, I bombed out twice and lost it all each time. Mind you I was trading weeklies where the action is.

Realistically I got attracted to credit spread trading through all the HYPE about how SAFE it was and how you could earn a steady income with your 3% a month, or per trade trades. Small gains, which you could compound and still stay safe.

The conclusion I came to, was it is a heck of a lot SAFER just buying and selling straight options. You could control your losses and the unlimited potential instead of having a small cap on profit, gave you the opportunity to hit a bonanza once in a while, which would make your whole account zing.
I realized credit spreads are not SAFER. In fact, I came to the conclusion they are less safe. The whole sales pitch is a bunch of hype. Factor in the terrible risk to reward ratio and the inability to really act on cutting losses short, then it seemed to me to be a suckers game. The one thing going for it, was COMPOUNDING. The ability if you didn´t get hit, to make a 100% or better a year.

The thing with compounding is it is sort of like rolling dice on a crap table and letting your winnings ride each time. If you get a long streak of wins, you are going to make a bundle, but if you keep letting your winnings ride as in compounding, you will lose it all. As Harold says, his starting balance is small enough it won´t hurt. That may be, but presuming you compound for 3 years on your run of luck, what you lose may be your beginning few thousand dollars and all the gravy say a $100,000 you lose didn´t cost you anything. But what I resented last year from my experience was my 8 or 10 months accumulating and compounding and when it got lost twice, I realized I had lost a section of my life span, I could have been doing better things. I lost the best part of a year of my life. I might as well have been in jail.

So the lesson is compounding is what hurts the credit spread trader. Unless you take money out, say every 25% or 50% of your trading in credit spreads, you are just not going to get ahead over the long term. Plus the time lost in your life span, where you could be smelling the roses or something.

Just some thoughts. It is nicer to win or lose in a day, or 4 days, or whatever and have the result over and done with and do it again.

Congratulations Falconview, you have officially graduated.

 

[Rodney King]

Quote from arabianights:

Do you think he'd last 1 minute on the CBOE floor?

Sure, if CBOE is willing to install a treadmill in the pit for him.