HowardCohodas Index Options Credit Spread Trading Journal

Status
Not open for further replies.
Quote from atticus:

Not much has been stated about how you "mitigate" a loss. You've mentioned rolling a position that has earned 80% of the credit, but no specifics about marked-losses.

Will you add an opposing short vertical to one that is losing? For example, you're losing on a put spread so you add a call spread.

How is adding duration (rolling) helpful in mitigating a loss?

What do you do if the underlying gaps to your short strike or beyond?
More...

howard, atticus is one of the few pros on this forum who knows options in his sleep, most of us never did this for a living. I am curious too about those questions, basically all rolls into how you manage risk when sh*t hits the fan.

And he actually spoke about option in plain english this time, rare! :D
 
Quote from Rodney King:

There's a new book out from Wiley http://www.amazon.com/Option-Spread-Trading-Comprehensive-Strategies/dp/0470618981 -- notably, it includes a long chapter on (iron) condors, which wouldn't have been the case for a book published 10 or 20 years ago. Shows how widely credit-spread selling, in its various forms, has spread in the public consciousness.
More...
Thanks. I had not spotted that one. I probably buy between one and two books a month and get as many from interlibrary loan. I'll read a couple of chapters on line and likely buy it.
 
Quote from newguy05:

howard, atticus is one of the few pros on this forum who knows options in his sleep, most of us never did this for a living. I am curious too about those questions, basically all rolls into how you manage risk when sh*t hits the fan.

And he actually spoke about option in plain english this time, rare! :D
More...
I wouldn't know about his knowledge. His propensity toward bullying and other displays of obnoxiousness obscures the qualities you may have observed.

I expose myself in a journal format for the selfish benefit that it teaches me to think and understand more deeply what I am attempting to do. He provides zero added value in that process for the reasons discussed above. I may be missing an opportunity, but we each have our own learning style, and his teaching style has zero effectiveness with me.
_____________________________________________________

Do you have questions in addition to the risk analysis I published earlier and referenced in this thread? There have been some changes since then, but the basic outline is unchanged.
 
Is this the risk analysis? So lets say you write spread or completes the ic, now the underlying moves against you, you close the combo as a market order when it has a 20% of max loss?

Nevermind the blackswan from may last year, what will happen to your positions if we have another month like say feb 2009? All your combos will be wiped in just 1 of those down days unless i missed something, and usually when they happen the bid/ask spread widens significantly even during market hours which will compound your loss at exit.

And if you try to get back in a week later, it's repeated.

It sure is great when the market is flat or moves in locksteps like currently though...precious premiums!


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...
 
Quote from newguy05:

Is this the risk analysis? So lets say you write spread or completes the ic, now the underlying moves against you, you close the combo as a market order when it has a 20% of max loss?

Nevermind the blackswan from may last year, what will happen to your positions if we have another month like say feb 2009? All your combos will be wiped in just 1 of those down days unless i missed something, and usually when they happen the bid/ask spread widens significantly even during market hours which will compound your loss at exit.

And if you try to get back in a week later, it's repeated.

It sure is great when the market is flat or moves in locksteps like currently though...precious premiums!
More...
Just a part of it. I'll try to locate the comprehensive description.

If you check my chart showing the periods of back test, paper trading and live trading, you will see that Feb 2009 is within the back test period.

Recall, my trading unit is the credit spread not an Iron Condor, assuming that's what you mean by a combo. If one spread of the pair that represents (not makes up) the Iron Condor gets into trouble, the other side is likely near it's maximum profit. Usually, that can be closed and another spread on the same series can be opened to collect another credit using the same quarantined funds. This is rolling in the same series. The captured profit and the additional credit does not replace a stop loss hit, but it certainly mitigates some of the loss associated with those quarantined funds.

One set of trades that I did in a series had 5 separate spreads, one that lost money but still ended up yielding 21.4% on the capital at risk in 62 days.

The probability of the market dropping faster than the spread can survive profitably is far higher than a rising market. I am currently analyzing an insurance method (placed at the time the spread is entered) to soften or eliminate the blow on the down side. It's not quite ready for prime time. This is different than making adjustments to the position when the spread gets into trouble. As you noted, if the spread gets into sufficient trouble I am bailing out, not making adjustments.
 
Status
Not open for further replies.
Back
Top