Quote from SmithTheTrader:
I normally don't do adjustment but just let my IC either hit my profit target or stop loss.
... but you have to give back some money after you profits for several months since last year, rght ?
Quote from dagnyt:
Not adjusting is one way to trade, as long as it fits your comfort zone.
But if commissions are ever a factor, you are using the wrong broker. Today, commissions should be insignificant.
Yes, IC cannot win every month. But the key to success is giving back less than you earn. If your stop loss works that way, then it should be ok over time.
Mark
Quote from Whisky:
I don't know what broker you use, or if you are member of an exchange or Prop Group with special deals, but it seems to me that commissions and bid-ask spreads (execution costs) are a huge % of the bottom line for retail traders, especially for ICs that are adjusted frequently.
I cannot argue that slippage is a very significant cost. But, I'd rather reduce risk and pay slippage than not adjust. Obviously an individual decision and no 'rule' is suitable for everyone.
I use IB and pay 70 cents per contract (plus exchange fees on indexes. I do not believe they charge fees for individual stocks). if you trade enough volume, you can do better.
At this point, I can only see possible "edge" in (with possible being the key operating word here):
1-Proper adjusting with some type of timing method for either price or Implied Volatility or both.
2-Lowering execution costs to the bare minimum. (Exchange member commissions and fees via a proprietary trading group that owns seats in several exchanges or something).
3-Instrument selection for the execution of "what I need to do right now", as prices for very similar instruments always seem to have some skew in one direction or another: For example OEX puts could be slightly skewed in the bid-ask spread Vs SPX puts, or SPY puts, etc.
I.e.: One instrument will have the best bid, and another instrument will have the best ask, at the moment I must do something like adjusting or whatever.
Commissions and bid-ask spreads for options have always deterred me as they always looked "too high" as a % of the transaction.
JW
1. Adjusting reduces risk and may add edge. For me, the crucial element is risk reduction.
2. Yes costs count, but as to execution, you have to find the broker who does best job. Not an easy task.
3. i prefer to adjust in same underlying. That gives 100% correlation, and for me, minimum margin. Other margin formats available - 'span'
4. If you are deterred from making a trade by costs, then I assume you manage rink with some intelligent alternative - such as reduced size.
There's more than one way to manage the portfolio. If it suits you to manage with minimum trades and minimum adjusting, I'm sure that it works for you and your comfort zone.
Quote from dagnyt:
4. If you are deterred from making a trade by costs, then I assume you manage rink with some intelligent alternative - such as reduced size.
Mark
Quote from Whisky:
In a way you are right. My size in options is currently zero, as I have not been able to convince myself that I have an edge. Working on it. Thanks for input.
JW
Quote from MechTrade:
IMO
I'd rather construct option positions that can produce a decent profit while being resilient enough to withstand reasonable adverse underlying price moves against my positions, thus giving me the opportunity to adjust or exit my position with minimal loss.
Mech
Quote from MechTrade:
IMO... As a trading vehicle, Options are the only "edge" I need.
I no longer trade underlying issues directly because of the linear relationship of my P/L to the underlying price movement.
I'd rather construct option positions that can produce a decent profit while being resilient enough to withstand reasonable adverse underlying price moves against my positions, thus giving me the opportunity to adjust or exit my position with minimal loss.
But in all cases there is a Risk. So, if the "Edge" you refer to is to eliminate risk then you will never want to pull the trigger and put on a position.
Mech
Quote from SmithTheTrader:
Correct me if I am wrong, when you setup a position that been "resilient" to the loss, this normally also translate into the meaning that postion also has "resilient" to the profit .. We always have a double edge sword .
Quote from JohnGreen:
A comment on resilience to loss vs. profit-- they are not opposites. An IC position can have a high probability of profit, and if it does, it will also have a low probability of loss, which is directly related to that same probability (but these do not quite add up to 100% due to slippage and commissions). The dangerous thing is that an IC has a small chance at a catastrophic loss which must be avoided in order to successfully trade them.
What I try to do is adjust to keep the delta relatively balanced and I have also been using insurance spreads to help balance the position as well as give a modest chance at a windfall profit. This means that I can have a position with a high probability of a modest profit, a small chance at a very strong profit, and a low chance of a disaster, which can be adjusted away from under most conditions.
If things are looking really scary, I don't pretend that a profit can be made in every situation. I will limit my losses to something in the order of 2-3X my original credits. More than that will wreck the profitability for many months and create psychological pressure to take foolish risks in order to "make up the losses".
As I monitor the position, I take the opportunity to spend some of my credits to buy cheap insurance spreads whenever it makes sense to do so. Sometimes, I will use a little reversion to the mean thinking and buy some options against the trend if the options seem really cheap. It's often surprising what a 25 cent spread can do for you if the market suddenly reverses!!