My Nerves Are Shot
- Thread starter Arnie Guitar
- Start date
Of course he is, but he'll never admit so. He could not have lost only 22% on the spread requirement during his recent DD. There was day after day of 20% hits to those verticals. He even admits to somehow being on call at one point (htf?! no idea).
Conversely, his gains are far too large (based upon his quoted fills/credits) to be diluted by trading a portion of a portfolio in this strategy.
No I am not!!! I was referring to paper trading in my post to make a point. I was trying to escape the constant hectoring from atticus to make a point that is irrelevant to how I calculate my returns. I don't recall saying anything about my returns from live trading of credit spreads in this thread. I'll check and correct this remark if I am wrong.
If anyone cares to understand how I report my results we can dialog via PM. Then, you can judge for yourself whether I have misrepresented anything. Atticus either doesn't understand what I have written or he purposely misrepresents what I have said. In either case, you must judge for yourself with facts not rants.
Let's get back to the subject of this thread.
If you keep some room between your strikes you can leg down your short one to help avoid losses.
Lets say you sell the 1300 and buy the 1250
SNP approaches your 1300 and you shit your pants
Sell the 1290 or 1295 and use your proceeds from that short to help buy the 1300s back.
"Leg down"
I have to travel a lot for work so I NEED to do trades with high probability.
I have done a similar strategy as yours but I do monthly options on more volatile indexes (not etfs).
I look at a variety of parameters which generally include: yield of the spread, % out of money, and probability of closing below (I look at touching also, but focus more on closing; touching is somewhat redundant with the others).
Yield: Don't forget that yield itself tells you something. If you can't handle the greeks, remember yield itself is a signal. If you are selling high yield spreads, it means you are selling high risk spreads. Yield strongly corresponds to risk. On that note, doing 2.5% yield spreads shows that you are being relatively conservative.
% out of the money: Do you think the market might have a bad month? This is one reason why I prefer the monthly instead of the weekly. Its difficult for many to predict how the year will go. Some can do pretty well predicting the month. But the day or week? Not me, not really. I basically look at the economic picture and ask myself if the market has the potential to crash. If so, I take the month off. I happen to be taking the month off this round. Thought about doing a bear call spread, but figured Bernank might fuck me with QE3 or something so instead, I am just sitting it out.
Probability of touching/closing: Very useful. I say I kind of don't rely on touching because its somewhat redundant. If the probability of touching is high, the yield probably is as well and hopefully that already gave you a red flag. Since you are looking for 2.5% yield spreads, your probabilities should be alright.
Just manage your trades and maintain breathing room.
"he purposely misrepresents what I have said"
That is Atticus's M.O. on EliteTrader. M.O. = http://en.wikipedia.org/wiki/Modus_operandi
I think his issue is implying that selling deltas or strikes that are far away from the spot price as an edge in itself based on some proprietary model is disingenuous at the least and outright dangerous. The problem with selling out of the money spreads is that when volatility wakes up from its nap you pay it all back and sometimes more. I think the OP alluded to how difficult it is to do or as options traders say " no free lunches" carry on.
So that you don't get confused by what others imply and what my experience has led me to conclude:
- There is inherant danger in any high probability low return trade. OTM vertical spreads are no exception. If a trader chooses to trade such strategies, he should have lots of tools in his kit.
- I have found attempting to define a trading edge to be elusive. I stay away from such claims. My only claim is describing what I do and my reasons for it.
- PoT is one of many tools one could use is selecting the short strike. It fits my personality so I use it. Is it better than any other? Not my call? A hammer is a great tool but used improperly, the result is crap. I see no difference in my use of PoT.
- Keeping alert for market changes is critical to any trade. The only difference is that the OTM vertical spread r/r ratio makes prompt action critical. It also makes other risk mitigation measures important.
Well, if you understand its limitations, why do you keep throwing these meaningless numbers out there? That's inconsistent...
Instantaneous risk-neutral PoT, as calculated by yourself or TOS or whoever, is a wholly meaningless number for purposes of the sort of trading discussed in this thread (and in most of this forum).
You have considerably more experience than I with options and I do take your cautions seriously. You state your premises with categorical certainty. Your arguments have been unpersuasive to me and to others to that level of certainty. But I have used your cautions to arrange my trading such that I am better protected and I thank you for that.