My OPTION TRADES..... part 2

Quote from sellindexvol66:

i could not agree more re options strats doing atm...u have to ask yourself...why do so many guys blow out with otm credit spreads? (ie: see spx spreadtrader journal)
A credit spread deep otm is far more risky cause of the size inevitably put on to get a decent credit....most accounts could never absorb assignment or a breach of the strikes..i can't tell you the guys i have seen blow out in that strat.
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I could not agree with you more.
As I've been warning for many weeks, the excessive amount of leverage most spread traders are using, (and are not even aware they are using), is what destroys them.
When your only choice in the event of a breach, is to close for a loss, because you can NOT absorb the assignment,.... the end result is devastation of ones account.
 
Quote from Put_Master:

I could not agree with you more.
As I've been warning for many weeks, the excessive amount of leverage most spread traders are using, (and are not even aware they are using), is what destroys them.
When your only choice in the event of a breach, is to close for a loss, because you can NOT absorb the assignment,.... the end result is devastation of ones account.
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Folks here appear to be very negative on OTM Credit Spreads... I agree they are risky as are all option strategies... Why are they more risky?
I use credit spreads on a regular basis... have a strict criteria for selecting the Spreads I enter, monitor closely, and have an adjustment strategy to execute before we get too close to the Strikes and maintain a good cash reserve to take of issues that do come up.
 
Quote from webicknell:

Folks here appear to be very negative on OTM Credit Spreads... I agree they are risky as are all option strategies... Why are they more risky?
I use credit spreads on a regular basis... have a strict criteria for selecting the Spreads I enter, monitor closely, and have an adjustment strategy to execute before we get too close to the Strikes and maintain a good cash reserve to take of issues that do come up.
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Obviously all option investments are risky, as are any kind of investment.
Why are credit spreads more risky you ask?
If you wouldn't mind sharing an example of a hypothetical stock credit spread you might consider an investment in, I will show you why.
Lets assume you have $25,000 to invest in the spread or spreads.
Pick a stock(s), select the strike gap you like, and lets play with it.
 
no offense but do you know how many times i have heard what you just said? countless x's.

just ask yourself can you adjust through a decisive breach of your short strikes? adjustments in my book are just trades that did not work out. from what i have seen most credit spreaders overleverage to get what they feel is a meaningful "credit" but do not fully understand a silly -20% move is pure account wipe out.

there are so many better option trades to do than credit, such as flies, backspreads, atm, itm, etc..

but anyway good luck once in a while i like to mention to you guys deep otm credit spreads may be the single most risky trades out there.
 
Quote from Put_Master:

Obviously all option investments are risky, as are any kind of investment.
Why are credit spreads more risky you ask?
If you wouldn't mind sharing an example of a hypothetical stock credit spread you might consider an investment in, I will show you why.
Lets assume you have $25,000 to invest in the spread or spreads.
Pick a stock(s), select the strike gap you like, and lets play with it.
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I will do this....

Today I place a spread on NDX 2950/2975.... Had $60 premium and $2400 maintenance on each contract. 2.5% for less than the month.

The short strike had a delta of below 5 ... if delta goes above 16, I look at adjustment alternatives.

Watch the progress regularly as well as general market directions. I stay with broad indexes so any one market announcement should not be significant. An I do know Apple is a significant part of the NDX.

And by the way... I do not claim to be any knid of options expert... I am still learning... Want to learn before I hit an event that does significant damage to my account.
 
Quote from Appleseed:

THATS NOT WHAT I SAID,
I've been trading options since 1988
My first trade was apple computer with a 12k win.
I have the statement
cheers
john
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So are you associated with the website or not? I'll do the maths again, but 2012 - 1988 does not equal 35.
 
Quote from taowave:

Atticus,would you offer a bit more on why you favor ATM options.
I get the 30 day and fully understand the gear up in OTM concerns,but why not trade ITM?

Shouldnt it be based on the distribution of returns(and holding period) for your given strategy?

Thanks,

T

P.S. After re-reading your post,it appears you are talking about selling options.I am with you...Any thoughts on buying options?
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All I mean to state is that you abrogate hedging when you're risking some multiple of the credit received on short teenies strategies. You have no room to maneuver when selling speed (dgamma). I won't trade R/R for moneyness. IOW, you should be long convexity on payout. This requires you to avoid -dgamma exposure (i.e., $4 fly that pays $20 max; 5 to 1 in favor).

An ATM fly (spot at 100; 100/110/120 long fly) is the ideal gamma and payout if you're edge is on Px (assuming initial neutral delta via spot hedge).

Long options will always have the peak gamma ATM, although a -slope to speed. The magnitude is more important than sign, so it's best IMO to be long ATM when trading singles. Just my opinion.
 
<<< Today I place a spread on NDX 2950/2975.... Had $60 premium and $2400 maintenance on each contract. 2.5% for less than the month. >>>

Is this a put or a call?
is this a credit or a debit?
Are you bullish or bearish?


How about just picking a stock you might consider a put credit spread on? It's purely theoretical. Pick a stock and the strikes you like.
Just something to play with, assuming you have $25,000 to invest in it.

<<< The short strike had a delta of below 5 ... if delta goes above 16, I look at adjustment alternatives. >>>

Adjustment alternatives????
 
Quote from Put_Master:

<<< Today I place a spread on NDX 2950/2975.... Had $60 premium and $2400 maintenance on each contract. 2.5% for less than the month. >>>


How about just picking a stock you might consider a put credit spread on? It's purely theoretical. Pick a stock and the strikes you like.
Just something to play with, assuming you have $25,000 to invest in it.

<<< The short strike had a delta of below 5 ... if delta goes above 16, I look at adjustment alternatives. >>>

Adjustment alternatives????
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Is this a put or a call? Call... NDX is at 2786
is this a credit or a debit? A credit (do not play with Debit spreads)
Are you bullish or bearish? I am Neutral... I expect strong resistance at the 2800/2825 range. My spread assume the indexes stey with a range... and I make it a wide range.

You say, "pick a stock"... I specifcally stay away from stocks are they are subject to earnings releases and other news items, rumors and the like.
 
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