My OPTION TRADES..... part 2

Quote from Put_Master:

Quote from webicknell:

<<< PM, you keep saying that as a Spread Trader in Indexes I am susceptible to a "total loss" ... I am very much protected from a significant or total loss. >>>

If the stock, ETF or index drops a mere penny below your stock, index or ETF's lower strike, your loss will be 100% of the cash invested in the trade.
If all your funds are in that trade or variety of those type spread trades, and they all drop to, or a penny below the lower strike, your account value will drop to zero. A total wipe out.

Unlike a stock, you can't buy an index, sell covered calls, collect diviidends and wait for a recovery.
You have no plan "B" choices, other than to close for a potential partial loss, BEFORE your strikes are breached.
The deeper the breach, the deeper your loss, when you finally get around to closing it.
Once the price of your stock, index, or ETF is between your strikes, anticipate losses in the area of 40 - 80%
As it gets closer to your lower strike anticipate losses of 80 - 100%.

Your only protection is,... that assuming all your investment funds are in those spreads, once the price drops either ("to or a penny below") your lower strike,... you can NOT lose more than the entire value of your account.
Once your loss is 100%, you are not at risk of losing anymore.



<<< Also, just because I trade indexes, I am "NOT good at selecting specific stocks and prices" ... my goals and motivation drive my strategies. I do not want to own stocks ... What I look for is not whether a stock is going either up or down, but whether a basket of stocks will stay within a specified "wide" range. >>>

If you are good at selecting stocks or ETF or indexes that remain inside your selected trading ranges, you will do very well trading spreads, IC, ect.... If not, you risk being wiped out if a sudden and severe drop occurs.
Or is a slow, but persistent drop occurs, which you allowed to get too deep inside your spreads.
I'll now pause, while our resident "village idiot" posts his pretty pictures again.
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I actually agree with most of this post... This is why I do not put all my eggs in one basket. You are right, my maxium loss is the maintenance amount associated with that trade (spread). Even if I invest 50% of my account, half would be in Puts with the other half in Calls.... and yes, I do have some in stocks with covered calls, not much. I keep a significant free cash balance at all times.

But even on a Naked Put... if there is a sudden an significant drop, you will be assigned the stock which you can now hold and sell covered calls.

Assume you have a $35 stock and you sell a Naked Put contract at $32... The stock drops below your strike and you now own the stock... if the stock continue to drop, you loss continue to grow even has you bring in some Call premiums to offset that.

Everything being equal, if I place a spread at the same strike where you would sell a naked Put and I want the same amount of premium, my risk would be much greater.

What I do to lessen that risk, is enter a Put spread far OTM and also look at an OTM Call spread.... If I get hurt, it will be on one side and the other is safe.

Also, with the broad indexes I use, it almost takes a global event to reach my strikes in a "spike" .... Over a 30 day holding period, yes, there is the possibility to reach my strike... Which is why I have targets where I do get out of the trade well before it hits the strike price...
If I make 3% a month and lose one 8% trade a year (or even 2) I am still doing well. I am batting 1000 so far this year...
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<<< I thought you two were making an effort to be civil toward one another. Sorry to see it didn't work out. >>>

I was refering to diaoptions.
If Dan's only contributions to this thread is going to be posting pretty pictures as well, then he will become a citizen of the village as well.
 
For every index there is a corresponding ETF that exactly tracks the index:

http://finance.yahoo.com/q/bc?t=5y&s=SPY&l=on&z=l&q=l&c=&ql=1&c=^GSPC

So if you believe it would be a good idea to buy that index and sell covered calls against it in order to 'recover' you could certainly do so. AND unlike being put you would be getting the ETF at the current price not the put price.

Isn't this just like an 'adjustment' ???

Actually if you want to plan that strategy for 'recovery' you could write the puts on the ETF in the first place... but then you would be force fed the ETF instead of having the choice to buy, wait or walk away.

I don't think most people would think this is a good idea... either for index's or for individual stocks. In both cases how do you know when you are at bottom? How do you know... be it stock or index... that there isn't a lot more down to go???

You might just be better off taking the loss and using your money on a more promising investment.
 
Put_Master ....... You lack integrity.


in·teg·ri·ty
"Adherence to moral and ethical principles; soundness of moral character; honesty."
 
If I seem to be harassing PM it may be a valid criticism. But you may remember that PM choose to harass me in my thread and I said at that time "two can play that game".

It's never a good plan to start doing that.

I said at that time the main sufferers are those trying to get something out of the thread.
 
Quote from danshirley:

If I seem to be harassing PM it may be a valid criticism. But you may remember that PM choose to harass me in my thread and I said at that time "two can play that game".

It's never a good plan to start doing that.

I said at that time the main sufferers are those trying to get something out of the thread.
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pm has posted 14+ real world winning trades, thats the bottom line here, not theory trades or maybe trades.....you think he might know what he is talking about?....
 
Quote from traderlux:

pm has posted 14+ real world winning trades, thats the bottom line here, not theory trades or maybe trades.....you think he might know what he is talking about?....
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Which of the "14 trades" has been closed? I don't think any of them, you are counting the chickens before they hatch.

And can you find any losing trades on danshirley's thread? http://www.elitetrader.com/vb/showthread.php?s=&threadid=225849 He also has a longer track record than put_master.

:)
 
Quote from diaoptions:

Put_Master ....... You lack integrity.


in·teg·ri·ty
"Adherence to moral and ethical principles; soundness of moral character; honesty."
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Pot. Kettle. Black.

You tool.
 
Quote from Put_Master:


I was refering to diaoptions.
If Dan's only contributions to this thread is going to be posting pretty pictures as well, then he will become a citizen of the village as well.
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When it comes to being the village idiot, diaoptions is in a league of his own. Dan, on his worst day, couldn't hold a candle to that tool.
 
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