My option trades
- Thread starter ryanpatrick
- Start date
I entered a mechanical system (system from 2007) trade today:
SPY May 135 puts
Buy No. 1: 1.78 (filled)
Sell Limit: 2.25 but if tanks before sell limit then
Buy No. 2: 1.40 if fills, sell all at 1.95
Stop..........1.30
Reward to Risk: 1.24 to 1
Reward: .17 + .55 = + .72
Risk: -.48 + -10 = - .58
I also figured out that if I start switching to 2nd month options
2 weeks before expiration (instead of my current method of 1 week
before expiration), the last losing call trade in my new system would not have stopped out and would actually have won today.
Therefore I am making that change and also will continue to enter cash trades in both the new system and the old system from 2007.
This will create a lot of trades, almost too many, but oh well.
SPY May 135 puts
Buy No. 1: 1.78 (filled)
Sell Limit: 2.25 but if tanks before sell limit then
Buy No. 2: 1.40 if fills, sell all at 1.95
Stop..........1.30
Reward to Risk: 1.24 to 1
Reward: .17 + .55 = + .72
Risk: -.48 + -10 = - .58
I also figured out that if I start switching to 2nd month options
2 weeks before expiration (instead of my current method of 1 week
before expiration), the last losing call trade in my new system would not have stopped out and would actually have won today.
Therefore I am making that change and also will continue to enter cash trades in both the new system and the old system from 2007.
This will create a lot of trades, almost too many, but oh well.
Good point, I fluffed the 630 and 650 Apr 13 strikes ($12 instead of $10) but didn't do the same with the 640 apr 13's. Using ~$3 it would reduce the profit at 640 from $8000 to $5600 ($3x8)
This is a pin risk issue, yeah?
Somewhat like barrier hedging issues, high gamma.
(Throw a bone to a delta 1 guy, eh.)
Few will trade it cash-secured, so imagine 100s of traders short the ATM strike into expiration as part of flies, verts, etc. Scott has an 8x10 and I'd imagine he doesn't want the risk of 800D on Monday morning. It's a practical issue that results in silly ATM vol figures (even nuttier skews).
IOW, vol often goes out above 100% on these neutral straddles. Of course, it's best-case to be pinned, but you need to be more conservative on your PNL forecast.
Haven't ever look at it, but you think enough liquidity is from retail that this happens? (vs from large funds or banks where they have access to massive overnight funding options)
Diminishing returns. I don't see it as a financing issue per se. Why take the risk on 100D on a coin-flip? Certainly in the age of massive global books it's less of an issue. The risk is worth some premium. Let's see when the neutral combo goes out this week. My guess is that it will go out around 1.80 to 2.00 on the neutral combo or 0.45 on the 5-wide strangle.