newbie's trade plan! your views pls

N

newboyo

Hi there,

Am a newbie - trading credit spreads.

My trade plan revolves around selling ICs on NDX, with the short strikes outside the 2 std dev points. Approx return on margin is 4%. I plan on placing stop losses at the level where spread price = credit received + 10% of margin.

Based upon the above parameters and assuming bad trades in 2 months (added margin of safety), my trade expectancy is 4% X 10 - 10% X 2 = +20% return on margin, excluding commish, time value of money etc.

Seeking your opinion/feedback on this trade plan - its viability, holes in it, suggestions on how to improve it.

Rgds,

Newboyo
 
have you tested out your theory on past 5yrs' data? (that's only 60 trials. You can accomplished that on a Saturday.)
 
All I have been able to do is to look at the NDX chart with 2 sd bollinger bands. That seems to bear out the theory.

Any other suggestions would be most welcome.

Rgds,

Newboyo
 
I thought I should start off a directionally neutral strategy with high probability ICs - but I stand suitably chastened.

Could you please guide me, in how to choose directionally neutral trade plan.

Much appreciate your advise.

Rgds,

Newboyo
 
Hello Ryank, Rcanfiel, Rallymode,

Thank you - especially Rally mode- for pointing out the dangers of ICs to me. Reading Rallymode's posts on the SPX IC thread was very instructive.

Could you please help by telling me what could I do to learn selling spreads properly.

I have just started reading Cottle's Options Trading , The Hidden Reality.

Rgds,

Newboyo
 
Start reading all posts by the following members, search their names:

riskarb
optioncoach
atticus

It will be literally thousands of posts, but for options, those are the best ones to read.
 
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