Option Strategy Adjustments

Quote from tancy2411:

Hi Mark,

About 30% is just the right time to adjust the trade. You do not want to adjust the trade too early and you do not want to adjust the trade too late.

Maybe I should take the word only away as it based on my experience. I find that if you adjust greater than 40% loss. the reward may not worth the adjustment.

Chee Yong
More...

My 30+ years of experience tells me that there is no 'best' time to adjust. And it's always true that when the reward does not justify the risk that it's a bad position. And that ture with positions that are already profitable, as well as those that are losing money.

Each position has it's own risk/reward characteristics that depend on market volatility, time to expiration, your willingness to pull the trigger, the availability of other positions that are more attractive (increasing desirability of closing the current, losing trade), whether the stock has news pending, etc.

The fact that you stand guard over each position and try to convert it into a winner tells me that you are not flexible and that you take it as a personal insult if a trade loses money. Please try to get over that.

Your goal is to make money. Period. There is no specific trade, or underlying, that owes you a profit. When 'better' trades are available, it's a good idea to move into that trade - regardless of whether the one you close is profitable.

Just my point of view. You should trade according to yours.

Mark
 
<<< About 30% is just the right time to adjust the trade. You do not want to adjust the trade too early and you do not want to adjust the trade too late. >>>


If you are saying you don't want to lose more than 30% of a trade that is going bad, I think that is a reasonable statement,.... compared to simply "hoping" things turn around.
Afterall, HOPE is not a strategy.
So in that sense I agree with you.
Where i disagree with you, is that you should have some specific technical or other criteria to go along with that 30% loss cut off.
But saying you don't want to lose more than 30% of a trade that's going bad, is actually not an unreasonable statement.
I actually respect your disciplined approach to management of a trade that's going bad.
However, it's actually never too late to close or adjust a trade going bad. Better to save even 10% than lose it all.

Put Master
 
Hi Mark,

Quote from dagnyt:

My 30+ years of experience tells me that there is no 'best' time to adjust. And it's always true that when the reward does not justify the risk that it's a bad position. And that ture with positions that are already profitable, as well as those that are losing money.
More...
I have only three years of experience as compared to your 30+ years. I am just giving my thought to the topic on adjustment and at the same time learned from experienced people like you on this topic.

Adjusting a losing trade always has an ego issue as the person may not want to admit that he is wrong.

I agree that there is no "best" time to adjust but one can based on experiences on similar situations encountered. For example, the trade gets into the situation when you dont know whether it is right or wrong but is losing money. Therefore an adjustment is made to reduce the risk instead of just exiting the trade. Maybe on this matter, I need more results to confirm my view.

Quote from dagnyt:

Each position has it's own risk/reward characteristics that depend on market volatility, time to expiration, your willingness to pull the trigger, the availability of other positions that are more attractive (increasing desirability of closing the current, losing trade), whether the stock has news pending, etc.

The fact that you stand guard over each position and try to convert it into a winner tells me that you are not flexible and that you take it as a personal insult if a trade loses money. Please try to get over that.
More...
Managing risk is my first priority once I am in a trade. You are mistaken that I will take it as a personal insult when there is a losing trade. I am a very statistical person and I know that if i have a positive expectancy trading system, I have the confidence to let losing trade go and look for other opportunities.

Quote from dagnyt:

Your goal is to make money. Period. There is no specific trade, or underlying, that owes you a profit. When 'better' trades are available, it's a good idea to move into that trade - regardless of whether the one you close is profitable.
More...
Yes, the goal in trading is to make money. This is what I dont denied. I may not find a "better" trade but is willing to take what the market can give and it is within my trading criteria.

Quote from dagnyt:

Just my point of view. You should trade according to yours.

Mark
More...

There are a lot of positive expectancy systems to make money. Currently, I am also learning other systems and improving my knowledge on the greeks and its behaviour. My trading style may change but I will trade and do reviews along my journey.

Chee Yong
 
Quote from Put_Master:

<<< About 30% is just the right time to adjust the trade. You do not want to adjust the trade too early and you do not want to adjust the trade too late. >>>


If you are saying you don't want to lose more than 30% of a trade that is going bad, I think that is a reasonable statement,.... compared to simply "hoping" things turn around.
Afterall, HOPE is not a strategy.
So in that sense I agree with you.
Where i disagree with you, is that you should have some specific technical or other criteria to go along with that 30% loss cut off.
But saying you don't want to lose more than 30% of a trade that's going bad, is actually not an unreasonable statement.
I actually respect your disciplined approach to management of a trade that's going bad.
However, it's actually never too late to close or adjust a trade going bad. Better to save even 10% than lose it all.

Put Master
More...

Hi Put Master,

Just to clarify. The trade may be losing 30% but the trade maximum risk may only be 2.5% or 5% of your trading capital. At the same time, it also depend on your defined stop loss. Some trade will be closed when it hit 50% stop loss and some 100% stop loss. You cant adjust a trade that hit your stop loss. The only adjustment that my stop loss is hit is to close the trade.

Sorry, I have to disagree on it's actually never too late to close or adjust a trade going bad. Most bad trades can never be adjusted and it is better off closing it.

Chee Yong
 
<<< Some trade will be closed when it hit 50% stop loss and some 100% stop loss. You cant adjust a trade that hit your stop loss. The only adjustment that my stop loss is hit is to close the trade. >>>

Isn't the question about what to do BEFORE that max loss is hit?
However, just for a bit of context, of I initiate a $22.50/$20 put spread, and the stock drops to 19.95 or less, you can say its now too late to adjust. And personally, I would probably close it myself as well.
However, you actually have a choice. You can either wait it out and hope for at least a partial recovery, or you can close it down.
It really depends on how much time premium remains.
Just because its at max loss potential, doesn't mean all the money is lost.
My trades range from 2 - 5 months, so there is usually some time premium that I can still recover.



<<< Sorry, I have to disagree on it's actually never too late to close or adjust a trade going bad. Most bad trades can never be adjusted and it is better off closing it. >>>

I actually prefer to close a trade going bad vs adjust it.
However, a lot depends on what strategy you are using.
My prefered strategy is put spreads.
I'd rather move my remaining cash to another stock, than remain in the same deteriorating one.
However, it really depends on what industry I'm in, how volatile it is, where I see downside tech support, how concentrated I am in the position, is the drop stock specific or related to a weak market, ect.....

I've had stocks drop to max loss and then had them recover. Some partially and some completely... and some not at all.
Those that I gave a chance to recover where conservative type stocks. Companies like PEP, PG, JNJ, ect....
I would not have given stocks in more volatile industries a chance to drop as much.

Put Master
 
Quote from Put_Master:

<<< Some trade will be closed when it hit 50% stop loss and some 100% stop loss. You cant adjust a trade that hit your stop loss. The only adjustment that my stop loss is hit is to close the trade. >>>

Isn't the question about what to do BEFORE that max loss is hit?
However, just for a bit of context, of I initiate a $22.50/$20 put spread, and the stock drops to 19.95 or less, you can say its now too late to adjust. And personally, I would probably close it myself as well.
However, you actually have a choice. You can either wait it out and hope for at least a partial recovery, or you can close it down.
It really depends on how much time premium remains.
Just because its at max loss potential, doesn't mean all the money is lost.
My trades range from 2 - 5 months, so there is usually some time premium that I can still recover.



<<< Sorry, I have to disagree on it's actually never too late to close or adjust a trade going bad. Most bad trades can never be adjusted and it is better off closing it. >>>

I actually prefer to close a trade going bad vs adjust it.
However, a lot depends on what strategy you are using.
My prefered strategy is put spreads.
I'd rather move my remaining cash to another stock, than remain in the same deteriorating one.
However, it really depends on what industry I'm in, how volatile it is, where I see downside tech support, how concentrated I am in the position, is the drop stock specific or related to a weak market, ect.....

I've had stocks drop to max loss and then had them recover. Some partially and some completely... and some not at all.
Those that I gave a chance to recover where conservative type stocks. Companies like PEP, PG, JNJ, ect....
I would not have given stocks in more volatile industries a chance to drop as much.

Put Master
More...

Hi Put Master,

Just to clarify, when i say stop loss, it is the real time stop loss, not the potential maximum risk.

From the examples that you give, I can only gather that you are using "hope" as an adjustment strategy and you will stay in the trade because you have faith in the stock. But that is not my style.

I dont think you can give chance for stock to recover or is able to prevent a stock in volatile industries a chance to drop unless you are able to manipulate the market. I look at what the market is doing and then decide how I want to trade.

Chee Yong
 
<<< From the examples that you give, I can only gather that you are using "hope" as an adjustment strategy and you will stay in the trade because you have faith in the stock. But that is not my style. >>>

Nor mine.
My point was that not all industries and not all stocks are equal.
Hence, I don't apply the same risk management discipline, to a stock in the more predictable consumer stable sector, as I would to a stock in the banking or housing sector.
Nor would I risk similar amounts of cash in two dis-similar sectors.

Having "flexible" investment criteria, R/R criteria, risk management discipline , ect... for stocks in volatile sectors vs stocks with more consistent and predictable earnings, trading ranges, ect.... is not a strategy of hope.
It's a strategy of diversity, analysis, and common sense.

I disagree with the idea of managing all stocks in all sectors exactly the same.
That makes no more sense than saying all your stocks will initially be exactly the same % OTM.
You have to allow some flexibility for each stock, strategy, industry, amount of cash at risk, amount of credit earned, ect...
It's one thing to say I will allow no more than a 30% loss. It's another to say you will allow each to hit the same % drop or loss of dollar value.
It isn't that I have faith (hope) in a stock.
It's that I expect different stocks in different sectors to trade differently.

Put Master
 
Quote from Put_Master:

<<< From the examples that you give, I can only gather that you are using "hope" as an adjustment strategy and you will stay in the trade because you have faith in the stock. But that is not my style. >>>

Nor mine.
My point was that not all industries and not all stocks are equal.
Hence, I don't apply the same risk management discipline, to a stock in the more predictable consumer stable sector, as I would to a stock in the banking or housing sector.
Nor would I risk similar amounts of cash in two dis-similar sectors.

Having "flexible" investment criteria, R/R criteria, risk management discipline , ect... for stocks in volatile sectors vs stocks with more consistent and predictable earnings, trading ranges, ect.... is not a strategy of hope.
It's a strategy of diversity, analysis, and common sense.

I disagree with the idea of managing all stocks in all sectors exactly the same.
That makes no more sense than saying all your stocks will initially be exactly the same % OTM.
You have to allow some flexibility for each stock, strategy, industry, amount of cash at risk, amount of credit earned, ect...
It's one thing to say I will allow no more than a 30% loss. It's another to say you will allow each to hit the same % drop or loss of dollar value.
It isn't that I have faith (hope) in a stock.
It's that I expect different stocks in different sectors to trade differently.

Put Master
More...

Hi Put Master,

Eh.... So what is your guidelines to adjust options trades?

Chee Yong
 
<<< Eh.... So what is your guidelines to adjust options trades? >>>

Depends on the strategy being implimented, the sector its in, how much cash is at risk, length of contract, ect....
Depending on what strategy you are using, the stock selected, the sector its in, ect,... I might not recommend an adjustment. I might recommend simply closing it down and reinvesting in a different sector, stock or strategy.
The question is not what's right for me. The issue is what's right for you.
I can't tell you when its time to adjust or close a trade down.
Or when to roll, or how far down and/or out.

If you share a specific stock and strategy for folks to follow, discuss and analyze, you will receive a variety of responses.
These is really no "generic" response for all stocks or strategies.
There are investors here with a lot more experience than me. But that doesn't mean we can't all discuss, analyze, debate and learn together.

I share my trades in real time on another board.
I do that so others can follow them, discuss them, debate ,ect....
It's a great way to learn.... especially when things go bad.
Unfortunately that sort of things tends to attract a few crazies as well.
But you ignore the crazies and learn from those more knowlegable and/or with different opinions and perspectives.

Time for sleep.
Read you tomorrow.

Put Master
 
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