Quote from jwcapital:
Time for a new thread. In my experience, adjustments rarely worked. If i simply exited the losing trade and admitted that my position was wrong, I would have saved a bundle.
Now, I see four ways to "adjust"--trying to fix a bad trade (worst option), getting out of a losing trade, adding more trades (laddering your trades instead of placing all-at-once), or constantly getting out of losing/winning trades and adding more (always in the market). As I have read, these seem to be the popular ways to adjust. I think that laddering and closing/winning trades and placing new ones make sense. I given this a great deal of thought. Suppose I want to place a JUN ES and/or option trade. I feel that the market will pullback/retrace and continue to proceed upward. So, on the first pullback, I place a covered call--with the call five points OTM. Let's suppose a couple of day's later, the market pullback 15 points from where I placed the first covered call. At this point a decision needs to be made, based on current greeks, directionality, etc. Either get out of the CC, add a CC at this level, hold up and place no new trades (fear the market will decline more), or consider a trade to follow the reversal (maybe selling two ES futures for a net short and shorting a put). If I stick to my original thesis, I would simply add another CC. Let the discussion begin.
well,your trade is wrong as of the beggining from my point of view.
if u are looking for a pull up of 15 points,u shouldnt do OTM covered call on the june contract,but the same on september.
why?
first the margin requirement is much smaller,so is the risk.
with the same amount and risk u' ll open 50% more positions.
the second thing is,that the gamma of the september calls is smaller than that of the june ones.u' ll make more money from the movement.
and the last,but not the least is the vega-september calls have bigger premium so if volatility falls,they will lose more value, that the junes.with a 15 points up in ES,the vix will drop between 2and 3 points.why losing money of not making the most?
so from this 15 point move your total gain will be 100% more,then using the june ones,if u use the same amount of investment.
i know that your concern is the time decay......so it is simple-when u already have had the move,then close the september ones and open the junes if that is the final purpose of the trade.
to make money u should squeeze all the juice,whenever u have the opportunity to do so.
one of the mistakes that i was doing was the greed for theta and underestimating the power of vega....why not to use them both by paying much less for cost of trade.
besides-great forum....i feel blessed that by founding it.
please to be excused if i make to much grammatic mistakes-english is not my birth language
