Option Strategy Adjustments

Put_Master · May 13, 2009

I've created a put spread on MDT for August.
Used 20 contracts.

Bought the $25 puts.
Sold the $27.50 puts.
Credit of $0.40.

Maximum cash at risk $4,200.
Maximum income potejtial...... $800.

I currently have about 40 put spreads that I'm monitoring and prepared to adjust as needed.
My intention is to open them up for discussion for potential adjustments, as time goes by.
I expect most to be profitable, but I'm sure there will be some along the way that will either require closure or adjustments, as those trades go bad.
My goal is to manage my risk and limit potential losses to as reasonable an amount as I can.
I'd appreciate any and all contructive assistance and opinions as others deem appropriate.

Put Master

atticus · May 13, 2009

Quote from Put_Master:

I've created a put spread on MDT for August.
Used 20 contracts.

Bought the $25 puts.
Sold the $27.50 puts.
Credit of $0.40.

Maximum cash at risk $4,200.
Maximum income potejtial...... $800.

I currently have about 40 put spreads that I'm monitoring and prepared to adjust as needed.
My intention is to open them up for discussion for potential adjustments, as time goes by.
I expect most to be profitable, but I'm sure there will be some along the way that will either require closure or adjustments, as those trades go bad.
My goal is to manage my risk and limit potential losses to as reasonable an amount as I can.
I'd appreciate any and all contructive assistance and opinions as others deem appropriate.

Put Master

Put Master, awesome risk-reward! Would you mind elaborating on your greek risks here? Perhaps even give us your net vomma risk?

Put_Master · May 13, 2009

Atticus is a troll that has ruined the previous option board I was posting my trades on.
His main interest is insulting and ridiculing others trades, for no apparent reason, without offering any contructive dialog to the conversation.
Below is his very 1st post on the board recently initiated for sharing and discussing option trades and strategies:

<<< "Please don't litter the option boards with your nonsense. Don't embarrass yourself any further by posting these moronic 10:1 risk positions. You're not trading. You're a suboptimal IQ attempting to prove to yourself you shouldn't eat a bullet." >>>

He and other trolls have succeeded in destroying that place as a forum for civil discussion and sharing of trades.
I bantered with them for a while. Sometimes seriously and sometimes just to give them a taste of their own Bul* S*it.

He has now followed me here. The other trolls will be joining him soon.
I suggest readers and posters ignore them, as I plan to.
I'm done bantering with them.
Perhaps they resent my name of put master.
Hard to believe they are that insecure.

My interest is the discussion of options and learning to become a better, safer and more profitable trader.
I'll banter with the trolls on the other board, if they promise not to destroy this place, as they have the other.
"Deal"?

Put Master

atticus · May 13, 2009

Deal!

dagnyt · May 13, 2009

Quote from atticus:

...awesome risk-reward! Would you mind elaborating on your greek risks here? Perhaps even give us your net vomma risk?

let's see... vomma - is that the likelihood of regurgitating when looking at the risk/reward profile of a spread?

Or perhaps it's the 2nd derivative of vega?

I prefer the first definition.

Mark

atticus · May 13, 2009

Quote from dagnyt:

let's see... vomma - is that the likelihood of regurgitating when looking at the risk/reward profile of a spread?

Or perhaps it's the 2nd derivative of vega?

I prefer the first definition.

Mark

lol Mark.... don't hate the player, hate the game.

dhpar · May 13, 2009

adjustments in option trading follow the same rules as trading in the underlying, i.e. problem of scaling in/out.

if you like to scale out of profitable positions you will like to make adjustments to your option strategy, e.g. converting long call into a costless straddle/strangle after a stock run up. if you don't like scaling out you should just take profit on your long call.

if you like to scale in you may like to double up on loss or try to repair you option strategy, e.g. converting you long call into 1:3 call ratio spread after stock goes down.
like with scaling in with plain stocks this is a dangerous game because you increase your risk after a bad trade, i.e. martingale trading system. this should be done only when you are confident about what you do - not out of frustration or because you chase the spent debit on the long call.

i think a good basic rule for a novice trader is to do adjustments for profitable trades but not to do adjustments for losers. the objective of a trader is to make money - not to recoup premium for every trade...

Put_Master · May 13, 2009

<<< i think a good basic rule for a novice trader is to do adjustments for profitable trades but not to do adjustments for losers. the objective of a trader is to make money - not to recoup premium for every trade... >>>

So with a put spread, my prefered strategy, you do not recommend a roll down/out on a trade going bad.
You recommend closing it early and moving on.
My current risk management plan on my $27.50/$25 Aug MDT trade, is to close it down if it trades between $28 - $29.

With the exception of a week or two, the 6 month chart shows some reasonable downside tech support in that area. Hence the reason I selected $27.5 as my upper strike.
Depending on when that closure occured on this 3 month trade, I estimate a loss of $300 - $500.... taking into account my $0.40 credit.
Any thoughts as how you might manage its risk differently?

Put Master

gody3 · May 13, 2009

Quote from Put_Master:

Atticus is a troll that has ruined the previous option board I was posting my trades on. His main interest is insulting and ridiculing others trades, for no apparent reason, without offering any contructive dialog to the conversation.

Au contraire Putzy. Atticus was mocking your moronic statements about options not your trades. No one here cares about the trades you put on for pennies that lose dollars on.

He and other trolls have succeeded in destroying that place as a forum for civil discussion and sharing of trades. He has now followed me here. The other trolls will be joining him soon. I suggest readers and posters ignore them, as I plan to. I'll banter with the trolls on the other board, if they promise not to destroy this place, as they have the other.

Putzy thinks that this public BB is his domain where he makes the rules and controls the discussion. All I can say is HAHAHAHAHAHAHA!! Such a silly boy who makes me laugh!

dhpar · May 13, 2009

Quote from Put_Master:

Any thoughts as how you might manage its risk differently?

Put Master

i do not comment of individual trades of ET members. this one in particular does not look very smart to start with. you are selling cheap insurance after volatility went down and market shot up. your greeks look horrible and if the trade goes south it goes south big time, e.g. you are short vega , gamma, theta would be only small positive as of now but you collected only few cents + you need to beat the smile on top of that.

with what beliefs did you entered the trade? that the stock does not go below technical support? then stick with short put at 27.50... you can close the trade by buying lower strike puts later if the trade goes against you. or even go for short strangle if you think the MDT is not going e.g. above 37.50. this gives you enough cash to manage the trade.

don't get fooled that your downside is limited - that automatically does not mean that you did a good risk management work.
it is better to have 1% probability of a large drawdown to which you can react than ~20% probability of pre-defined sizeable drawdown to which you can react much harder.

i will not comment on any trade any further...