Risk Management when Trading Options through Technical Analysis and Money Management Thread

[Abundance Magnet]

If by proper categorization as an essentiality to risk management you are referring to the realized volatility of the underlying, I agree 100% and would like to hear you out more in this regard as this is a major question to me. To illustrate;

How do you equalize risk between trading weeklies on an index like SPY, that has much lower realized volatility than, say, NFLX, which has high realized volatility? Because a move on SPY has the same weight dollar-for-dollar as a move on NFLX in regards to delta. The complication is, to your point on categorization, that a dollar move on SPY carries far more risk than a dollar move on NFLX. Perhaps you would use gamma?

Regards,
Greg

there are various ways to quantify risk and 'blue-chipness' or what categorizations you want. The secret is to find and build what works for you. There is work involved in learning more about yourself and what is acceptable for you. For risk, you might look at volatility (many different measures for volatility), or you might look at financials and historic performance of financials. So many different ways to quantify things. The trick is to build what works for you. No cookie cutter here. You might get ppl say that you should use X measurement but then someone will say you should use Y. which do you use? they both work for each individual. So... test, reflect, refine, test again...

 

[Sweet Bobby]

Thanks for the condescension Sweet Bobby, I am new to day trading. Do you have something professional to say, perhaps about the relationship between gamma and delta per realized volatility of the underlying on weeklies? Because that is something on my mind and you certainly have the answer.

Regards,
Greg

Gamma is irrelevant to my style of trading, and I do t monitor it. I avoid significant gamma risk in my positions. I do however monitor theta as a percentage of net liq, and I have a target Theta/Vega ratio target. I also have identified a delta/Vega ratio that is ideal for my portfolio.

 

[teragreg]

Gamma is irrelevant to my style of trading, and I do t monitor it. I avoid significant gamma risk in my positions. I do however monitor theta as a percentage of net liq, and I have a target Theta/Vega ratio target. I also have identified a delta/Vega ratio that is ideal for my portfolio.

Okay thanks for thanks feedback.

 

[sss12]

What has your expectancy been with this system ?

 

[teragreg]

What has your expectancy been with this system ?

If by expectancy you mean return, using this system it was 24% a quarter swing trading. Just started day trading so not sure about those returns yet.

 

[Robert Morse]

If by expectancy you mean return, using this system it was 24% a quarter swing trading. Just started day trading so not sure about those returns yet.

You made 24%/Quarter? Fro more than one Quarter?" Was that consistent P/L or did you get one profit surge from one symbol? This seem very hard to replicate quarter over quarter.

 

[teragreg]

You made 24%/Quarter? Fro more than one Quarter?" Was that consistent P/L or did you get one profit surge from one symbol? This seem very hard to replicate quarter over quarter.

1 quarter, 30 trades. Consistent P/L, took my entries and exits at the stated significant levels, no profit surges. Not difficult to replicate quarter to quarter, could have performed better, but I am placing trades intraday now as I have time to and I am not seeing the same results.

 

[Robert Morse]

1 quarter, 30 trades. Consistent P/L, took my entries and exits at the stated significant levels, no profit surges. Not difficult to replicate quarter to quarter, could have performed better, but I am placing trades intraday now as I have time to and I am not seeing the same results.

100% per year is more than fantastic if you can keep it up. Not sure why you want to change anything. 1/3 of that would be awesome if it is scalable.

 

[teragreg]

100% per year is more than fantastic if you can keep it up. Not sure why you want to change anything. 1/3 of that would be awesome if it is scalable.

And that period included a large drawdown. It is because I was working a full time job while placing trades so I was balancing a lot in my life. Now I have the free time, I thought I would give a go at day trading, perhaps I can see higher returns using the risk of market open?

Also, it is a scalable system because I always trade into periods and symbols with high liquidity.

 

[qlai]

if it is scalable.

Robert, this is something that I haven't found anyone to answer me yet. Can you have options only trading strategy that is scalable and "safe" It seems to me that if you have an options based system based on stops, it is neither scalable nor safe(by safe I mean you can expect to get out reasonably close to your stop). Sure, maybe part of some multi-strategy portfolio, but can you take your capital (not OPM) and trade most of it with an options only system? I'm asking you because you must have seen some. I have nightmares of waking up after some black Swan event and waiting for the mean reversion theory to bail me out jk, but you get the point.