So it finally happened.
- Thread starter fbirdien
- Start date
Others have pointed these points out to a degree. In my opinion these are a few things that are crucial for this trading method or any trading.
Find a trading style that that fits your personality and time availability.
Always think in terms of �how much can I lose on this trade� as opposed to gaining and mentally be prepared for that loss.
This goes along with the previous thought but never trade more money than you are comfortable with (the sleep at night factor). Obviously common sense but I think after a while, especially with this style of trading, some folks get lulled into a sense of complacency and ratchet up their accounts.
I personally only trade the SPY etf knowing there will not be a company specific surprise.
Have a plan and as long it is solid and you are comfortable with it stick with it unemotionally.
I also believe with the credit spread/vertical business you need to look at the long-term yearly results not month-to-month or even quarterly. As long as you are positive at the end of the year, in my opinion, is what counts. This style of trading (and any trading plan you come up with) should be fairly monotonous and boring � most good ones are in my opinion.
I have had 2 positive years doing this +31% 2008 and +40% so far in 2009 and have a system over at Collective 2 called: index spreads. So you can take a peek over there, if you like, for more information on how I personally approach this business.
Thanks,
Dave
Find a trading style that that fits your personality and time availability.
Always think in terms of �how much can I lose on this trade� as opposed to gaining and mentally be prepared for that loss.
This goes along with the previous thought but never trade more money than you are comfortable with (the sleep at night factor). Obviously common sense but I think after a while, especially with this style of trading, some folks get lulled into a sense of complacency and ratchet up their accounts.
I personally only trade the SPY etf knowing there will not be a company specific surprise.
Have a plan and as long it is solid and you are comfortable with it stick with it unemotionally.
I also believe with the credit spread/vertical business you need to look at the long-term yearly results not month-to-month or even quarterly. As long as you are positive at the end of the year, in my opinion, is what counts. This style of trading (and any trading plan you come up with) should be fairly monotonous and boring � most good ones are in my opinion.
I have had 2 positive years doing this +31% 2008 and +40% so far in 2009 and have a system over at Collective 2 called: index spreads. So you can take a peek over there, if you like, for more information on how I personally approach this business.
Thanks,
Dave
It's not a problem of the "selling premium" strategy, the problem is on trade management and leverage.
Unless you face a big overnight gap, you can always decide to exit when your loss is the double of the collected premium (Risk/Reward = 1).
Or you can decide to hedge the wing that goes ITM with the underline.
A covered strategy, like an iron condor with a risk/reward = 4-5 , in my opinion, give insurance only for big overnight gap, much less frequent if you trade an index. It's an expensive insurance that can save from the disaster, but doesn't help in controlling the risk during normal situation.
LTD4U
Unless you face a big overnight gap, you can always decide to exit when your loss is the double of the collected premium (Risk/Reward = 1).
Or you can decide to hedge the wing that goes ITM with the underline.
A covered strategy, like an iron condor with a risk/reward = 4-5 , in my opinion, give insurance only for big overnight gap, much less frequent if you trade an index. It's an expensive insurance that can save from the disaster, but doesn't help in controlling the risk during normal situation.
LTD4U
Well, it did wonders for LTCM
Work on your leverage and position size and you will do fine
I am amazed to see so many responses. Really felt better after reading the posts. Thank you all.
I created a chart that depicts in detail what caused the problem. Well to summarize it , 3 adjustment in a month killed me . However next day after I wrote the first post I did some adjustment to reduce the loss to 19 %. Will know the outcome this Friday. I know that B2 is a risky venture as well but I had to do that this month.
Closed B due to sudden up-spike in VIX in short span. I kind of followed the cut loses approach and managed to eat 15 % loss. Then to offset it entered B1 that turned against me due to sudden down-spike in VIX. So closed B1 shortly after entry.
There was slight difference while closing B and closing B1. I waited little longer to close B1 (per the quote in item 5)
Now that I look back , while entering B1 adjustment, I had 3 choices-
1. Make bearish side adjustment (for credit) on the same day.
2. Make bullish adjustment on the same day.
3. Wait a day or two and then make a bearish or bullish adjustment.
This is the classical decision making problem. If there was correct answer for this everyone would have been successful all the time. So to achieve more than ~60% + wining ratio in such adjustment scenarios might be possible. Experienced players might have encountered this so many time. Just curious to know their take on how they pick a choice out of the 3 ?
Some folks mentioned that 11 months I could be lucky/ be on friendly side of prob.curveâ¦etc. Well let me tell you that it was not easy. I was doing all my rookie mistakes and learning. Right from not paying attention to earning calendar (to have the stock move against me 17% in a day), to selling naked non standard option not knowing what they were. I was adjusting all the times.
There are 2 things I realized in past couple of days â
1. Strategy -In the earlier months I was taking only one side
2. Psychology- My account was 1/3rd the size today when I started at the beginning of the year. So may be I was taking the same risk but was not concerned due to smaller account size. (Account size grew 3X from poring in capital + partly by gains...not just gains). So chunky loss in a day might have caused lot of stress.
Quote Dagnyt â
âIf you mean 'move farther OTM and sell cheaper options' that's not so good. One, it may make you believe you should sell extra options to make up for 'lost' premium. And that temptation will arise, especially if you start a new streak.â
Example -If 2% is collected as premium on the margin for FOTM that works fine for 7 ,months. In the 8th month underlying move against you for few consecutive days and you decide to adjust ( at the right time and optimal delta.) then what would be the problem ? How is it different than any other OTM premium selling or any other strategy in your mind that you are comparing against ?
Quote Dagnyt â
Don't forget this. Don't hold through expiration. When the reward becomes too small, close trade and move on.
I agree for the stocks ..why not for index? ( Excluding Balck swan â 1987, 9/11 etc)
Two figures in the next post show the proposed improvements for entry and exits -
Please feel free to recommend you indicators for adjustment â like certain strike % close to underlying, delta, % of premium collected etc
Thanks
I created a chart that depicts in detail what caused the problem. Well to summarize it , 3 adjustment in a month killed me . However next day after I wrote the first post I did some adjustment to reduce the loss to 19 %. Will know the outcome this Friday. I know that B2 is a risky venture as well but I had to do that this month.
Closed B due to sudden up-spike in VIX in short span. I kind of followed the cut loses approach and managed to eat 15 % loss. Then to offset it entered B1 that turned against me due to sudden down-spike in VIX. So closed B1 shortly after entry.
There was slight difference while closing B and closing B1. I waited little longer to close B1 (per the quote in item 5)
Now that I look back , while entering B1 adjustment, I had 3 choices-
1. Make bearish side adjustment (for credit) on the same day.
2. Make bullish adjustment on the same day.
3. Wait a day or two and then make a bearish or bullish adjustment.
This is the classical decision making problem. If there was correct answer for this everyone would have been successful all the time. So to achieve more than ~60% + wining ratio in such adjustment scenarios might be possible. Experienced players might have encountered this so many time. Just curious to know their take on how they pick a choice out of the 3 ?
Some folks mentioned that 11 months I could be lucky/ be on friendly side of prob.curveâ¦etc. Well let me tell you that it was not easy. I was doing all my rookie mistakes and learning. Right from not paying attention to earning calendar (to have the stock move against me 17% in a day), to selling naked non standard option not knowing what they were. I was adjusting all the times.
There are 2 things I realized in past couple of days â
1. Strategy -In the earlier months I was taking only one side
2. Psychology- My account was 1/3rd the size today when I started at the beginning of the year. So may be I was taking the same risk but was not concerned due to smaller account size. (Account size grew 3X from poring in capital + partly by gains...not just gains). So chunky loss in a day might have caused lot of stress.
Quote Dagnyt â
âIf you mean 'move farther OTM and sell cheaper options' that's not so good. One, it may make you believe you should sell extra options to make up for 'lost' premium. And that temptation will arise, especially if you start a new streak.â
Example -If 2% is collected as premium on the margin for FOTM that works fine for 7 ,months. In the 8th month underlying move against you for few consecutive days and you decide to adjust ( at the right time and optimal delta.) then what would be the problem ? How is it different than any other OTM premium selling or any other strategy in your mind that you are comparing against ?
Quote Dagnyt â
Don't forget this. Don't hold through expiration. When the reward becomes too small, close trade and move on.
I agree for the stocks ..why not for index? ( Excluding Balck swan â 1987, 9/11 etc)
Two figures in the next post show the proposed improvements for entry and exits -
Please feel free to recommend you indicators for adjustment â like certain strike % close to underlying, delta, % of premium collected etc
Thanks
Premium selling as an ongoing strategy is a losing strategy in the end. You're going to have a series of small wins, and a few large losses that wipe out all your wins. History is replete with guys going broke with this strategy, guys with more experience and more capital.
If you try to implement a strategy where you take a loss on a movement against you, it will also cause you to close out positions which would have ended favorably.
In my 40+ years of trading, I have never seen a successful premium seller. If there was one, he was well hidden. In fact, the only successful option traders in general I have seen were market makers. And their strategies were considerably more complicated than anything as simple as premium selling.
The people that I know who have used options successfully are those who had an idea about the direction of the stock or index, and then implemented an option strategy to take advance of their expected price movement of the stock.
OldTrader
If you try to implement a strategy where you take a loss on a movement against you, it will also cause you to close out positions which would have ended favorably.
In my 40+ years of trading, I have never seen a successful premium seller. If there was one, he was well hidden. In fact, the only successful option traders in general I have seen were market makers. And their strategies were considerably more complicated than anything as simple as premium selling.
The people that I know who have used options successfully are those who had an idea about the direction of the stock or index, and then implemented an option strategy to take advance of their expected price movement of the stock.
OldTrader