My point is you think that cash is not at risk. Your cash is always at risk. That is why you need to do something with it.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
My point is you think that cash is not at risk. Your cash is always at risk. That is why you need to do something with it.
Thanks..... much appreciated. I am not managing OPM yet and my AUM is not yet at the level that I can employ such portfolio allocation, but it is interesting and something I can see myself looking into when my AUM reach a certain level.
I use a mix of strats with different r/r and I also do not use all my available capital at anyone time, but I would say it is more than 20%. I am not a pure directional trader but I do have directional bias at entry and will manage the positions from there. Thanks for your post.
I use a mix of strats with different r/r and I also do not use all my available capital at anyone time, but I would say it is more than 20%. I am not a pure directional trader but I do have directional bias at entry and will manage the positions from there. Thanks for your post.
Quote from Cache Landing:
I can give you my opinions since you don't know the name of my management company. A couple of my partners don't like me spreading info about our strats. Personally I don't think it matters.
If you aren't managing money for others it doesn't really matter what you're doing. Trade to fit your personal needs. You know how often you'll need to make withdrawls.
OPM is a different story. I personally think that the trader should have a monthly/weekly target return, depending on the strat. I'm not talking about RoR, RoI, RoM, etc. I'm talking about a return for the entire portfolio. If he has $1MM AUM and specifies a 2% return this month. That is $20K regardless of the risk taken or margin used. That is the only return that really matters to investors in the end.
This has many benefits:
-It is easy to scale up as the target return is based on AUM.
-It prevents revenge trading after a drawdown, because the month following a drawdown has a target return based on the AUM after the loss.
-It takes advantage of the powers of compounding.
-Allows you to charge fees via profit allocation each month very easily, while constantly re-establishing the high watermark.
Once the target return has been established, a max risk should be set. This determines asset allocation. This is very dependant on the strat as some positions carry 100% loss risk, while others carry less than 20%. Let's say that I'm willing to risk 10% of the account to make that 2% target. Then I'm going to need a 20% return on my positions to hit my target, and my probability of profit had better be pretty darn high.
Anyway, I don't want to ramble on forever so it comes down to the following. If you consistently get >20% annually, you'll easily be in the top quartile. That only requires 1.5% monthly.
To me it is important not to have >5% drawdown in a given month. Most people here know that I'm not a huge fan of selling cheap gamma, so I don't need to tie up too much capital to achieve a 1.5% return each month. We are more aggressive however, and target a 10% monthly return with about a 3:2 risk/reward. We count on diversification to prevent >5% drawdown.
We ensure that under the worst possible circumstances, we won't be able to lose more than 15% of AUM. Then we target a 5% annual return on the remaining capital.
If my max drawdown for the year was 3-4% then I'm happy with 40% return. If the max drawdown was >10% then I'm extremely disappointed if the annual return was less than 90%.
If we get a black swan event from a dirty bomb or some such major event, given the way some of the guys here are maximizing/leveraging their margin accounts I suspect that the fat tail/low-premium effect becomes mute with respect to the margin calls arising from all the long equity positions that either stopped out into non margin-able cash or loss of principal in the account at large from loss of value.
Just a though,
TS
I am experimenting with a system that promises a portfolio of "low correlation" small cap emerging growth equities. I have about $100K I put into the system just today about 1 hr before the friggin SPX dropped 7 points lol!!. I suck at market timing but we will see how beta correlated and intercorrelated the equities are to the SPX and each other in the AM when I get my new trading log settled.
Anyone have an opinion of Louis Navellier? He claims using this low correlation approach in his Emerging Growth service he gets some remarkable yearly results and as well as hard to believe long run (5, 10, 20 year) results that defy belief (e.g. on the order of 37,000% return). I am going to give it a shot for a year and see what happens since his records show that he only had 3 or so down years out of 20 and those were single digit percent downs and the rest were easily over 30% on average. Due to teh small cap nature volatility of the individual stocks in the portfolio is high but the idea is that they are all out of synch (in different industries and reporting cycles) with each other (ziging and zagging at different phases) and the total uncorrelated portfolio net value trends high fairly quickly as new positions are brought in to flush out underperformers.
TS
Mav:
Could you elaborate more, please. I know that these FOTM credit spreads are, to put it mildly, not your cup of tea. Yet you say you make most of your profits by selling premium, but not ATM. So are you selling slightly CTM or ITM or is it primarily your so called X-mas tree strategy. Or are you selling primarily naked premium.
Also, I've forgotten what exactly is meant by curvature. Would you refresh my memory please.
Thanks.
Could you elaborate more, please. I know that these FOTM credit spreads are, to put it mildly, not your cup of tea. Yet you say you make most of your profits by selling premium, but not ATM. So are you selling slightly CTM or ITM or is it primarily your so called X-mas tree strategy. Or are you selling primarily naked premium.
Also, I've forgotten what exactly is meant by curvature. Would you refresh my memory please.
Thanks.
PoP = probability of profit
I prefer OTM flies with a directional bias. If they are non-directional then I leg in as a vega trade.
I never got a good fill on any OTM puts for NOV as we did not have many dips. I am still looking for DEC put spreads but premiums are kind of light. I really do not want to get too far above 1310 but the % returns are not there. I might miss out on a DEC position if this keeps up.
Let me see if I understand Mav's strategy. Curvature is the shape of gamma. Mav is buying the curvature (one way is to buy a lot of long term options). The idea is that the longer term option decays a lot slower than the short term, and so he is still making money via time decay. It is not a simple strategy you will find in most option trading books because the return on margin based on reg-t is very low. It won't work for retail traders!
Let me elaborate more and see if Mav thinks i understand. The whole idea is optimal leveraging. I have been studying optimal leveraging for some time, and leverage depends on rules and regulation. Buying curvature is a way of reducing the margin requirement under haircut.
BTW the haircut margin will change too. The way to make his strategy work is to manage his position by managing the risk. It is his risk management that earns him the profit. Don't learn the strategy. Learn how he manages the positions.
Everyone here knows credit spread strategy, but Phil has been using it a lot better than most of us here. Why? It is his risk management style that earns him the profit.
As Riskarb has pointed out to me, no strategy no matter how complex it is will provide you a "positive" expectancy once you include the slippage and commission. So Mav's strategy won't give you a positive edge in trading options.
If we look for the "best" strategy, not to learn a better risk management, we won't survive long.
Phil,
As pointed out by Cache, the current low IV environment makes it a low return for SPX credit spread. We should look at diagonals, or look at rut credit spread. Rut still gives me a pretty good return on margin (This Nov I realized a return of over 10% on margin using rut ICs).