SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
I agree that I can not make a living with $100,000 (in capital) trading options....however I don't have a million $$ trading account either and believe me we could not live on what a T-bill or your average money manager would make for us...(and we live pretty well...)I guess my only point is when people respect your opinion (and I believe people on ET do respect yours) to make a gross generalization (even if just an opinion) is misleading...people can and do make a living on a retail trading account trading options.
edit...HOW does someone with a mill make a living on T-Bills...isn't that only $40,000?
Quote from DonnaV:
edit...HOW does someone with a mill make a living on T-Bills...isn't that only $40,000?
That was my point. Perhaps you missed my statement before that when I said it depends what you call making a living. If making a living is only 40k to 50k a year, then you could make that with treasuries. When you say you are making a living, its very ambiguous what you mean by that.
Donna, I stand by my statement. I run an office here in Chicago and I have access to all the sheets in our firm of all our accounts and I have seen the numbers. I also have friends in retail brokerages that have seen thousands upon thousands of customer accounts. Those accounts under 100k that are actively traded, and by that I am simply removing long term investors, are not making a living. At least not what most of us would call a living.
These are the facts. We can argue all night long that my aunt Sue bought some GOOG at 300 and she is Rich! Or I know a guy that does this and that and he just bought a new boat and so on. The fact of the matter is, the statistics speak for themselves. Give me the benefit of the doubt since I have actually seen this confidential information and you have not.
The only way a person with under 100k in a RETAIL account is going to make outsized returns is if they take outsized risks. And sooner or later, the piper is going to knock on the door and demand to be paid. This is the reality of the situation. You can argue this point all you want. The difference is, I can bring raw data to the table to prove my point.
I'm not trying to be argumentative here. I'm not being compensated for having this opinion. In fact, if anything, it actually hurts my business.
Maverick,
I'm just curious, since you have seen the data, at what dollar level do you see retail traders able to make a living from trading? I know we are all making gross generalizations and "making a living" is very subjective but I've never known somebody that would have access to data like you do.
ryan
Great conversations.. I want to add in my two cents...
RISKarb: As you alluded to, the reason the risk haircut has convinced me to go prop is that I can hedge more dynamically in a prop account than in the retail account and actually be credited for such a hedge. That is the main reason for leaving retail. Rollouts and partial hedges is as far as I can go in retail. IN prop I can add mre dynamic hedges and reduce my margin requirements and thus allow me to add more levels of profitability. The pooled money risk is a concern that is always in my head and the person I am talking with has been very helpful and forthcoming in answering my questions on this very issue. And I certainly am gonna take your advice and sweep often
Donna/Maverick: Donna, you have to realize that wiht a $100,000 account you cannot make a serious living trading options. Even a stellar 40% return will net you $40,000 a year. If that is enough for you to live comfortably than it works. But in all honesty you need a large account to make a salary of your returns because you will be tkaing out profits regularly. If you have a large account, then retial or prop you can make a living. But the reason why the pros make more on average is that they get much more generous margin terms than in retail. This allows them to leverage their money more while ironically taking on LESS risk. So the comments were not directed at the average retail who usually has $100k or less. It was directed at those trading with larger accounts. Both can make a living, but I think the one trading with prop haircuts have an advantage and can do much better assuming all other things euqal.
For example if I sell 200 1190/1200 spreads my margin requirement is $200,000 at retail level. For risk-based haircut, it could be much less depending on the index value. If I add any partial hedge I reduce my margin requirement in prop, whereas retail it is still $200,000. Assume I roll into a prego Fly for a net credit, I can then sell deeper OTM credit spreads for more premium and income. In retail, I would still be on the hook for $200,000 in margin and would have no such freedom (unless you pleaded with compliance department). IN prop, my $200,000 margin would be gone due to the hedge added and I can do another $200,000 in positions, "leveraging" my account for even more profits under the right circumstances.
So not to put words in Maverick's mouth, but if you have a large account, it seems the risk-based haricut will allow you to trade with a greater advantage and "leverage" your account for better returns. I put leverage in " " because it is not true leverage like a stock prop shop, but putting your same money to work in multiple postions or more positions because of how your risk is hedges v. retail which will treat each position individually.
I hope that is clear. Anyone can make a living trading options in retail, but I am seeing that getting more advantageous risk margin requirements allows you to trade your capital better. Last example is that a good option prop will allow cross margningin. SO that means an SPX credit spread will be hedges using SPX, XSP, SPY, ES futures, SP futures, ES/SP options on futures or other correlated securities. No retail accounts I know of will give you credit for adding SP options to hedge an SPX credit spread position. They will be treated as separate positons and your margin for the spread will always be there. In option prop they will reduce your margin requirements, thus keeping you in the position with less risk and freeing up capital to trade in other positions. So I get to do more positions with my $$ if I hedge then one can do in a retail account. Your $100,000 acount is $100,000 while in a prop you might be able to trade it up to $200,000 if you properly hedge. Compare each account earning 3%$ for the month ($3,000 v. $6,000).
I do not want anyone to think I am dissing retail at all. I was recently educated on the advantages of moving my account to a prop shop (along with learning the potential cons) and sharing this experience with you. Maverick never said you could not make money in a retail account, he was referring to the ease of making a liviing off of trading a large account with risk-based haricut margin in a prop as compared to doing it with retail. Margin can bite you in the ass as well so of course it still needs to be managed well no matter where you trade.
So this discussion is great for learning about other means of trading and the pros and cons, not to categorically denounce either form.
Phil
RISKarb: As you alluded to, the reason the risk haircut has convinced me to go prop is that I can hedge more dynamically in a prop account than in the retail account and actually be credited for such a hedge. That is the main reason for leaving retail. Rollouts and partial hedges is as far as I can go in retail. IN prop I can add mre dynamic hedges and reduce my margin requirements and thus allow me to add more levels of profitability. The pooled money risk is a concern that is always in my head and the person I am talking with has been very helpful and forthcoming in answering my questions on this very issue. And I certainly am gonna take your advice and sweep often
Donna/Maverick: Donna, you have to realize that wiht a $100,000 account you cannot make a serious living trading options. Even a stellar 40% return will net you $40,000 a year. If that is enough for you to live comfortably than it works. But in all honesty you need a large account to make a salary of your returns because you will be tkaing out profits regularly. If you have a large account, then retial or prop you can make a living. But the reason why the pros make more on average is that they get much more generous margin terms than in retail. This allows them to leverage their money more while ironically taking on LESS risk. So the comments were not directed at the average retail who usually has $100k or less. It was directed at those trading with larger accounts. Both can make a living, but I think the one trading with prop haircuts have an advantage and can do much better assuming all other things euqal.
For example if I sell 200 1190/1200 spreads my margin requirement is $200,000 at retail level. For risk-based haircut, it could be much less depending on the index value. If I add any partial hedge I reduce my margin requirement in prop, whereas retail it is still $200,000. Assume I roll into a prego Fly for a net credit, I can then sell deeper OTM credit spreads for more premium and income. In retail, I would still be on the hook for $200,000 in margin and would have no such freedom (unless you pleaded with compliance department). IN prop, my $200,000 margin would be gone due to the hedge added and I can do another $200,000 in positions, "leveraging" my account for even more profits under the right circumstances.
So not to put words in Maverick's mouth, but if you have a large account, it seems the risk-based haricut will allow you to trade with a greater advantage and "leverage" your account for better returns. I put leverage in " " because it is not true leverage like a stock prop shop, but putting your same money to work in multiple postions or more positions because of how your risk is hedges v. retail which will treat each position individually.
I hope that is clear. Anyone can make a living trading options in retail, but I am seeing that getting more advantageous risk margin requirements allows you to trade your capital better. Last example is that a good option prop will allow cross margningin. SO that means an SPX credit spread will be hedges using SPX, XSP, SPY, ES futures, SP futures, ES/SP options on futures or other correlated securities. No retail accounts I know of will give you credit for adding SP options to hedge an SPX credit spread position. They will be treated as separate positons and your margin for the spread will always be there. In option prop they will reduce your margin requirements, thus keeping you in the position with less risk and freeing up capital to trade in other positions. So I get to do more positions with my $$ if I hedge then one can do in a retail account. Your $100,000 acount is $100,000 while in a prop you might be able to trade it up to $200,000 if you properly hedge. Compare each account earning 3%$ for the month ($3,000 v. $6,000).
I do not want anyone to think I am dissing retail at all. I was recently educated on the advantages of moving my account to a prop shop (along with learning the potential cons) and sharing this experience with you. Maverick never said you could not make money in a retail account, he was referring to the ease of making a liviing off of trading a large account with risk-based haricut margin in a prop as compared to doing it with retail. Margin can bite you in the ass as well so of course it still needs to be managed well no matter where you trade.
So this discussion is great for learning about other means of trading and the pros and cons, not to categorically denounce either form.
Phil
Ryan:
Give me a minute or so and I will create a quick excel graph.
Give me a minute or so and I will create a quick excel graph.