SPX Credit Spread Trader

"You are now entering Whipsaw City...we hope you enjoy your stay :)"

Quote from optioncoach:

My little problem is that I tend to add hedges just when things start to look their worst..... and isn't that usually when the contrarian sentiments take over and push the market back the other way lol :D.

Better safe than sorry.
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Quote from optioncoach:

My little problem is that I tend to add hedges just when things start to look their worst..... and isn't that usually when the contrarian sentiments take over and push the market back the other way lol :D.

Better safe than sorry.
More...

Phil,

dont want to open a can of worms but isnt it eating you inside that every time you put on a hedge you get whipsawed?

For me, if it appears that i keep throwing money down the toilet(after say a proper sample of past trades) i will re-evaluate my trading and try to adjust my style in a way to keep more of my money without increasing my risk too much more. This line of thought has allowed me to stay sharp and has helped me adapt my trading to the everchanging market conditions.

Anyway, i suppose if it isnt broken dont fix it and you dont see heding as money wasted but just thought i'd throw that out there for any comments that might follow.
 
Well the problem may occur where I hesitate to hedge and that is when the market does not reverse and slaps me. Not sure if many remember but there was one month where I lost a little money on the credit spread but had a net profit overall due to the hedges. I am reluctant to make any drastic changes yet since partial hedges are not money down the toilet as that one month proved.

I think I tend to hedge when things look their worst and that is usually when the adverse move pulls back but I have no guarantee yet that it will occur. So in that sense I am not sure what improvements can be made since the hedges have helped when needed.

In most cases I want partial hedges to be total losses as it means I am net positive on my original position. You do not root for wins on partial hedges, you put them there so they help when needed. I hope all my partial hedges expire worthless.

Quote from rallymode:

Phil,

dont want to open a can of worms but isnt it eating you inside that every time you put on a hedge you get whipsawed?

For me, if it appears that i keep throwing money down the toilet(after say a proper sample of past trades) i will re-evaluate my trading and try to adjust my style in a way to keep more of my money without increasing my risk too much more. This line of thought has allowed me to stay sharp and has helped me adapt my trading to the everchanging market conditions.

Anyway, i suppose if it isnt broken dont fix it and you dont see heding as money wasted but just thought i'd throw that out there.
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I think you are looking at the wrong JULY 1300 Calls. I used the end of the month ES options for the JULY 1300 calls, not the regular JULY ES calls.

Right now the JULY EW 1300 Calls are at a mid of 2.20 for profit of .80.

Still good but not as much as you were seeing :). I will pretty much let it ride to expiration since I do not see us getting above 1300 in 2 weeks or so.

Quote from scoobie27:

Hi Coach,

The prices for you ES calls are currently

AUG 1330 CALLS ~ 1.3 Loss 0.3
JUL 1300 CALLS ~ 0.8 Profit 2.2

So you've made about 1.90 per contract not taking the ratios into account. Good call.
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Quote from optioncoach:



I think I tend to hedge when things look their worst and that is usually when the adverse move pulls back but I have no guarantee yet that it will occur. So in that sense I am not sure what improvements can be made since the hedges have helped when needed.
More...

Well the risk profile of the FOTM credit spread makes it prudent to not wait too long before you take some protective measures but have you looked at all your past trades where hedges were opened and how the alternative(no hedges or shorter hedges) performed? It is also understandable if you have and are not willing to go into too many details on here.

Obviously i havent looked at your hard data so i am speculating but it does appear from what i've seen that hedges are almost always opened during conditions conducive to a reversal. Having said that, it might appear beneficial to either reduce the distance between the short strike and the hedge trigger or eliminate it all together if cumulative gains given up by hedging exceed the loss at some predetermined offset/adjustment target. Not an easy task given losses can follow losses but not impossible to analyze.

Now obviously with that kind of thinking you are leaving yourself exposed to the event not covered by the "almost always" i used above but have you looked at hard data to justify the need to hedge or the distance of the hedge trigger or is it more of "better safe than sorry" even if it means giving up credits over a longer sample? Also, i know you refer to hedging as buying insurance but could you be overpaying(not refering to volty ) for that insurance and hurting your business's bottom line over the long term just to maybe save one month or a quarter?
 
Quote from rallymode:

I don't look at hedging as an attempt to save one month or quarter. It's an attempt to so something far more important - to save one's ass!



Also, i know you refer to hedging as buying insurance but could you be overpaying(not refering to volty ) for that insurance and hurting your business's bottom line over the long term just to maybe save one month or a quarter?
More...
 
Well the only problem I can see is looking back historical and second guessing when I should or should not have put on a hedge based on the charts. I do not think I can replicate my emotions at the time to know why I decided to put the hedge on at that time and after the fact with all the future knowledge now known, decide I should not have put on a hedge and have that be a realistic analysis.

The hedges for me are a cost of doing business because there were times my profits came solely from the hedge or were improved slightly from the hedge and there were times that profits were reduced somewhat because of the hedge. I would find it hard to take a moment when I feel a hedge is needed and actually pause and convince myself to not put the hedge on at all.

I think it is quite difficult to go back and make post decisions about when hedges are put on. The only thing I can do is look at what the charts were showing and use a looser trigger for them.

But today with mideast tensions mounting, Oil over $75 and retail jobs dropping, how could I rely on any technical indicator to tell me I would not need to hedge yet. That is waht makes second guessing harder in my opinion.

I doubt my performance would improve so drastically without hedges when losses in times when the hedges worked would have to be counted in versus what I do now. Also, each season the market changes and I may need to be more cautious at certain times than others. I am trying not to let my decisions for hedges be too subjective. I would rather act more automatically if I could so that my emotions get reduced as much as possible.

It is tough to determine in hindsight what is the best to do. As of right now my first partial hedge strike is ITM so I am not really wrong yet....


Quote from rallymode:

Well the risk profile of the FOTM credit spread makes it prudent to not wait too long before you take some protective measures but have you looked at all your past trades where hedges were opened and how the alternative(no hedges or shorter hedges) performed? It is also understandable if you have and are not willing to go into too many details on here.

Obviously i havent looked at your hard data so i am speculating but it does appear from what i've seen that hedges are almost always opened during conditions conducive to a reversal. Having said that, it might appear beneficial to either reduce the distance between the short strike and the hedge trigger or eliminate it all together if cumulative gains given up by hedging exceed the loss at some predetermined offset/adjustment target. Not an easy task given losses can follow losses but not impossible to analyze.

Now obviously with that kind of thinking you are leaving yourself exposed to the event not covered by the "almost always" i used above but have you looked at hard data to justify the need to hedge or the distance of the hedge trigger or is it more of "better safe than sorry" even if it means giving up credits over a longer sample? Also, i know you refer to hedging as buying insurance but could you be overpaying(not refering to volty ) for that insurance and hurting your business's bottom line over the long term just to maybe save one month or a quarter?
More...
 
Coach,

Here again lies just another benefit of the Put Diagonal. You really encourage the trade to head toward your short.... and with VEGA spiking... you can just close the position for a profit.... just when credit spreads are glaring "RED" in the face... or looking for alternative hedges....

It's a Beautiful thing....

M~



Quote from optioncoach:

Well the problem may occur where I hesitate to hedge and that is when the market does not reverse and slaps me. Not sure if many remember but there was one month where I lost a little money on the credit spread but had a net profit overall due to the hedges. I am reluctant to make any drastic changes yet since partial hedges are not money down the toilet as that one month proved.

I think I tend to hedge when things look their worst and that is usually when the adverse move pulls back but I have no guarantee yet that it will occur. So in that sense I am not sure what improvements can be made since the hedges have helped when needed.

In most cases I want partial hedges to be total losses as it means I am net positive on my original position. You do not root for wins on partial hedges, you put them there so they help when needed. I hope all my partial hedges expire worthless.
More...
 
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