SPX Credit Spread Trader

[El OchoCinco]

A short strike pierced leads to a big loss whether it is a vertical or a diagonal. It is not the strategy that limits your risk but you and how you apply risk management. My diagonal was a loser for me because I let my risk management guard down.

When people take losses they look to the strategy and think about abandoning it. Those thoughts never enter one's mind when one is making all that money. Everyone should know the potential for losses that exists in any strategy they trade and when those losses do occur, 90% of the time it was due to a failed risk management plan that let the losses get bigger than they should (again my mistake in the diagonal but I did get out quickly once it turned sour).

So when you lose money, do not take it upon yourself as a sign that the strategy is no longer working. A 100% profitable strategy does not exist. So the difference is your risk managment approach. It is not who makes the most but who keeps the most.

If you want to go to that next level, then realize the strategy is not where you look for answers but within yourself. The reason most traders fail is because of their own flaws and weaknesses, not because of choosing the wrong strategy (of course there are cases of mismatching a strategy to trading style but that is not what I am talking about). So if you were confident enough to trade the position and collect the rewards, then have the confidence to take the losses and keep moving forward-as long as you limit those losses.

I was down after that diagonal loss but my stlye got me here and my style will keep me here and I just had to put it behind me and move forward. Focusing on the next success gets your mind back in the right framework (i.e. my SPX credit spread).

So my friends, those who took losses recently did so in an unsually strong bullish run that overtook many people. Type of market does not matter, we still practice the same risk management. This was an upwards black swan sort of, so review how you handled it and take your lessons learned for the next time. there is always some payback when trading and it is part of the "game".

Fix what might be broken (risk management), heal what might be bruised (ego) and find the confidence that got you here to begin with and realize that losses happen but if you do this correclty, it is being positive in the long run that matters.

Quote from rdemyan:

Mark:

Didn't the diagonals fare better than an equivalent (or similar) vertical in this bullish nightmare?

 

[rdemyan]

Coach:

Agree with everything you said. But I thought one of the advantages of the diagonal was the ability to adjust it more readily than the vertical. I've seen those diagrams where the value ramps up as the short is approached and even after the short is breached, one normally has 5 or so points beyond the breach before breakeven is reached. Admittedly, these are expiration graphs and perhaps that is where the flaw in my thinking is.

Quote from optioncoach:

A short strike pierced leads to a big loss whether it is a vertical or a diagonal. It is not the strategy that limits your risk but you and how you apply risk management. My diagonal was a loser for me because I let my risk management guard down.

When people take losses they look to the strategy and think about abandoning it. Those thoughts never enter one's mind when one is making all that money. Everyone should know the potential for losses that exists in any strategy they trade and when those losses do occur, 90% of the time it was due to a failed risk management plan that let the losses get bigger than they should (again my mistake in the diagonal but I did get out quickly once it turned sour).

So when you lose money, do not take it upon yourself as a sign that the strategy is no longer working. A 100% profitable strategy does not exist. So the difference is your risk managment approach. It is not who makes the most but who keeps the most.

If you want to go to that next level, then realize the strategy is not where you look for answers but within yourself. The reason most traders fail is because of their own flaws and weaknesses, not because of choosing the wrong strategy (of course there are cases of mismatching a strategy to trading style but that is not what I am talking about). So if you were confident enough to trade the position and collect the rewards, then have the confidence to take the losses and keep moving forward-as long as you limit those losses.

I was down after that diagonal loss but my stlye got me here and my style will keep me here and I just had to put it behind me and move forward. Focusing on the next success gets your mind back in the right framework (i.e. my SPX credit spread).

So my friends, those who took losses recently did so in an unsually strong bullish run that overtook many people. Type of market does not matter, we still practice the same risk management. This was an upwards black swan sort of, so review how you handled it and take your lessons learned for the next time. there is always some payback when trading and it is part of the "game".

Fix what might be broken (risk management), heal what might be bruised (ego) and find the confidence that got you here to begin with and realize that losses happen but if you do this correclty, it is being positive in the long run that matters.

 

[riskarb]

Quote from momoneythansens:

LOL. For some reason Yip is on my ignore list, so I'll respond via your post.

Who want's to know their risk?

I follow a proprietary risk-management approach known as HIS (head-in-sand).

HIS files are calculated daily by the exchanges and sent out to subscribers.

The data contained therein, normally has critical risk-management information such as:

"There is no spoon"

Hey Mo, it's the new millennium. All the "in" ppl are now using "HIQS" files, (head-in-quick-sand). They can only be read by captured Nazi enigma machines. I got the last one. Nyah nyah.

 

[Maverick74]

Quote from optioncoach:

A short strike pierced leads to a big loss whether it is a vertical or a diagonal. It is not the strategy that limits your risk but you and how you apply risk management. My diagonal was a loser for me because I let my risk management guard down.

When people take losses they look to the strategy and think about abandoning it. Those thoughts never enter one's mind when one is making all that money. Everyone should know the potential for losses that exists in any strategy they trade and when those losses do occur, 90% of the time it was due to a failed risk management plan that let the losses get bigger than they should (again my mistake in the diagonal but I did get out quickly once it turned sour).

So when you lose money, do not take it upon yourself as a sign that the strategy is no longer working. A 100% profitable strategy does not exist. So the difference is your risk managment approach. It is not who makes the most but who keeps the most.

If you want to go to that next level, then realize the strategy is not where you look for answers but within yourself. The reason most traders fail is because of their own flaws and weaknesses, not because of choosing the wrong strategy (of course there are cases of mismatching a strategy to trading style but that is not what I am talking about). So if you were confident enough to trade the position and collect the rewards, then have the confidence to take the losses and keep moving forward-as long as you limit those losses.

I was down after that diagonal loss but my stlye got me here and my style will keep me here and I just had to put it behind me and move forward. Focusing on the next success gets your mind back in the right framework (i.e. my SPX credit spread).

So my friends, those who took losses recently did so in an unsually strong bullish run that overtook many people. Type of market does not matter, we still practice the same risk management. This was an upwards black swan sort of, so review how you handled it and take your lessons learned for the next time. there is always some payback when trading and it is part of the "game".

Fix what might be broken (risk management), heal what might be bruised (ego) and find the confidence that got you here to begin with and realize that losses happen but if you do this correclty, it is being positive in the long run that matters.

I'm going to change your name from Coach Phil to Dr. Phil. LOL. This thread is starting to turn into an Oprah show.

 

[rallymode]

Quote from Heatheranderson:



I must rethink my whole trading style and maybe switch strategies.any suggestions?.

FOTM credit verticals are not for people who suffer from the "deer in a headlight" syndrome. I swear i must've said this atleast 200 times on this thread but my suggestion is to trade better r/r strategies that will not be fatal or emotionally disturbing even if you do not adjust, which will allow you to make adjustments according to a plan and not in the heat of the moment. This has been discussed at length here as recently as 2 weeks ago.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1222315#post1222315

If you are so fond of high win probability strats then revisit the FOTM credit verticals in 5 years when you have a better grip on risk management. I guarantee you will look at them quite differently. In my opinion this has been a great year for being short gamma, if you are taking serious losses selling premium this year then you should definitely rethink your style. Sorry to hear about your bad month.

 

[El OchoCinco]

There are mroe adjustment choices but I still think the adjustments are easier to make before the short is breached. Once the short strike is breached, be it diagonal or vertical, you got to cut your losses quickly some how

Quote from rdemyan:

Coach:

Agree with everything you said. But I thought one of the advantages of the diagonal was the ability to adjust it more readily than the vertical. I've seen those diagrams where the value ramps up as the short is approached and even after the short is breached, one normally has 5 or so points beyond the breach before breakeven is reached. Admittedly, these are expiration graphs and perhaps that is where the flaw in my thinking is.

 

[El OchoCinco]

Remember that trading is 60% mental, 50% emotional, and 30% mathamatics

Quote from Maverick74:

I'm going to change your name from Coach Phil to Dr. Phil. LOL. This thread is starting to turn into an Oprah show.

 

[yip1997]

Quote from rdemyan:

Coach:

Agree with everything you said. But I thought one of the advantages of the diagonal was the ability to adjust it more readily than the vertical. I've seen those diagrams where the value ramps up as the short is approached and even after the short is breached, one normally has 5 or so points beyond the breach before breakeven is reached. Admittedly, these are expiration graphs and perhaps that is where the flaw in my thinking is.

It is not the strategy. Both of the shorts of my rut call diagonals was breached (rut at 760 and 770), but i reacted to adjust my positions to move up the be points. My vertical (780/790) was at risk too. Yesterday I closed my oct 770/dec 790 diagonal by making a nice profit. You need to understand your possible risk level and adjust according to your risk tolerance.

Now I am at a point where this might be the best month of the year. It comes from learning the risk management approaches from all the great contributors in this forum. I have to admit I was a naive naked writer before I discovered this forum in July.

I will suggest you to learn not only the strategies, but the risk management and adjustments. Always ask why and how.

 

[riskarb]

Quote from yip1997:

Always ask why.

 

[Heatheranderson]

thanks for all the responses.I know every strategy has its own place but vertical spreads are becoming a real pain in volatile markets.
I put on a PAPER MONEY diagonal(1375/1400 Oct/Nov calls and 1275/1250 Oct/Nov Puts) when SPX was around 1350 for a debit of $2.5

With all the action, the price swung from $1.75 to $3.5 which isnt any pain at all.Today i could have sold it for $3.5.If i wait until Oct expiration, the Nov Calls + Puts will have a value of atleast $4 (today they are $3.8 calls and $0.6 Puts = $4.4).

I had another paper money Cross month fly.
-10 Oct 1350 Calls -- $4.0 Credit------------------$16.5(Value Now)
+20 Nov 1350 Calls -- $10.3 Debit----------------$28.0(Value Now)
-10 Dec 1350 Calls-- $19.8 Credit-----------------$38.0(Value Now)

Total Credit: $3.2-------------------------------------$1.5(Value Now)

I am not sure about how to close this strategy yet.

So, i am beginning to favor strategies like these.