SPX Credit Spread Trader

RichardRimes · Nov 9, 2006

Quote from cohenmichaela:

You say OTM options are "drastically underpriced". This is

P.S. - I miss riskarb. I'm sure he'd have a 2 line response to this that would require me to spend the next 6 months translating it.

Here is the rub. ...

Quite a few of us here do. I believe he is now a proud father of a baby girl which may "soften" his uhmmm tone?

MTE · Nov 9, 2006

Quote from RCMLLC:

I remember reading from one of the threads that you don't want to use haircut margin and only reg-t, so I assume you meant 100-100% cash but not that in buying power. Am I correct in my assumption?

Actually, if you are net short premium then technically you are all in cash (if you include margin) and the premium that you receive is also cash so you actually have more cash than you started with.

MTE · Nov 9, 2006

Quote from Cache Landing:

You want another idea that I learned a while back from my professor in a "Capital Markets: hedge fund/private equity" course?

Develop a strat that is non-correlating with the broader market. Then they really love you. A huge portion of hedge funds out there are simply leveraged long only funds. An investor can find thousands of funds that show high correlation with the broader market. What they need to find is a fund that is non-correlated but produces returns greater than a money market fund. This balances out their port better.

That's what I'm doing!

cohenmichaela · Nov 9, 2006

I hope he is well. His tone provided almost as much value in entertainment as his posts did in education.

Quote from RichardRimes:

Quite a few of us here do. I believe he is now a proud father of a baby girl which may "soften" his uhmmm tone?

yip1997 · Nov 9, 2006

Quote from MTE:

Do you have any links to that? I'd like take a closer look at that.

You can check Max Ansbacher's website. In one of his presentation, he mentioned something like that. His book, "The New Options Market" also mentioned this approach for surviving as a premium seller.

yip1997 · Nov 9, 2006

Quote from RCMLLC:

PLease tell me this is a factual statement, and that you can back it up .... because I would really like to know who would pay a manager 2% to magement 80% of their cash.

Those capital sitting there are actually working for the porfolio

yip1997 · Nov 9, 2006

Quote from yip1997:

Those capital sitting there are actually working for the porfolio

[edit] you can't manage your portfolio without any reserve. You want a "good" fund manager who knows when to get in the market, and when not to, not someone who just continue opening credit spreads with full capital involved. If you use all the capital for credit spread, one black swan will kill the whole fund.

yip1997 · Nov 9, 2006

Quote from MTE:

Why don't we open it for discussion?

I've been doing some extensive testing on a certain premium selling strategy and this is the "problem" I run into. Using more than about 20% of the capital creates huge drawdowns, when you hit a losing streak.

It is the topic of optimal position sizing I mentioned. Optimal position sizing or optimal leveraging depends on your strategy and your trading style.

This is an interesting topic for hedge fund management.

You want to optimize your expected return, and in the same thing, your porfolio will have a x% confidence that it will not go below y%.

You have to use your trading data to find out the optimal leveraging.

rallymode · Nov 9, 2006

Quote from RCMLLC:

I remember reading from one of the threads that you don't want to use haircut margin and only reg-t, so I assume you meant 100-100% cash but not that in buying power. Am I correct in my assumption?

It's not that i dont want to use haircut margin, it sure can come in handy and i have been up to 100% in margin at times. Just last month i wish i had access to haircut margin. What i was probably saying is that 99% of the time i have no need for leverage and even reg-t is way over what i need. I dont sell cheap gamma and it's rare that my short gamma is unbounded so i have no need for haircut. If you pulled a random sample from my account a few times over the year, you will see i am usually at 100-110% cash(not buying power), with 85-95% in available margin.

RCMLLC · Nov 9, 2006

This point is obvious .... the other part would depend on what you are trading and the r/r ratio. Carry on ....

Quote from yip1997:

[edit] you can't manage your portfolio without any reserve. You want a "good" fund manager who knows when to get in the market, and when not to, not someone who just continue opening credit spreads with full capital involved. If you use all the capital for credit spread, one black swan will kill the whole fund.