Quote from GMarshall:
I have been using a strategy similar to yours since 03 but with s&p futures, the main difference being the position is naked, I use t-bills as margin instead of cash.
One of the problems I have had with this strategy is as you begin to accrue profits and profits accrue regularly, it is tempting to reinvest gains & increase position size, yet the danger is, when the inevitable blowout occurs you could wipe out most of your gains if you have added too much to your position size.
One of the problems with trading multiple indicies is risk tends to be too correlated.In the event of a crash all the indicies will get killed at once.
I have been looking for ways to diversify/spread risk and reinvest profits, by looking at other types of trading & markets, I did look at spreads on equities but again most of the liquid optionable equities have too much correlated risk to the S&P. When the S&P takes a dive they almost all get hit together.
I found good diversification and liquidity in futures such as silver,soybeans coffee etc ,I was wondering if you had tried a similar strategy with commodities, would you consider going naked in any of these markets with the benefit of SPAN margin or do you always go for spreads.
Regards
GM
i traded similarly this year to you; but with some differences. i would of course be interested in others who share these experiences.
i traded er2 naked. 12% to 15% otm. i spent 5% to 10% of each months earnings buying debit spreads just above shorts and more recently long qqqq puts(which i am leaning toward because i can buy a large amount for little and have a major impact)
er2 gives 1pt to es .5 for the same margin. i took out my earnings (70k) and plan on paying taxes.
this year (2007, but started in dec2006)
i will exclusively do spreads the same distance out, trying to credit 1pt plus for each. i generally will have some more longs than shorts in the spread, and hedged with long qqqq's.
the margin requirement is very , very small, so to answer your point about adding to the position with earnings....yes i do. i am confident that reducing the chances of needing to manage the position by being wotm is one of the only ways to generate actual , reliable income. with or without the hedges in place i have and will continue to roll another 7% otm if necessary. that would mean a 19% to 22% drop before i start to lose money. with more long puts than short, this is all possible.
i will add; i have been doing this for 12 years fine tuning all along the way.
i have seen and endured the big drops, it take very clear thinking. one cannot over emphasize management.
also, it was nice to see riskarb posting on that other board. if anyone knows where he may be active; i would appreciate a pm. thanks
