SPX Credit Spread Trader

[dagnyt]

Quote from yip1997:


Assuming you have no market bias, most strategies will lose money in this market.

Hi YIP,

That's extremely shortsighted. Anyone who buys debit spreads came out a winner. Also backspreaders and their cousins, the straddle/strangle buyers. And that includes premium sellers who own positive curvature.

Perhaps the only strategies you consider worthwhile are money losers in this environment, but that does not mean 'most' lose.

Mark

 

[Maverick74]

Quote from rallymode:

Well i didnt feel the need to elaborate but i see you are losing focus, Phil. Baby taking a toll on you? LOL jk

It is relevant in the context of your statements that the FOTM vertical is a good play when good risk management is employed. Stop feeding these clichés to the folks on this thread. LOL There is no such thing as risk managing a 20:1 r/r position properly. The best hedge is to not open the position at all. I am sure the argus guy thought his risk management was rock solid, just as you think yours is (no pun intended).

The most consistently profitable options traders i know of are also the best risk managers. They are able to extract the most profit for each unit of risk. By definition alone, the FOTM vertical gets excluded from the list of even viable strats. Allocating 20% of personal cash to FOTM verticals isnt called managing risk, it is called managing 20% of your cash recklessly.

Anyway, i am experiencing a dejavu, so i will stop.

Rally, be careful, you are starting to sound like me.

 

[Maverick74]

Quote from yip1997:


Assuming you have no market bias, most strategies will lose money in this market. You got a perceived edge because of your market outlook, not because of your "better" risk/reward strategy. Can you use an example to show how a CTM vertical can be better managed in this market?

I disagree as well. There are many of us that are doing well in this market environment. In fact, for the newbies on this board, this is how the market actually behaved for about 10 years. These kind of markets build great traders and eliminate the bad ones.

 

[Drofman]

Quote from Maverick74:

I disagree as well. There are many of us that are doing well in this market environment. In fact, for the newbies on this board, this is how the market actually behaved for about 10 years. These kind of markets build great traders and eliminate the bad ones.

Seems like a training opportunity for the benefit of us newbies. This market certainly has our attention and many would give a left gonad (or other part of the anatomy if not gender appropriate) for learning how to survive this kind of market drop. Would you care to summarize the differences between the “great traders” and those being eliminated i.e. “bad ones”?

My personal experience was that I survived the June/July 2006 drop with limited loses because I limited my commitment to about 20% of funds. The situation was made even more frustrating because I dumped right at the bottom (SPX at 1226) when I would have been positive if had not panicked. I stayed on sideline until Feb 2007 (out of frustration plus was otherwise busy). In February I was looking good with FOM condors and some March ITM Calls until last Thursday. I realize that I could be the “poster boy” for the “bad ones” but hope you won’t rub it in.

 

[blure2]

Quote from Drofman:

Seems like a training opportunity for the benefit of us newbies. This market certainly has our attention and many would give a left gonad (or other part of the anatomy if not gender appropriate) for learning how to survive this kind of market drop. Would you care to summarize the differences between the “great traders” and those being eliminated i.e. “bad ones”?

My personal experience was that I survived the June/July 2006 drop with limited loses because I limited my commitment to about 20% of funds. The situation was made even more frustrating because I dumped right at the bottom (SPX at 1226) when I would have been positive if had not panicked. I stayed on sideline until Feb 2007 (out of frustration plus was otherwise busy). In February I was looking good with FOM condors and some March ITM Calls until last Thursday. I realize that I could be the “poster boy” for the “bad ones” but hope you won’t rub it in.

Drof:

Read, read, read. Start with this thread and save pages to a file or make hard copies or reference the pages in a notebook so you can recall them later.

Go to The OptionClub or OptionCoach on Yahoo Groups. One or the other, or both, offer a suggested reading list. Buy the books and dig in.

Ask lots of questions here and elsewhere. There are plenty of people who will answer your questions.

If you haven't already, open an account with Thinkorswim. Use the Analyze page and model strategies. Adjust the variables such as vol. and time to gain an understanding of how they will effect your trade. Plus work through adjustments and bailouts.

Take your time and invest lots and lots of your time into this endeavor. You will quite possibly be glad you did.

Good luck!

Bob

 

[El OchoCinco]

Let me put the argument you made in simple terms:

Me: A lot of apples are red.

You: NOT TRUE! I know of a yellow apple.

Whether Argus makes or lose money is not relevant to whether FOTM spreads are a good strategy or not. If Argus is selling 1400/1390 put spreads with the SPX at 1450, then they are playing with fire in my opinion. The person I know who is doing this on a much bigger level than me has not lost money during this drop because they are still out near 1300 on the short side with 2 weeks to go to expiration. Still does not make the strategy great or poor.

An old saying: An example is not a proof.

If Argus got wiped out, then their risk management sucked. After Tuesday's drop, there were 2 separate opportunities to hedge or get out of any put spreads FOTM with a small loss. But again, that is not really relevant to the opinion expressed. Someone trading naked straddles with 20% of their portfolio is exercising bad risk management over 20% of their portfolio. But I am sure some people can do naked straddles under the right conditions and make good money.

But I would never make blanket statements that any strategy is the best or the worst. Credit spreads are not the best strategy, by a long shot for most but they simply have worked for me over the past few years. This journal shares those trades but makes no blanket generalizations.

Let's leave the oft-repeated discussion out because if people here are not smart enough to heed the warnings that have been made countless times in this journal then they have no one else to blame if they took massive hits since what happend this week is not even outside the realm of possibility.

This is a dead horse so no need to revisit it over and over again.

Quote from rallymode:

Well i didnt feel the need to elaborate but i see you are losing focus, Phil. Baby taking a toll on you? LOL jk

It is relevant in the context of your statements that the FOTM vertical is a good play when good risk management is employed. Stop feeding these clichés to the folks on this thread. LOL There is no such thing as risk managing a 20:1 r/r position properly. The best hedge is to not open the position at all. I am sure the argus guy thought his risk management was rock solid, just as you think yours is (no pun intended).

The most consistently profitable options traders i know of are also the best risk managers. They are able to extract the most profit for each unit of risk. By definition alone, the FOTM vertical gets excluded from the list of even viable strats. Allocating 20% of personal cash to FOTM verticals isnt called managing risk, it is called managing 20% of your cash recklessly.

Anyway, i am experiencing a dejavu, so i will stop.

 

[ssternlight]

Quote from yip1997:

I think Argus is wrong in his annual performance summary. He said -12.31% max drawdown, but the actual max drawdown should be -32% from Sep 06 to Nov 06. Just don't understand how NFA audits his record.

A record in Argus cannot be used as a proof that the strategy is bad. Look at Ansbacher's record
http://www.ansbacherusa.com/perform_ansbacher.htm

Of course, Ansbacher's record cannot be used to prove that the strategy is good.

Assuming you have no market bias, most strategies will lose money in this market. You got a perceived edge because of your market outlook, not because of your "better" risk/reward strategy. Can you use an example to show how a CTM vertical can be better managed in this market?

It will be a month or so before he posts his results but I am quite curious to see how he fares through this one. He is certainly the old hand at this game.

 

[rallymode]

Quote from optioncoach:
Let's leave the oft-repeated discussion out because if people here are not smart enough to heed the warnings that have been made countless times in this journal then they have no one else to blame if they took massive hits since what happend this week is not even outside the realm of possibility.

This is a dead horse so no need to revisit it over and over again.

I see nothing wrong in reminding people that the old risk management cliche doesnt always work especially in light of the price action last week.

BTW, you save the apple analogy for your students, i am certainly aware of what data mining is.

 

[El OchoCinco]

yes you did a perfect example of random sampling

Quote from rallymode:

I see nothing wrong in reminding people that the old risk management cliche doesnt always work especially in light of the price action last week.

BTW, you save the apple analogy for your students, i am certainly aware of what data mining is.

 

[El OchoCinco]

Let's move forward and leave the journal to those who want to discuss SPX credit spreads. All other talk is off-topic.