SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
High Sea
I agree sort of: TOS have closed me twice on live chat now. They give me CLOSING instructions, but really cannot do them until the event is upon me. Failed again. Live help closed my spread for me and apparently they have two platforms, the desktop and the web based. In each they give different instructions. I will get it figured out for sure.
Phil really had me discouraged that you cannot make money with credit spreads commentary. If anybody should know, he should, as he has been at it for years from reading the threads. ( Got to do some more reading! ) I'm not doing this like playing solataire on the games computer program, or mine sweeper. Of course I want to make some money. Don't need to make any money, but if I'm going to do it, I certainly want a reward, other than overcoming a mental challenge. Now I see he has qualified his opinion again? Well I'll continue for a while and see where it leads.
Aaahh well!
What I'm wondering if Phil would be so kind as to comment educationally. Since he has switched to other types of spread trading, such as butterflys, ratio spreads, diagonals, flys ( what are those? ) Which type of spread trading is the most safe and rewarding and if he had to rate them from that viewpoint on a percentage score, how would he rate the different strategies. I respect his experienced opinion and he can and does by offering his opinions save oodles of years of experience needed to come to some sort of method by trial and error learning. This novice would appreciate the offering of his pearls of personal wisdom and experience. No sense me re-inventing the wheel. What say PHIL care to share your results type opinion?
_____________________
Friday, July 16, 2010
BELIZE OEX CREDIT SPREAD TRADER NOVICE
OEX SPREAD TRADING RESULTS FOR WEEK OF JULY 12 th to 16th.
12 th. WINNING WEEK
40 July PUTS 480/475 @ originally .30 cent limit. It was closed early when threatened and resulted in losing some of the $1070 gain expected. End result was + $339 WIN! Return on margin investment of $20,000 was 1 1/2 % for the week.
______________________________
Trouble was again experienced with learning how to CLOSE A SPREAD on the Thinkorswim web based platform. Live Help people closed the spread for me. Until next time, I try a new set of instructions on how to CLOSE a SPREAD.
______________________________
SUMMARY SO FAR FOR THREE MONTHS:
MAY 2010 I had 16 winning spread trades using two brokerage accounts that overlapped somewhat on similar trades. I was testing methodology and learning. Neglected to record winning amounts.
JUNE OPTION MONTH was 4 winning trades earning + $1457
JULY OPTION MONTH was 3 winning trades earning + $1000
In two months therefore I earned + $2457
______________________________
I have been raising trade size gradually, to see what would make the best earnings. This coming week, we will probably do between 40 and 60 contract sized trades starting with August OPTION month. Trying to get into a boring monotonous rhythm here.
________________________________
Posted by Western Belize Happenings! at 2:04 PM 0 comments
I agree sort of: TOS have closed me twice on live chat now. They give me CLOSING instructions, but really cannot do them until the event is upon me. Failed again. Live help closed my spread for me and apparently they have two platforms, the desktop and the web based. In each they give different instructions. I will get it figured out for sure.
Phil really had me discouraged that you cannot make money with credit spreads commentary. If anybody should know, he should, as he has been at it for years from reading the threads. ( Got to do some more reading! ) I'm not doing this like playing solataire on the games computer program, or mine sweeper. Of course I want to make some money. Don't need to make any money, but if I'm going to do it, I certainly want a reward, other than overcoming a mental challenge. Now I see he has qualified his opinion again? Well I'll continue for a while and see where it leads.
Aaahh well!
What I'm wondering if Phil would be so kind as to comment educationally. Since he has switched to other types of spread trading, such as butterflys, ratio spreads, diagonals, flys ( what are those? ) Which type of spread trading is the most safe and rewarding and if he had to rate them from that viewpoint on a percentage score, how would he rate the different strategies. I respect his experienced opinion and he can and does by offering his opinions save oodles of years of experience needed to come to some sort of method by trial and error learning. This novice would appreciate the offering of his pearls of personal wisdom and experience. No sense me re-inventing the wheel. What say PHIL care to share your results type opinion?
_____________________
Friday, July 16, 2010
BELIZE OEX CREDIT SPREAD TRADER NOVICE
OEX SPREAD TRADING RESULTS FOR WEEK OF JULY 12 th to 16th.
12 th. WINNING WEEK
40 July PUTS 480/475 @ originally .30 cent limit. It was closed early when threatened and resulted in losing some of the $1070 gain expected. End result was + $339 WIN! Return on margin investment of $20,000 was 1 1/2 % for the week.
______________________________
Trouble was again experienced with learning how to CLOSE A SPREAD on the Thinkorswim web based platform. Live Help people closed the spread for me. Until next time, I try a new set of instructions on how to CLOSE a SPREAD.
______________________________
SUMMARY SO FAR FOR THREE MONTHS:
MAY 2010 I had 16 winning spread trades using two brokerage accounts that overlapped somewhat on similar trades. I was testing methodology and learning. Neglected to record winning amounts.
JUNE OPTION MONTH was 4 winning trades earning + $1457
JULY OPTION MONTH was 3 winning trades earning + $1000
In two months therefore I earned + $2457
______________________________
I have been raising trade size gradually, to see what would make the best earnings. This coming week, we will probably do between 40 and 60 contract sized trades starting with August OPTION month. Trying to get into a boring monotonous rhythm here.
________________________________
Posted by Western Belize Happenings! at 2:04 PM 0 comments
Please re read my comments again. I never said you could not make money. I said it would be impossible to MAKE A LIVING selling credit spreads UNLESS you already had a large cash stake where you do not really need to work at all. Making money and living 100% off of the money you make are 2 different things.
WOW! Sonoma!
I certainly appreciate what you are saying, but as a novice I don't understand it. I'm going to study some more on this.
"Short DELTA 5 options, then short gamma medially at ATM, buy the wings. "
You totally lost me there for the moment, until I try to figure out in rural hillbilly, aw shucks, mentality, what you are talking about? It sounds impressive and good. But I'm lost! I've got cows across the valley MOOING this morning, the fog is down to ground level and the neighbors chickens across the street are cackling because they laid an egg.
I really appreciate these contributions and with the reading of the threads so far, ( couple thousand yet to go ) there are contributions by some very sophisticated people in the business, that are way over my head and I'm a slow learner. I learn good, when I have got it, but getting there is a chore. The MARKET MAKER contributions have me completely mystified. However I like the comment you just made, and it sounds useful and intriguing, NOW I have to figure out the nuances to fit my trading style on the OEX and what you are referring to with the technical lingo.
Let me rehash a little background history, so you know my limitations. Back in the 90's I traded OEX long puts and calls and was back then a referred to as a MARKET TIMER. I remember reading some books on trading in the Florida International University library in Miami. One phrase stuck in my mind through the past decade or so. MARKET TIMERS WIN MANY BATTLES, but SPREADERS WIN THE WAR!
I probably made a little money as a Market Timer, but never got wealthy like I imagined I would, compounding earnings as in the many advertising blurbs. Then came a break of a dozen years when I was out of the market and into real estate instead. Which worked out a whole lot more profitable. I'm retired now, in the foothills of the Belize Alps and was looking for something to do. So last year about August started looking at trading again. This time I thought I would be a SPREAD TRADER. Old dog trying to learn new tricks sort of thing. I couldn't get internet here, until February, but started doing research by driving into the nearby agricultural small town to use the internet cafe each day and experimenting. By February this year I got a broadband, dial up 115 kbps connection out here in my house. The bandwidth is bad and the speed is slow. Still I spent a couple of months trying to learn spread trading, on paper. I chose CREDIT SPREADS because of the advertising salesmanship blurbs and looked into that. My temperament now does not like taking losses if they can be avoided. I'm currently using whatever left over market timing, chart reading skills I have to trade with.
For those newbies, back in the 90's I used to have Super Charts and Trade Station and made hundreds of indicators. Finally threw the whole shebang in the garbage. Trend lines, horizontal resistance and support lines and classic chart patterns were more useful than all the computer indicators, which are LAGGING indicators. Credit Spreads respond well to the classic simple approach and as a rural hillbilly, suit my background and learning capabilities.
Between a few months trying out different approaches looking for a way to do some consistant trading, with reasonable results and attempting to decide between OPTION HOUSE and THINKORSWIM, I recently since June decided on THINKORSWIM, which brings me to the present. They have two platforms and I'm using the web based platform and some of the things like CLOSING A SPREAD steps are slightly different apparently, which is causing me problems right now. But I'll get it figured out.
I'm reasonably satisfied that I understand the CREDIT SPREAD nuances now within the context of the OEX. I wouldn't dream of trying the SPX on which most of PHIL's method is based. Between the advertising hype for credit spreads, iron condors ( I don't like them ), and such, by trade signal sellers, these credit spreads seemed the most promising choice. Now I state frankly I do not yet understand the nuances of using GREEKS. I'm trying to and got DELTA down fairly well. I'd like you to re-write what you said in a country hillbillys plain language, so I can get an online dictionary and figure out what you are talking about. This thread has a lot of very smart experienced people on here, that may not like to take the time to inform and educate a newbie in spread trading.
That is why Phil's contribution with this thread is so important as an archive for learners of a new generation. I have not found another site on the internet that is so informative.
Trading has changed dramatically since the 90's due to the internet information sources. The best trader I ever knew was THE TOAD, who used to trade 1 to 3 day volatility trades and had huge drawdowns sometimes, but always managed to make $75,000 or so a year. I believe his old web sites are still on the internet rusting away. What was most appreciative to me at least was you could follow his blow by blow trades, with losses, commission costs, and profits on a daily, or weekly basis and back engineer his real time trading method. The bottom line results in such a fashion was VERY INSTRUCTIVE, because of his work sheet statement he published online. Mind you I never could duplicate it, as his style of trading was very intuitive. But still it was encouraging because from his accounting statement you could see it was possible to make money trading. Which in of itself is a VERY ENCOURAGING thing.
That said; I'm like a kid in a candy store. There are too many choices for my nickel. There are all kind of spreads to trade and twists to spreads and so forth. I read the stuff, but don't know which to pick and it is TIME WASTING to diddle with them all. Which is why I suggested and politely asked PHIL who I respect very much, to tell us on here; which is the safest and most rewarding spread system to use from HIS PERSONAL EXPERIENCE. It is time to widen my education here, but which candy to pick?
Now Sonoma your contribution is an eye opener, but I cannot yet put it into context, because of the technical jargon, with which some I am not familiar, nor the application method you are referring to. If you could kind of explain like in TRADING FOR DUMMIES books, I'd find that VERY USEFUL and am intrigued. Give me something to grab onto please. Sounds very interesting and experienced.
Appreciate it!
I certainly appreciate what you are saying, but as a novice I don't understand it. I'm going to study some more on this.
"Short DELTA 5 options, then short gamma medially at ATM, buy the wings. "
You totally lost me there for the moment, until I try to figure out in rural hillbilly, aw shucks, mentality, what you are talking about? It sounds impressive and good. But I'm lost! I've got cows across the valley MOOING this morning, the fog is down to ground level and the neighbors chickens across the street are cackling because they laid an egg.
I really appreciate these contributions and with the reading of the threads so far, ( couple thousand yet to go ) there are contributions by some very sophisticated people in the business, that are way over my head and I'm a slow learner. I learn good, when I have got it, but getting there is a chore. The MARKET MAKER contributions have me completely mystified. However I like the comment you just made, and it sounds useful and intriguing, NOW I have to figure out the nuances to fit my trading style on the OEX and what you are referring to with the technical lingo.
Let me rehash a little background history, so you know my limitations. Back in the 90's I traded OEX long puts and calls and was back then a referred to as a MARKET TIMER. I remember reading some books on trading in the Florida International University library in Miami. One phrase stuck in my mind through the past decade or so. MARKET TIMERS WIN MANY BATTLES, but SPREADERS WIN THE WAR!
I probably made a little money as a Market Timer, but never got wealthy like I imagined I would, compounding earnings as in the many advertising blurbs. Then came a break of a dozen years when I was out of the market and into real estate instead. Which worked out a whole lot more profitable. I'm retired now, in the foothills of the Belize Alps and was looking for something to do. So last year about August started looking at trading again. This time I thought I would be a SPREAD TRADER. Old dog trying to learn new tricks sort of thing. I couldn't get internet here, until February, but started doing research by driving into the nearby agricultural small town to use the internet cafe each day and experimenting. By February this year I got a broadband, dial up 115 kbps connection out here in my house. The bandwidth is bad and the speed is slow. Still I spent a couple of months trying to learn spread trading, on paper. I chose CREDIT SPREADS because of the advertising salesmanship blurbs and looked into that. My temperament now does not like taking losses if they can be avoided. I'm currently using whatever left over market timing, chart reading skills I have to trade with.
For those newbies, back in the 90's I used to have Super Charts and Trade Station and made hundreds of indicators. Finally threw the whole shebang in the garbage. Trend lines, horizontal resistance and support lines and classic chart patterns were more useful than all the computer indicators, which are LAGGING indicators. Credit Spreads respond well to the classic simple approach and as a rural hillbilly, suit my background and learning capabilities.
Between a few months trying out different approaches looking for a way to do some consistant trading, with reasonable results and attempting to decide between OPTION HOUSE and THINKORSWIM, I recently since June decided on THINKORSWIM, which brings me to the present. They have two platforms and I'm using the web based platform and some of the things like CLOSING A SPREAD steps are slightly different apparently, which is causing me problems right now. But I'll get it figured out.
I'm reasonably satisfied that I understand the CREDIT SPREAD nuances now within the context of the OEX. I wouldn't dream of trying the SPX on which most of PHIL's method is based. Between the advertising hype for credit spreads, iron condors ( I don't like them ), and such, by trade signal sellers, these credit spreads seemed the most promising choice. Now I state frankly I do not yet understand the nuances of using GREEKS. I'm trying to and got DELTA down fairly well. I'd like you to re-write what you said in a country hillbillys plain language, so I can get an online dictionary and figure out what you are talking about. This thread has a lot of very smart experienced people on here, that may not like to take the time to inform and educate a newbie in spread trading.
That is why Phil's contribution with this thread is so important as an archive for learners of a new generation. I have not found another site on the internet that is so informative.
Trading has changed dramatically since the 90's due to the internet information sources. The best trader I ever knew was THE TOAD, who used to trade 1 to 3 day volatility trades and had huge drawdowns sometimes, but always managed to make $75,000 or so a year. I believe his old web sites are still on the internet rusting away. What was most appreciative to me at least was you could follow his blow by blow trades, with losses, commission costs, and profits on a daily, or weekly basis and back engineer his real time trading method. The bottom line results in such a fashion was VERY INSTRUCTIVE, because of his work sheet statement he published online. Mind you I never could duplicate it, as his style of trading was very intuitive. But still it was encouraging because from his accounting statement you could see it was possible to make money trading. Which in of itself is a VERY ENCOURAGING thing.
That said; I'm like a kid in a candy store. There are too many choices for my nickel. There are all kind of spreads to trade and twists to spreads and so forth. I read the stuff, but don't know which to pick and it is TIME WASTING to diddle with them all. Which is why I suggested and politely asked PHIL who I respect very much, to tell us on here; which is the safest and most rewarding spread system to use from HIS PERSONAL EXPERIENCE. It is time to widen my education here, but which candy to pick?
Now Sonoma your contribution is an eye opener, but I cannot yet put it into context, because of the technical jargon, with which some I am not familiar, nor the application method you are referring to. If you could kind of explain like in TRADING FOR DUMMIES books, I'd find that VERY USEFUL and am intrigued. Give me something to grab onto please. Sounds very interesting and experienced.
Appreciate it!
SONOMA
First I would like to graciously thank you for responding. Not many professionals would take the time to teach basics to a beginner. I appreciate it very much.
At this writing I had just looked up the information on GOOGLE and found most of it on some website for THINKORSWIM. They were talking Vertical spreads and Butterflys mostly. I've just become intuitively aware of the advantages and disadvantages of Vertical credit spreads. The ThinkorSwim web page left me even more confused. I know nothing of Butterflies and any other spreads other than general reading, but no practical experience.
I was delighted therefore to see you had replied with beginners English. I got more sense out of what you said, than what THINKORSWIM were saying.
1) Don't short PUT verticals at Delta of 5 ? From memory I think most of my premiums are usually around 10 to 17 DELTA, or in the neighborhood of .30 cents with a limit order and sometimes I get up to .45 cents occasionally. I try to enter a Vertical Spread with the index moving and volatility rising. What in my own personal memory picture is 'premium ballooning', however temporarily. Usually for 10 minutes to 45 minutes as the index will gyrate. I try to wait for it. Not always successful, but often enough to help out the bottom line.
2) I got a definition on medially and that is average or mean. Never used GAMMA and so will try Market Watch tomorrow and see if they have a 5 day chart of GAMMA one can run an average through? See what the picture of the chart would tell me of what you are talking about?
3) Your choice of DELTA at 35 to 50 seems a bit out to me, as I had been more or less trying to see the index gyrate more than 3 strikes out, or 17 to 18 points, between 3 and 4 strikes out. Then when it retreats back under 3 strikes, pick up the premiums. In one week the OEX most of the time gyrates from the week starting point about 3 to 4 strikes. Forget it now as I don't think about it, as I'm watching the premiums changing and trying to get a bigger premium from the screen. The fact that the index had swung out between 3 and 4 strikes means to me I'm at the outer swing extremity of the mean average of the index movements. Time to place my Vertical Spread.
This is just something I taught myself and figured out I believe a 3 strike swing is normal either side of the mean in a normal market for the OEX? So trying to think of this in GAMMA and DELTA is a foreign approach for the thinking process for me, than you are using. I'll try to transpose it on Monday. It is a question of language.
4) Wing Strikes and laterally, I understood you to mean buy further out strike options. I certainly would, but the OEX is a tight index and three strikes seems to be the range of least risk and best reward. You don't have the premiums in WEEKLIES to do that. You do in Monthlies. I'm not trading monthlies.
I made this decision to trade weeklies because after reading the beginning posts of this thread of Phil's, it was obvious that he would only get 8 to 10 trades a year based on monthlies. Though in the SPX he has developed a method to roll up, or down of his own and increase the number of trades. Doing the math it didn't seem like enough money worth the effort. The only other solution is to go to increasing number of contracts, which is the stage I'm at now of figuring things out. If George Soros can do it, so can I. ( laugh! )
Something you said here, seemed to indicate you suggested bigger spacing between the STRIKEs than the standard 5 OEX points and occasionally 10 strikes one gets. This to broaden the profit range. I'm not too good reading OPTION SOFTWARE and having my brain intrepret what I'm seeing on the graphs. I believe widening the STRIKES in a Vertical requires more margin? Will have to check on that?
I chose WEEKLIES for trading because to do this at all, one should measure ones success by profit balance. With weeklies I have the opportunity to make 4 trades per month, versus a monthly with only one trade per month. In some cases you can get up to 8 trades a month. Depending on the market. Mind you my experience is limited only to 12 weeks so far, which is not enough.
My current experience minimal as it is, is showing that 40 contracts, or a margin or trading account of $20,000 could produce $3000 to $4000 a month, if one has no losses. Using the same margin over and over again, each week. I'm going to play with that number over the next couple of weeks and keep my fingers crossed that I don't get wiped out.
I'm still puzzled by making adjustments constantly mentioned. In weeklies on the OEX a condensation of the collective wisdom from the posts on this thread seem to be to just CLOSE THE SPREAD if threatened and do not bother to roll up or down. Which is what I have chosen therefore to do, bowing to people with experience, learned from their pocketbooks. CLOSING a spread in a 5 day weekly trade, with rapidly changing TIME DECAY or THETA you are selling, means so far in my live experience, that it isn't until late THURSDAY, do the computer adjustments to THETA take effect sufficient, to give me some return on a trade being threatened. Which happened this past week. I also wanted to try the instructions for CLOSING A SPREAD which failed me. Got to lick that in the next week or two. Fortunately you can use LIVE HELP to close the SPREAD.
The EXIT decision process is very important to protecting your margin money and I get that. Phil has talkied about it often enough. From my studies of this, if I can hang on to the trade until 10 a.m. Friday morning, I will retain some CREDIT, or a smaller profit. This is because a weekly is in the heaviest part of the TIME DECAY cycle which seems to accelerate as the days of the week progress and to be computer generated for THETA adjusting, market maker systems. You can pick your times by the clock. I can't seem to get out of a trade without a loss, before either an hour before CLOSE on Thursday, or 10 a.m. Friday morning. If my spread is threatened and I can hang on until then, the MAGIC OF TIME DECAY will rescue the threatened trade, at least partially. In hindsight Friday my trade stayed in the money anyway all day until expiration and I gave up about 760 dollars to CLOSE THE SPREAD. But I'm satisfied I did the right thing by the exit rules I had mentally established. So better a small profit, than have gone into my margin money. Which at 40 contracts would have been ruinous.
You though in some comments on this with references to GAMMA and DELTA , but I lack the mental intuitive thinking process to think in these terms of OPTION SOFTWARE. My mental process is more hands on practical as the premiums and the index changes. Just a different way of visualization of the same thing I guess? I'll try to learn it. I've tried numerous times, but have a mental block.
Let me close this long story with a BIG THANK YOU for taking the time to explain your technical jargon references of a professional to a newbie. I barely understood a word you said ( grin! ) There are too few polite people in the world today. You are appreciated.
First I would like to graciously thank you for responding. Not many professionals would take the time to teach basics to a beginner. I appreciate it very much.
At this writing I had just looked up the information on GOOGLE and found most of it on some website for THINKORSWIM. They were talking Vertical spreads and Butterflys mostly. I've just become intuitively aware of the advantages and disadvantages of Vertical credit spreads. The ThinkorSwim web page left me even more confused. I know nothing of Butterflies and any other spreads other than general reading, but no practical experience.
I was delighted therefore to see you had replied with beginners English. I got more sense out of what you said, than what THINKORSWIM were saying.
1) Don't short PUT verticals at Delta of 5 ? From memory I think most of my premiums are usually around 10 to 17 DELTA, or in the neighborhood of .30 cents with a limit order and sometimes I get up to .45 cents occasionally. I try to enter a Vertical Spread with the index moving and volatility rising. What in my own personal memory picture is 'premium ballooning', however temporarily. Usually for 10 minutes to 45 minutes as the index will gyrate. I try to wait for it. Not always successful, but often enough to help out the bottom line.
2) I got a definition on medially and that is average or mean. Never used GAMMA and so will try Market Watch tomorrow and see if they have a 5 day chart of GAMMA one can run an average through? See what the picture of the chart would tell me of what you are talking about?
3) Your choice of DELTA at 35 to 50 seems a bit out to me, as I had been more or less trying to see the index gyrate more than 3 strikes out, or 17 to 18 points, between 3 and 4 strikes out. Then when it retreats back under 3 strikes, pick up the premiums. In one week the OEX most of the time gyrates from the week starting point about 3 to 4 strikes. Forget it now as I don't think about it, as I'm watching the premiums changing and trying to get a bigger premium from the screen. The fact that the index had swung out between 3 and 4 strikes means to me I'm at the outer swing extremity of the mean average of the index movements. Time to place my Vertical Spread.
This is just something I taught myself and figured out I believe a 3 strike swing is normal either side of the mean in a normal market for the OEX? So trying to think of this in GAMMA and DELTA is a foreign approach for the thinking process for me, than you are using. I'll try to transpose it on Monday. It is a question of language.
4) Wing Strikes and laterally, I understood you to mean buy further out strike options. I certainly would, but the OEX is a tight index and three strikes seems to be the range of least risk and best reward. You don't have the premiums in WEEKLIES to do that. You do in Monthlies. I'm not trading monthlies.
I made this decision to trade weeklies because after reading the beginning posts of this thread of Phil's, it was obvious that he would only get 8 to 10 trades a year based on monthlies. Though in the SPX he has developed a method to roll up, or down of his own and increase the number of trades. Doing the math it didn't seem like enough money worth the effort. The only other solution is to go to increasing number of contracts, which is the stage I'm at now of figuring things out. If George Soros can do it, so can I. ( laugh! )
Something you said here, seemed to indicate you suggested bigger spacing between the STRIKEs than the standard 5 OEX points and occasionally 10 strikes one gets. This to broaden the profit range. I'm not too good reading OPTION SOFTWARE and having my brain intrepret what I'm seeing on the graphs. I believe widening the STRIKES in a Vertical requires more margin? Will have to check on that?
I chose WEEKLIES for trading because to do this at all, one should measure ones success by profit balance. With weeklies I have the opportunity to make 4 trades per month, versus a monthly with only one trade per month. In some cases you can get up to 8 trades a month. Depending on the market. Mind you my experience is limited only to 12 weeks so far, which is not enough.
My current experience minimal as it is, is showing that 40 contracts, or a margin or trading account of $20,000 could produce $3000 to $4000 a month, if one has no losses. Using the same margin over and over again, each week. I'm going to play with that number over the next couple of weeks and keep my fingers crossed that I don't get wiped out.
I'm still puzzled by making adjustments constantly mentioned. In weeklies on the OEX a condensation of the collective wisdom from the posts on this thread seem to be to just CLOSE THE SPREAD if threatened and do not bother to roll up or down. Which is what I have chosen therefore to do, bowing to people with experience, learned from their pocketbooks. CLOSING a spread in a 5 day weekly trade, with rapidly changing TIME DECAY or THETA you are selling, means so far in my live experience, that it isn't until late THURSDAY, do the computer adjustments to THETA take effect sufficient, to give me some return on a trade being threatened. Which happened this past week. I also wanted to try the instructions for CLOSING A SPREAD which failed me. Got to lick that in the next week or two. Fortunately you can use LIVE HELP to close the SPREAD.
The EXIT decision process is very important to protecting your margin money and I get that. Phil has talkied about it often enough. From my studies of this, if I can hang on to the trade until 10 a.m. Friday morning, I will retain some CREDIT, or a smaller profit. This is because a weekly is in the heaviest part of the TIME DECAY cycle which seems to accelerate as the days of the week progress and to be computer generated for THETA adjusting, market maker systems. You can pick your times by the clock. I can't seem to get out of a trade without a loss, before either an hour before CLOSE on Thursday, or 10 a.m. Friday morning. If my spread is threatened and I can hang on until then, the MAGIC OF TIME DECAY will rescue the threatened trade, at least partially. In hindsight Friday my trade stayed in the money anyway all day until expiration and I gave up about 760 dollars to CLOSE THE SPREAD. But I'm satisfied I did the right thing by the exit rules I had mentally established. So better a small profit, than have gone into my margin money. Which at 40 contracts would have been ruinous.
You though in some comments on this with references to GAMMA and DELTA , but I lack the mental intuitive thinking process to think in these terms of OPTION SOFTWARE. My mental process is more hands on practical as the premiums and the index changes. Just a different way of visualization of the same thing I guess? I'll try to learn it. I've tried numerous times, but have a mental block.
Let me close this long story with a BIG THANK YOU for taking the time to explain your technical jargon references of a professional to a newbie. I barely understood a word you said ( grin! ) There are too few polite people in the world today. You are appreciated.
1) a .30 vertical is not enough reward for the risk you are assuming. You'll end profitably most of the time, but if you get a serious move against you, you'll be puking before you know it.
4) Ah. Weeklies. I think I missed that. Lots of big money to be made during expiration week, but it's not for a cautious girl like me.
⢠Mr. Soros' p/l, like most managers, comes from macro bets, not from shorting otm put verticals on the distant edge of premium.
⢠I didn't mention strike width that I remember, but the most sensible r/r comes with narrow widths. This is especially true with the strikes that you are using and with only a week to expiry. The further out you bound your risk, the closer you mimic trading net short contracts. You definitely don't want to do that unless you're so well-capitalized that a big move is immaterial to your account.
⢠Don't rely on crossed fingers to stay solvent. Your fingers might be too busy on just the day you need them crossed.
⢠Of course, closing the spread is a choice you can make if the trade goes against your initial view of market action.
⢠You need no special instructions to close your spread. Just buy the short option and sell the long one. Or enter the trade as a long vertical. You're simply buying the spread instead of selling it.
⢠Unless the position morphs into something more complicated than short verticals, option software is not necessary. You can simply use your p/l and the price of the underlying to decide when to unwind the position. However, my advice is to get familiar with greeks and position software because it offers the chance for you to see relationships that might escape your notice until years down the road if you only trade by price.
falconview,
It sounds like you are mostly trading OTM options, so the OEX american exercise shouldn't be a problem. However, I would still suggest you swith to using XEO options rather than OEX. XEO is simply the european version of the sp100 options. Or just trade the SPX options, which are also european.
OEX early exercise is purely a function of the vol value of your ITM option compared to the movement of the SPX futures between 3:02 when the oex cash closes, and 3:20 when the oex traders have to decide to exercise an ITM option. The OEX early exercise risk is like nothing else in the options world. It is very confusing, unrelated to volatility or other options risks, and ultimately is an unnecessary risk exposure.
It sounds like you are mostly trading OTM options, so the OEX american exercise shouldn't be a problem. However, I would still suggest you swith to using XEO options rather than OEX. XEO is simply the european version of the sp100 options. Or just trade the SPX options, which are also european.
OEX early exercise is purely a function of the vol value of your ITM option compared to the movement of the SPX futures between 3:02 when the oex cash closes, and 3:20 when the oex traders have to decide to exercise an ITM option. The OEX early exercise risk is like nothing else in the options world. It is very confusing, unrelated to volatility or other options risks, and ultimately is an unnecessary risk exposure.
Jerkstore
I didn't get that latter paragraph of yours? My understanding is that the OEX index settles the next day, Saturday, though I notice that THINKORSWIM have my account credited BEFORE 4 p.m. NY time. I've only vaguely wondered about that? It didn't seem important so long as the money was still there around Sunday. ( grin! )
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Sonoma's comment about not widening the spread in weeklies, was something I had come to in conclusion, more by gut instinct than any special understanding of the process.
______________________
I will definitely TRY to get into option software. I had a couple of CD's for them way back in the early 1990's, but long lost them. Moved too many times. I think they are free now on the web? Option Master was one. It was great for trying to estimate index movement in the OEX and what you could expect in price movement. The few times I've tried trading long options lately on the OEX, I got burned in Option House. For one thing they seem to skim a $100 per contract off every market order. So quit it and I'm using THINKORSWIM solely for trying to see how I do for the record with CREDIT SPREADS. I've been in a process of elimination of every strategy that has losses for the last few months. Option House problems may be to do with the 20 minute delay, or the way they wrote their software? I don't know, but like the FILLS of THINKORSWIM better, even if they are twice the commission.
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I understand European exercise has to carry a trade through to expiration??? This does not seem to be so, from PHIL's narrating of his trades? So I am definitely misunderstanding something here? Same with the XEO, which I believe is European and OEX is American which can be closed any time. There is something I do not understand here? What is it?
For the past 20 years, with a 12 year break up to now, I always traded just the OEX. One tends to trade with what one is familiar with. There comes an intuitive feel for the underlying movements. Built only from experience over time. I would feel like a fish out of water with the SPX, whereas I had looked just slightly at the SPY. My reading said it was American style and could be closed any time.
_______________________
PHIL said he went on MONTHLIES wider spreads in the SPX to increase the premium collected, which sounds like a logical thing to think of. Again, I can only vaguely remember something about MARGIN and dangers of widening the spread legs to several strikes. So had decided to stick with a one strike spread in the weeklies. Now I've forgot what it was? Old age I guess? You just confirmed the thing I was trying to remember and decision made to stick to one strike wide spreads is the right thing to do. Darn! I can't remember why I made that decision? Something in Phil's threads which was talked about.
------------------------------
I'm very curious about the SAFETY and REWARD of trading other types of SPREADS. Call it intellectual curiousity. Phil said something one time about he used to trade RATIO SPREADS and made money steadily, but switched to CREDIT SPREADS because he was able to figure out how he made MORE MONEY with credit spreads. Which seems like a good reason. Is there anywhere on the web anything about traders who have done different kinds of spreads and the risk reward ratios and productivity. Which kind of spread is the top dog, I wonder? I only got into CREDIT SPREADS because the system and trade signal sellers are hyping the CASH FLOW aspects of it. Don't trust any of them guys, if they don't publish their trades, entry and exit, profit, or loss, commissions deducted and a running balance of account size. I really liked THE TOAD for what he did many years ago. We chatted off and on for years about what he was doing and I learned things I never knew about. In the end only he could do what he did, as it was very intuitive despite the various inputs he used.
___________________________
I haven't yet figured out butterflies though a lot of people talk about them. The thing is; are they SAFER and more profitable than CREDIT SPREADS, otherwise if not, I'm not really interested. Lets go for the OLYMPIC WINNER and the GOLD TROPHY, whatever spread it is.
I've noticed CREDIT SPREADS rely a lot on experience with the underlying stock, or index for best application. Which is one reason I am not yet considering moving out of the OEX. I'm just getting to the point of getting to the meat in the bun, on OEX weekly CREDIT SPREAD trading. The nuances and tricks are everything is my thought. There have been a few opinions and offerings by knowledgeable people on here, which I thought in the end were out of place and wrong, because it didn't relate to the underlying familiarity of price movement. They were trying to offer, or impose a trading idea in something they were trading with credit spreads, that was not true of the WEEKLY OEX for example. Some observations and experiences I've noticed are not transferable and would lead you terribly wrong. Just my opinion!
There is something about trading ATM or thereabouts where the premiums are biggest. I can't for the life of me figure out what people are doing? I watch the option chain lights flicker as trades are consummated sometime, and sometimes it is obvious they might be doing spreads. But what the HECK are they doing? Haven't figured it out yet? ( grin! ) When you talk ATM in spreads, you make shivers run up my spine and I get cash scared. Mainly because I can't understand it, or back engineer what it is that is going on?
____________________________
THANKS FOR THE INPUTS GUYS! Love these meaningful chat sessions. Let your hair down kind of thing. I don't mind being the DIMWITTED country bumpkin.
I didn't get that latter paragraph of yours? My understanding is that the OEX index settles the next day, Saturday, though I notice that THINKORSWIM have my account credited BEFORE 4 p.m. NY time. I've only vaguely wondered about that? It didn't seem important so long as the money was still there around Sunday. ( grin! )
___________________
Sonoma's comment about not widening the spread in weeklies, was something I had come to in conclusion, more by gut instinct than any special understanding of the process.
______________________
I will definitely TRY to get into option software. I had a couple of CD's for them way back in the early 1990's, but long lost them. Moved too many times. I think they are free now on the web? Option Master was one. It was great for trying to estimate index movement in the OEX and what you could expect in price movement. The few times I've tried trading long options lately on the OEX, I got burned in Option House. For one thing they seem to skim a $100 per contract off every market order. So quit it and I'm using THINKORSWIM solely for trying to see how I do for the record with CREDIT SPREADS. I've been in a process of elimination of every strategy that has losses for the last few months. Option House problems may be to do with the 20 minute delay, or the way they wrote their software? I don't know, but like the FILLS of THINKORSWIM better, even if they are twice the commission.
-------------------------------
I understand European exercise has to carry a trade through to expiration??? This does not seem to be so, from PHIL's narrating of his trades? So I am definitely misunderstanding something here? Same with the XEO, which I believe is European and OEX is American which can be closed any time. There is something I do not understand here? What is it?
For the past 20 years, with a 12 year break up to now, I always traded just the OEX. One tends to trade with what one is familiar with. There comes an intuitive feel for the underlying movements. Built only from experience over time. I would feel like a fish out of water with the SPX, whereas I had looked just slightly at the SPY. My reading said it was American style and could be closed any time.
_______________________
PHIL said he went on MONTHLIES wider spreads in the SPX to increase the premium collected, which sounds like a logical thing to think of. Again, I can only vaguely remember something about MARGIN and dangers of widening the spread legs to several strikes. So had decided to stick with a one strike spread in the weeklies. Now I've forgot what it was? Old age I guess? You just confirmed the thing I was trying to remember and decision made to stick to one strike wide spreads is the right thing to do. Darn! I can't remember why I made that decision? Something in Phil's threads which was talked about.
------------------------------
I'm very curious about the SAFETY and REWARD of trading other types of SPREADS. Call it intellectual curiousity. Phil said something one time about he used to trade RATIO SPREADS and made money steadily, but switched to CREDIT SPREADS because he was able to figure out how he made MORE MONEY with credit spreads. Which seems like a good reason. Is there anywhere on the web anything about traders who have done different kinds of spreads and the risk reward ratios and productivity. Which kind of spread is the top dog, I wonder? I only got into CREDIT SPREADS because the system and trade signal sellers are hyping the CASH FLOW aspects of it. Don't trust any of them guys, if they don't publish their trades, entry and exit, profit, or loss, commissions deducted and a running balance of account size. I really liked THE TOAD for what he did many years ago. We chatted off and on for years about what he was doing and I learned things I never knew about. In the end only he could do what he did, as it was very intuitive despite the various inputs he used.
___________________________
I haven't yet figured out butterflies though a lot of people talk about them. The thing is; are they SAFER and more profitable than CREDIT SPREADS, otherwise if not, I'm not really interested. Lets go for the OLYMPIC WINNER and the GOLD TROPHY, whatever spread it is.
I've noticed CREDIT SPREADS rely a lot on experience with the underlying stock, or index for best application. Which is one reason I am not yet considering moving out of the OEX. I'm just getting to the point of getting to the meat in the bun, on OEX weekly CREDIT SPREAD trading. The nuances and tricks are everything is my thought. There have been a few opinions and offerings by knowledgeable people on here, which I thought in the end were out of place and wrong, because it didn't relate to the underlying familiarity of price movement. They were trying to offer, or impose a trading idea in something they were trading with credit spreads, that was not true of the WEEKLY OEX for example. Some observations and experiences I've noticed are not transferable and would lead you terribly wrong. Just my opinion!
There is something about trading ATM or thereabouts where the premiums are biggest. I can't for the life of me figure out what people are doing? I watch the option chain lights flicker as trades are consummated sometime, and sometimes it is obvious they might be doing spreads. But what the HECK are they doing? Haven't figured it out yet? ( grin! ) When you talk ATM in spreads, you make shivers run up my spine and I get cash scared. Mainly because I can't understand it, or back engineer what it is that is going on?
____________________________
THANKS FOR THE INPUTS GUYS! Love these meaningful chat sessions. Let your hair down kind of thing. I don't mind being the DIMWITTED country bumpkin.