I am talking about 2 adjustments a year at most in general looking at data going back a long time. Remember this is not an Iron Condor thread, and I have stated that I will stick to one side when the market shows a strong trend. This year, the market has shown a strong sideways trend. If we breakout of that 1245 resistance I will be more than happy to stick with the put side. BUt look at where the SPX was at January 1 and look where we are now. I expect that without Katrina we would have had a nice rally leading into Oct, still could happen.
If the market takes off, simply stay on the put side and with the IV skews you can stay far OTM and still make 1-2% a month. My opinion is that at most you will make adjustments 1x or 2x a year in all market environments if you start out far OTM outside of resistance and support month to month. The closer strikes you select the more reward but a higher frequency of adjustments required.
I adjusted this month but still result in a net profit for the month as of Sept. expiration. So an adjustment does not necessarily mean a loss. It just means pushing the odds more in your favor by giving you more cushion between the index and your short strike.
It all comes down to risk management. That is the unspoken trait that usually differentiates traders. If you do not have good risk management skills, you will lose money on even the most conservative strategy.
To me it does not matter whether you trade SPX, SPY, OEX, RUT or the Nasdaq. If you practice good risk management, you will make money and that is the ultimate goal.
Thanks Dr. for the discussions! However, as for me, I am gonna dance with the woman I brought to the ball, and that is the SPX.
But you are talking apples and I am talking oranges. The current bid/ask for 1270/1290 call spread is $0.15/$0.30 so your fill price is as you say legged in BUT it does not seem to be t on the same day or near the same time. You are actually legging in over a few days possibly and this can be riskier if you buy the long calls and the market drops not allowing you to get the short side for good credit and losing money on the long side. If you do the short side first, then you are starting out with a naked position which I do not want to advocate here. So to be fair, you are timing your legs of the spread while I am entering the entire spread at once. So we cannot compare me opening an SPX spread at once to you legging into a SPY spread over time.
Also, you are missing one of the points on this thread about risk. You are describing the 127/129 SPY spread and comparing it to the SPX spread. HOWEVER, I would not enter the 1270/1290 spread as that is too risky given my approach here. I would not choose anything below 1290 for the short strike as of today. So your example looks great but you are advocating the selection of strikes I would not touch for October even if the prmeium is higher.
So I understand your points, but the point you are making also involves trading a riskier way than I have in the past and I have not found an argument yet to make me take on more risk.
Regards,
Phil
Quote from Dr. Zhivodka:
Re adjustments: remember he's talking about adjustments twice a year in a SUPER CRAZY low vol environment. This environment may continue for 8 more years or vols may regress next month...who knows. But I can assure you it won't always be this way.
I did this exact strategy when got into this business in 1990 trading the OEX. In November 1993 the Republicans got elected to congress for the first time in 40 years. The market took off to the upside and Vols rose accordingly.
It took me 4 months to realize (and I was quicker than most) the game had changed and this being short vega was a ticket to the poor house. In that 4 months I gave back about 18 months of profits.
I woulda given just about anything to have a competing type of OEX contract back then.
Be careful out there.
