SPX Credit Spread Trader

I also want to reiterate that point and say that I want this journal to be open to pro, retail, advanced and newbie traders alike. So do not let the discussion turn off anyone who is trading a small retail account. My positions are scalable so if I do 200 contracts and you do 20, all the underlying issues are still relevant and the same.

So I do not want anyone to feel unwelcome here or that I only cater to one segment. This is an open space for all of us and we all benefit from different points of view.

For many years I was work full-time/trade part-time. Now I am trade full-time/work full-time and I shortly will be moving to trade full-time/work no-time (although trading is work!). So I have been or will be at all phases you can be at and therefore welcome all who fit in along the chain.

I always cater to retail traders because with respect to options they are often have few resources known to them to become a better trader. So the whole motivation for the book, radio show, yahoo group, and this thread is to provide a source of info and place to exchange ideas (someting I did not have when I started which cost me $1,000s in stupid trades) .... and besides this is fun as shit...

Quote from andysmith:

This haircut discussion is interesting.... and so is the "can't trade retail for a living" discussion, but I believe the greatest hedge of all is trading as a hobby/part-time and working part/full time...
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Quote from ryank:

Maverick,

I'm just curious, since you have seen the data, at what dollar level do you see retail traders able to make a living from trading? I know we are all making gross generalizations and "making a living" is very subjective but I've never known somebody that would have access to data like you do.

ryan
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Ryan,

I hate to use a magic number. But usually anything under 100,000 is very tough. Although I have seen guys with 50k to 100k accounts take some big swings and build their account up and then pull back the risk. I would say the ideal number would be about 500k. The reason I say this is because then you can focus on trying to make 1% to 2% a month and still make a living with very tight risk controls. Obviously the more money you have the better.

Now I know a lot of you are going to say, 1% to 2% a month? Are you serious? Well, considering the smartest, brightest, most talented fund managers in the world can barely make 1% to 2% a month, it's very though to consistently return those numbers over the long run. Note the key word, consistently. LOL. I know someone will mouth off that they make 30% a month doing this or that. But that is not what you are averaging when you factor in your down months and your flat months.

The pattern I see over and over again is this. Let's call this trader Bob. Bob has 20k. Bob has read many books and been to many seminars and opens an account with IB. Bob starts trading very small and conservative. Bob has a few good months. Bob then takes a few big hits. Bob is back to square one. Bob becomes frustrated. Bob starts taking bigger swings. Bob then takes bigger hits. Bob's self confidence is gone and now goes all out with one last big trade. Bob closes his account with no money left.

Bob thinks he needs to read more books and go to more seminars and do it again. The process repeats itself enough times before Bob, or someone close to him, tells him to take his life in a different direction. It is uncanny how this same process unfolds with just about every undercapitalized trader.
 
Your description of Bob made me seriously laugh at myself. Started small, won small, lost more. Swung larger, won big, lost even more. But, here I stopped and said hmmm and have been much better/conservative since.

Hi coach - finally decided to register and post. I've been lurking for months :)
 
Quote from jplatsky:

Maverick, hope you are still around. The lesson you gave on haircuts was very helpful. If I understand right everyone in a prop shop is sharing each others risk. Is that correct? If so, does that mean everyone in the shop needs to agree on what positions are going to be entered into? Or do you try to judge the additional risk you will be taking on before you let someone join? Would you be willing to underwrite the type of risk being taken in these credit spreads? Not criticizing the strategy, just trying to gain additional perspective.
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Yes, in any LLC you have pooled capital risk. This means all the funds in the LLC are commingled into one large account. You have a sub account that is part of the LLC. No one is going to trade your money and you are not going to trade anyone else's money, but it is fair to say, should the firm become insolvent, you could lose some or all of your capital.

This is why it's very important to be with a firm that has a solid risk management department that understands options. This is why most prop firms don't get involved with options because there are too many smart traders out there that can figure out ways to get around risk and they don't have the personnel to stay on top of it.

As far as this strategy or anyone else's, everyone has to put up the same haircut. So whatever your haircut is, you are putting up that risk capital. It doesn't matter what your strategy is or how you adjust it, at the end of the day, you have to meet your risk requirements.

The only traders we try to avoid are the egotistical monsters out there that just want to sell naked puts all day. These guys think they are God's gift to the earth because they can make money selling overpriced puts OTM. Hell a 5 year old child can do this and make short term profits. They are willing to take their profits and let us underwrite the risk at the expense of every trader at our firm. We try to avoid these people like the plague. That's not to say that from time to time myself or others at one point don't have naked puts on our sheets. It certainly is not a habit and part of a normal trading pattern.
 
Maverick -- great post.

Bascally trading is no different from any other money making endeavor. That first $500k or $1M is very tough. After that, there are so many choices...


Quote from Maverick74:

Ryan,

I hate to use a magic number. But usually anything under 100,000 is very tough. Although I have seen guys with 50k to 100k accounts take some big swings and build their account up and then pull back the risk. I would say the ideal number would be about 500k. The reason I say this is because then you can focus on trying to make 1% to 2% a month and still make a living with very tight risk controls. Obviously the more money you have the better.

Now I know a lot of you are going to say, 1% to 2% a month? Are you serious? Well, considering the smartest, brightest, most talented fund managers in the world can barely make 1% to 2% a month, it's very though to consistently return those numbers over the long run. Note the key word, consistently. LOL. I know someone will mouth off that they make 30% a month doing this or that. But that is not what you are averaging when you factor in your down months and your flat months.

The pattern I see over and over again is this. Let's call this trader Bob. Bob has 20k. Bob has read many books and been to many seminars and opens an account with IB. Bob starts trading very small and conservative. Bob has a few good months. Bob then takes a few big hits. Bob is back to square one. Bob becomes frustrated. Bob starts taking bigger swings. Bob then takes bigger hits. Bob's self confidence is gone and now goes all out with one last big trade. Bob closes his account with no money left.

Bob thinks he needs to read more books and go to more seminars and do it again. The process repeats itself enough times before Bob, or someone close to him, tells him to take his life in a different direction. It is uncanny how this same process unfolds with just about every undercapitalized trader.
More...
 
Maverick:

I am certainly in line with what you are saying. I actually shoot for 3% a month but last year came closer to 2% a month with no complaints. Why was it closer to 2% and not 3% or above? As you pointed out, I took some losses in November which brought the return down.

I think if you have a $10,000 account you certainly can get higher returns and as your account grows, the high growth rate is harder to sustain without ratcheting up the risk.

In all honest I think everyone should just keep the word "reasonable" in their vocabulary.

Do an honest self-analysis of your trading style, abilities and risk tolerance and shoot for returns that reasonable.
 
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