strategy for options portfolios

C

crayon851

any thoughts on this would be great

-weekly debit spreads where risk/reward
1:1.75, enter on limit orders
held to expiration or 70% of max profit
-sell bullput on dividend stocks you wouldnt mind owning, only after a pull back of some sort to price point is where dividend =3.5+% annually.
sell these mtm. strikes are 1 strike apart, sell lower strike if passed through to further reduce cost basis.
- use probabilities for strike selection

any thoughts, would be nice.
 
crayon851 said:
any thoughts on this would be great

-weekly debit spreads where risk/reward
1:1.75, enter on limit orders
held to expiration or 70% of max profit
-sell bullput on dividend stocks you wouldnt mind owning, only after a pull back of some sort to price point is where dividend =3.5+% annually.
sell these mtm. strikes are 1 strike apart, sell lower strike if passed through to further reduce cost basis.
- use probabilities for strike selection

any thoughts, would be nice.
More...
Where and who you get this idea/strategies from? Guru?? Trading forum? Books?
 
galvinlee888 said:
Where and who you get this idea/strategies from? Guru?? Trading forum? Books?
More...

i may sound stupid with this post, but w.e. i made up this strategy. if it sounds stupif, thats fine, i just want to improve on it.

to me it makes sense, the 1:1.75 rosk/reward of debit is possible, i put on a debit spread last week 101/100 for a debit of 37. i ended up closing it at a 36% profit after 2-3 days because i figured it was a good return for the time. the strikes i used had probailities that were about 40-45%.

in terms of long stock through bull puts, can lower your cost basis even further. just need to define a set exit point of the long put leg.
for example, i had a tza spread 14/14.50. tza pierced my long leg. i ended up selling the long leg for about. 50-.60. add that to my premium collected (.30ish) that reduced my actual cost basis to 13.70. so whereas i wouldve been at a loss of $50. at current prices, im only at a lost of $20. Now i can turn this into a covered call to further reduce my cost basis. i.e sell a 14.00 strike call, and if it gets called away in the month, thats 2% return.

strikes used for this would be selected through probabilities.
 
you need to start thinking in terms of expectation rather than probability.

With a .4 probability of success your expected R/R i.e. ER/ER is .6/.7, which is quite thin. (I would be surprised if such a thin ER/ER could survive commissions trading weekly).

You then need to factor in the movements which are 'out of distribution' i.e. movements in response to stock or market events .

You need a very stable market to make those ratios work .

To make either a credit spread system or a debit spread system work you need to be able to have a 'view' of the future that is right often enough to increase your odds.
 
oldnemesis said:
you need to start thinking in terms of expectation rather than probability.

With a .4 probability of success your expected R/R i.e. ER/ER is .6/.7, which is quite thin. (I would be surprised if such a thin ER/ER could survive commissions trading weekly).

You then need to factor in the movements which are 'out of distribution' i.e. movements in response to stock or market events .

You need a very stable market to make those ratios work .

To make either a credit spread system or a debit spread system work you need to be able to have a 'view' of the future that is right often enough to increase your odds.
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can you explain what yoy mean by expected profit? my commissions are $1
 
Take a bull call debit spread. A very crude approximation of expected profit would be:

The probability of each leg finishing in the money is roughly its delta. So, the probability of the trade finishing at max profit is the delta of the short leg. The probability of it finishing at max loss is 1 minus the delta of the long leg. The rest is the probability of finishing in between the two strikes.

Multiply max profit by the 1st probability, max loss by the 2nd probability, and subtract. That's crude. Factor in the probability of finishing in between by using the average of max profit and max loss and the remaining probability up to unity. That's a little better. Use your trading platform's modeling capabilities to calculate more "accurate" probabilities than just using delta, and that might be better still.

I reserve the right to having gotten this twisted by trying to type it out.
 
crayon851 said:
in terms of long stock through bull puts, can lower your cost basis even further. just need to define a set exit point of the long put leg.
for example, i had a tza spread 14/14.50. tza pierced my long leg. i ended up selling the long leg for about. 50-.60. add that to my premium collected (.30ish) that reduced my actual cost basis to 13.70. so whereas i wouldve been at a loss of $50. at current prices, im only at a lost of $20. Now i can turn this into a covered call to further reduce my cost basis. i.e sell a 14.00 strike call, and if it gets called away in the month, thats 2% return.

strikes used for this would be selected through probabilities.
More...

What happen if tza will continue slide lower ? Also, how much commission you have pay for the "exercise" for the 14/14.5 spread ?
 
The key point here is you can always short put and if it moves against you, you end up to own the stock. The common "expert" advice is to short call against the stock until it get "called away", however, you are exposing yourself to new risk, you now own the stock and how about if it continue to move down ? The dividend and the short call may not help you to mitigate the pride slide.
 
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