just as a note to you.. i've read in many places professionals taking their profits when they see 80% of the potiential return on the credit from the sale.. As you get towards expiration your gamma risk goes up and the risk reward of holding the position for the remaining 20 percent goes way down.. of course thats at your discretion .. if something is so far otm its not worth the transaction fees it might be worth just letting it expire.. then again you always hear about the person that leaves wing options open all the time and eventually gets smashed as a result..
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Theoretical options strategy challenge
- Thread starter cdcaveman
- Start date
just as a note to you.. i've read in many places professionals taking their profits when they see 80% of the potiential return on the credit from the sale.. As you get towards expiration your gamma risk goes up and the risk reward of holding the position for the remaining 20 percent goes way down.. of course thats at your discretion .. if something is so far otm its not worth the transaction fees it might be worth just letting it expire.. then again you always hear about the person that leaves wing options open all the time and eventually gets smashed as a result..
<<< I have put 30k up on a aapl credit spread trade before as well as a few other large amounts.. which 30k at the time was my entire account just about and my risk of ruin at that particular time was as you would say.. rather high.. haha but as i've said before i woke up in the middle of the night upset realizing this strategy ends my trading life rather quickly..>>>
And that is my point.
In the middle of the night, you suddenly realized the risk you put your self at. Others may be deeper sleepers than you and not wake up in time.
With the snap of a finger you could have been wiped out.
My posts were ment to alert others to the danger BEFORE they find out the hard way,... as too many investors think having your risk limited to the strike gap, is more of a reasuring concept than a potentially dangerous one.
It's not really as "obvious" a concept to new spread traders, as it is to more experienced traders.
And that is my point.
In the middle of the night, you suddenly realized the risk you put your self at. Others may be deeper sleepers than you and not wake up in time.
With the snap of a finger you could have been wiped out.
My posts were ment to alert others to the danger BEFORE they find out the hard way,... as too many investors think having your risk limited to the strike gap, is more of a reasuring concept than a potentially dangerous one.
It's not really as "obvious" a concept to new spread traders, as it is to more experienced traders.
Quote from cdcaveman:
just as a note to you.. i've read in many places professionals taking their profits when they see 80% of the potiential return on the credit from the sale.. As you get towards expiration your gamma risk goes up and the risk reward of holding the position for the remaining 20 percent goes way down.. of course thats at your discretion .. if something is so far otm its not worth the transaction fees it might be worth just letting it expire.. then again you always hear about the person that leaves wing options open all the time and eventually gets smashed as a result..
Generally speaking, if i need the cash for another transaction or if I'm on excessive potential margin, I'll close something with very little credit left on it.
If not, I'll leave it alone, assuming it's deep OTM. Unless earnings are pending.
I'm also more likely to close a naked put than a spread, but it's mostly because of the extra transaction fees of the spread.
Time to rest my eyes. Good discussion by all.