Total Account Risk

[cactiman]

Quote from oldnemesis:

How does everyone else handle this??

I use diversification to help manage risk.

e.g. If I have a mix of bullish and bearish trades (e.g. bull call spreads + bear put spreads etc)
Plus I diversify by sector: utilities, retail, metals, financial etc.

plus add in positions on inverse ETF's like SH

Then the effect of wide market swings will be much less. If you are not playing direction but are looking for time decay then make your portfolio market neutral...then you won't care what the market does.

Do you find it difficult to find truly uncorrelated sectors?
Back in May all the various sectors I was in went down together!

As to hedging with inverse trades, one would be taking losses at the moment. How do you deal with that?
Do you hold the bearish trades until the market falls later on and then close them, or do you accept canceling out a certain % of the profits from your current bullish trades?

 

[oldnemesis]

I am looking to benefit from time decay while insulating my account from market volatility... so I am 99% of the time looking to hold until expiration.

Yes... it can be difficult to find non-correlated species but it is possible to create a relatively market neutral portfolio that will benefit from time decay.

e.g.

http://finance.yahoo.com/q/bc?t=5y&s=TLT&l=on&z=l&q=l&c=SPY&ql=1

http://finance.yahoo.com/q/bc?t=2y&l=on&z=l&q=l&p=&a=&c=SH&s=SPY&ql=1

http://finance.yahoo.com/q/bc?s=FAZ&t=6m&l=on&z=l&q=l&c=fas

It also takes a good deal of work and experience.

I would be much more difficult to successfully time the bearish and bullish holdings... I never try to do that.

Hedging with inverse trades is not a problem if done well...

e.g. now when the market is up I have positive beta trades that balance out the negative beta trades. I love it when the market makes a big move either positive or negative and my portfolio stands still.

If it doesn't stand still you can look and see where you need to do some work.

 

[cactiman]

Quote from oldnemesis:

I am looking to benefit from time decay while insulating my account from market volatility... so I am 99% of the time looking to hold until expiration.

Yes... it can be difficult to find non-correlated species but it is possible to create a relatively market neutral portfolio that will benefit from time decay.

e.g.

http://finance.yahoo.com/q/bc?t=5y&s=TLT&l=on&z=l&q=l&c=SPY&ql=1

http://finance.yahoo.com/q/bc?t=2y&l=on&z=l&q=l&p=&a=&c=SH&s=SPY&ql=1

http://finance.yahoo.com/q/bc?s=FAZ&t=6m&l=on&z=l&q=l&c=fas

It also takes a good deal of work and experience.

I would be much more difficult to successfully time the bearish and bullish holdings... I never try to do that.

Hedging with inverse trades is not a problem if done well...

e.g. now when the market is up I have positive beta trades that balance out the negative beta trades. I love it when the market makes a big move either positive or negative and my portfolio stands still.

If it doesn't stand still you can look and see where you need to do some work.

Some interesting ideas here for me to look into. Thanks.

 

[cactiman]

Quote from oldnemesis:

I am looking to benefit from time decay while insulating my account from market volatility... so I am 99% of the time looking to hold until expiration.

Yes... it can be difficult to find non-correlated species but it is possible to create a relatively market neutral portfolio that will benefit from time decay.

e.g.

http://finance.yahoo.com/q/bc?t=5y&s=TLT&l=on&z=l&q=l&c=SPY&ql=1

http://finance.yahoo.com/q/bc?t=2y&l=on&z=l&q=l&p=&a=&c=SH&s=SPY&ql=1

http://finance.yahoo.com/q/bc?s=FAZ&t=6m&l=on&z=l&q=l&c=fas

It also takes a good deal of work and experience.

I would be much more difficult to successfully time the bearish and bullish holdings... I never try to do that.

Hedging with inverse trades is not a problem if done well...

e.g. now when the market is up I have positive beta trades that balance out the negative beta trades. I love it when the market makes a big move either positive or negative and my portfolio stands still.

If it doesn't stand still you can look and see where you need to do some work.

Looking at the SPY/SH chart. They totally mirror each other of course.
How would you trade that?

Do you sell a SPY Bull Put Spread and sell a SH Bear Call Spread?
If so, that would still be a directional trade, no?
You'd still only be betting on the SPY going up.

How does you account stand still and make you money at the same time?

 

[Put_Master]

Quote from cactiman:

Looking at the SPY/SH chart. They totally mirror each other of course.
How would you trade that?
Do you sell a SPY Bull Put Spread and sell a SH Bear Call Spread?
If so, that would still be a directional trade, no?
You'd still only be betting on the SPY going up.
How does you account stand still and make you money at the same time?

I believe most traders, like OLDNEMISIS, who recommend that strategy are theoretical traders. Not actually reality based.
Thus the reason they NEVER actually post a sample trade for all to monitor, observe, and discuss as they make adjustments.

You can beg all you want. Those type traders will NEVER post a trade.
NEVER ....NEVER....NEVER.....NEVER.....NEVER!
However, in their defense, the excusses they will share for not posting a trade.... are priceless!
And thus worth the price of admission to the show.

 

[sle]

Quote from Put_Master:
You can beg all you want. Those type traders will NEVER post a trade.
NEVER ....NEVER....NEVER.....NEVER.....NEVER!
However, in their defense, the excusses they will share for not posting a trade.... are priceless!
And thus worth the price of admission to the show.

Dude, this is not a beauty pageant and most of us are not trading for an ego trip. If you have a real way to make money with low risk, why would you want to share it with the world at all?

 

[Put_Master]

Quote from sle:

Dude, this is not a beauty pageant and most of us are not trading for an ego trip. If you have a real way to make money with low risk, why would you want to share it with the world at all?

So you are saying if someone shared the type trade oldneesis was discussing, that would ruin it for the rest of the traders engaging in that similar super secret strategy?
Even though, they would be sharing the trade shortly AFTER it was initiated?
I just find it amusing that traders are will to share that there is a low risk/ high reward/ high probability strategy.... but not actually discuss the strategy, or a sample trade.
I can understand not sharing a trade before it's initiated. But not even after???

That's like posters who tell us about a successful trade thay made last month.
Always amusing that they are willing to share the trade AFTER it's over. But not during.
Funny how all those low risk / high reward /high probability trades always work out better in hindsite... than when shared in real time.

Like i stated, ....NEVER.... NEVER....NEVER....NEVER....NEVER!
As i stated above, the excusses for not sharing are always priceless.
Always worth the cost of admission to the show.
Yeah yeah, I know.... it's a secret. A super secret!
Is there also a special secret password and decoder ring club members get?

 

[sle]

Quote from Put_Master:

So you are saying if someone shared the type trade oldneesis was discussing, that would ruin it for the rest of the traders engaging in that similar super secret strategy?
Even though, they would be sharing the trade shortly AFTER it was initiated?
I just find it amusing that traders are will to share that there is a low risk/ high reward/ high probability strategy.... but not actually discuss the strategy, or a sample trade.
I can understand not sharing a trade before it's initiated. But not even after???

That's like posters who tell us about a successful trade thay made last month.
Always amusing that they are willing to share the trade AFTER it's over. But not during.
Funny how all those low risk / high reward /high probability trades always work out better in hindsite... than when shared in real time.

Like i stated, ....NEVER.... NEVER....NEVER....NEVER....NEVER!
As i stated above, the excusses for not sharing are always priceless.
Always worth the cost of admission to the show.
Yeah yeah, I know.... it's a secret. A super secret!
Is there also a special secret password and decoder ring members get?

No. I am saying that since most of these strategies are systematic and usually low capacity, one should never share what exactly he/she is doing. If you look at how many opportunities in vol went away over the last 10 years, you would understand.

Simply disclosing the trades could be enough to give away the source of alpha to someone knowledgeable. For example, I have been actually planning to take a look if there are real opportunities in levered ETF options vs underlying ETFs (makes sense that there might be, as levered ETFs will have a massive mean reversion decay). If a bunch of people do that, the strategy will get traded away.

Anyway, last time I checked the only final result that matters is the returns on your own account, not the internet fame.

 

[Put_Master]

Quote from sle:

No. I am saying that since most of these strategies are systematic and usually low capacity, one should never share what exactly he/she is doing. If you look at how many opportunities in vol went away over the last 10 years, you would understand.

Simply disclosing the trades could be enough to give away the source of alpha to someone knowledgeable. For example, I have been actually planning to take a look if there are real opportunities in levered ETF options vs underlying ETFs (makes sense that there might be, as levered ETFs will have a massive mean reversion decay). If a bunch of people do that, the strategy will get traded away.

What you stated above is different than what oldnemesis stated or implied.
In the 2nd paragraph you used words such as.... "planning to take a look".... "if there are"... "there might be", ect...

That is a different implication than the statement from oldnemesis.
The truth is, the only secret to a potentially successful trading strategy, is a combination of....... "experience, common sense, and risk management".

 

[sle]

Quote from Put_Master:

The truth is, the only secret to a potentially successful trading strategy, is a combination of....... "experience, common sense, and risk management".

Disagree. The first and foremost "secret" is presence of a real opportunity.