Trade management: adjustments

[Wheezooo]

Oddly I am someone who rarely speaks in absolutes, so if I did, it was for a reason.

Writing is not a particularly pleasant form of communication for me, my preference being white boards and throwing poo. If I seemed offended, that is not the case. I was attempting, unsuccessfully, to move you away from certain biases that will be detrimental to you.

-Good luck.

 

[BlueWaterSailor]

Oddly I am someone who rarely speaks in absolutes, so if I did, it was for a reason.

Writing is not a particularly pleasant form of communication for me, my preference being white boards and throwing poo. If I seemed offended, that is not the case. I was attempting, unsuccessfully, to move you away from certain biases that will be detrimental to you.

-Good luck.

Thanks for trying.

 

[sonoma]

In reading over the threads here, and having seen it elsewhere, I've become very interested in the subject of trade adjustments...

Any and all help, clues, pointers, or useful ideas would be greatly appreciated.

BWS-
Could you restate the type of help you're seeking?

 

[BlueWaterSailor]

BWS-
Could you restate the type of help you're seeking?

Sure. I'd like to get more skillful at options-related adjustments - knowing which ones make sense in what situation, and understanding their pros and cons - but can't find any material beyond the basic "for ICs, roll the untested side; for singles, roll them out" advice.

So far, I've received some very useful responses - notably, the ones from @destriero that have me doing mental gymnastics with synthetics and decomposing various strategies into others (which will come in handy in multiple contexts) - and some that are less so (those of the "take the loss" variety, without any supporting reasoning for why this would be the better approach.) I'm putting some time into the former, and still reserving judgment on the latter pending more data.

I'm trying to understand the basic principles behind how it all works and fits in with the rest of the options space, but both specifics and general perspectives are more than welcome.

 

[Wheezooo]

BWS,
Please don't misquote me. I never suggested you "take the loss." I stated that you already "took" the loss.

 

[BlueWaterSailor]

BWS,
Please don't misquote me. I never suggested you "take the loss." I stated that you already "took" the loss.

@Wheezooo, I wasn't quoting you - or anyone. Note the 'variety' qualifier for the general case; I'm grouping the types of advice I've received as I see them. I understand that the distinction you're making is meaningful to you - but I can't see any practical difference, and you don't seem to be interested in clarifying (which may or may not have created a third group), so your statement definitely falls into that second one for me.

 

[sonoma]

Sure. I'd like to get more skillful at options-related adjustments - knowing which ones make sense in what situation, and understanding their pros and cons - but can't find any material beyond the basic "for ICs, roll the untested side; for singles, roll them out" advice....

I'm not sure the last phrase is all that helpful. Not necessarily wrong, just not as helpful as you need. My suggestion is to understand the bigger picture. I'd read Baird. If you've already done so, then re-read it. Then come back, start a journal with a position, and then work through it in real-time on this board. Ask for suggestions along the way. Then when things move against you, look at alternative trades you might have placed instead. It's a bit cumbersome to do the above, but you've got to start somewhere. Maybe it will help. Maybe not.

 

[BlueWaterSailor]

I'm not sure the last phrase is all that helpful. Not necessarily wrong, just not as helpful as you need. My suggestion is to understand the bigger picture. I'd read Baird. If you've already done so, then re-read it. Then come back, start a journal with a position, and then work through it in real-time on this board. Ask for suggestions along the way. Then when things move against you, look at alternative trades you might have placed instead. It's a bit cumbersome to do the above, but you've got to start somewhere. Maybe it will help. Maybe not.

Thanks for the pointer. I hadn't yet run across Baird (I'm assuming you mean his "Option Market Making" book), but it looks pretty good (h/t Google Books.) The problem is that I'm still working my way through Hull, whenever I have the brainpower to spare... frankly, worthy of effort as it seems to be, this approach looks like it will take a good long while - and what I'm looking for is more of a synopsis. Much as I'd love to know all the stuff in there (and Hull) right now, it's not on the table. Is there any particular section of OMM you'd recommend? The one on synthetics seems particularly applicable.

If you don't think there a more focused, specific approach to doing this, that would also be valuable info.

 

[sonoma]

...If you don't think there a more focused, specific approach to doing this, that would also be valuable info.

As to the above statement, I don't think you'll find a set of heuristics that meet your needs until you've narrowed down what you're trying to accomplish (managing a perpetual book in a single underlying, or placing frequent, event-related trades across a variety of asset classes, or integrating a structured-product design with long delta equity, etc). And even then, you'll have to construct the approach yourself. Baird is as good a place to start as any to understand how to make markets, which I think is the type of trading you're interested in, at least by inference. Not necessarily the most common approach of retail, however. I understand you're not trying to be a MM, it's just the mindset of such that I'm addressing. In any event, think about my former suggestion to start a trade journal. Hopefully when you sift through the chaff, you'll get enough wheat to make it worth your effort.

 

[BlueWaterSailor]

As to the above statement, I don't think you'll find a set of heuristics that meet your needs until you've narrowed down what you're trying to accomplish (managing a perpetual book in a single underlying, or placing frequent, event-related trades across a variety of asset classes, or integrating a structured-product design with long delta equity, etc). And even then, you'll have to construct the approach yourself. Baird is as good a place to start as any to understand how to make markets, which I think is the type of trading you're interested in, at least by inference. Not necessarily the most common approach of retail, however. I understand you're not trying to be a MM, it's just the mindset of such that I'm addressing. In any event, think about my former suggestion to start a trade journal. Hopefully when you sift through the chaff, you'll get enough wheat to make it worth your effort.

Thanks for the suggestions and the overview. Right now, my trades are nothing of particular note - mild success via rote mechanics - so keeping a public journal would seem like boasting, or looking for props I haven't earned. In other words, I don't feel like these trades are mine - I'm following received wisdom with little contribution from my own thought process, other than the judgement of which set of mechanics to follow. I don't like that state very much, and am trying to to rectify it, but I'm not there yet.

I keep a private journal where I log everything with notes, mostly for the purpose of cataloging the mistakes that I make in the hope that I won't be repeating them, and will definitely start a journal here once I feel that I'm not just parroting someone else's approach.