Trading the Gooniverse...

Quote from TheGoonior:

I've noticed that I tend to have problems sticking in my trades, so I decided to try a volatility-based stop. Since I read Tharp's book and also some stuff on the Turtle system, and without any compelling data to choose some odd multiple, 2*ATR seemed like a good starting point.

I use 2*ATR as my disaster stop and as trailing stop (chandelier-style), although normally it will not get hit, as I recieve an exit/reversal signal before then.
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Nice. Was just curious. Yeah, it's a good approach actually.

Options and stops are really difficult. I never used the underlying as you need to take into account theta burn and vega. I found it very tough.
 
It actually has made it much more relaxing to trade, actually, since I have defined my risk for even a full 2ATR move. It's really just there as insurance in the case of a huge gap, but since I trade near the money options, the option delta also insulates me somewhat as well. Ideally, my reversal signal will get me out at 1ATR or less, so normally the 2ATR is never even threatened. The combination of delta, position size for a 2ATR MAE, and my reversal signal allows me to sleep at night!

(Plus, I don't play pharmaceuticals, if I can help it :) )
 
Quote from TheGoonior:

It actually has made it much more relaxing to trade, actually, since I have defined my risk for even a full 2ATR move. It's really just there as insurance in the case of a huge gap, but since I trade near the money options, the option delta also insulates me somewhat as well. Ideally, my reversal signal will get me out at 1ATR or less, so normally the 2ATR is never even threatened. The combination of delta, position size for a 2ATR MAE, and my reversal signal allows me to sleep at night!

(Plus, I don't play pharmaceuticals, if I can help it :) )
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lol. Great to hear. Well GL with it. I'll be watching this thread.

Reversal on 1 ATR. Ahhh. That makes sense now. I couldn't figure out why it was so wide but now it makes more sense that 2ATR was only a catastrophic.
(shows my lack of reading ability
:p ) jk.
 
Actually, it's not a 1ATR move that signals the reversal, it's a close outside of my defined boundary (where I consider my trade to be invalidated). Typically those seem to happen within a 1ATR range.
 
Watchlist (10/27/2009)
LONG: UNP, OVTI (doesn't meet volume spec, but I'm watching anyway)
SHORT: VALE, COF, TCK, PWM, MCD (setup still valid from yesterday)
Setup triggers later tonight.
 
SETUPS: 10-27-2009
Mistake in previous post with PWM. Meant to say PWE, but that is discarded because I have 4 setups in my list already. Nice setup, though.

HOLDING
LONG:NOK
SHORT: WMB, KFT.

Expect NOK probably will get knocked out and set up to reverse tomorrow.
 

Attachments

UPDATE:
BOT +1 MCD 100 JAN 10 60 PUT @2.85 CBOE, MCD MARK 59.06

Other shorts invalid now....TCK spreads were $0.20 when it triggered, so I passed. Too bad.
NOK closing below 12.98 will mean I reverse.
 
Comment:
It doesn't look like UNP or OVTI will be triggered today, but I've got my orders in anyway. To keep spreads within my limits, I'm using 1 strike OTM, rather than ITM/ATM. This means you have a couple more contracts (lower delta means less reaction to the same adverse move), but your move out of the gate might not be as fast either (delta works both ways). It does have the added benefit of more protection if the market makes a big move against you, and on a sustained move, gamma will really help you rack up the gains. I've noticed that the OTM options have been having tighter spreads as of late, so I'll probably start using those more often. If you get too far OTM, you need a huge move and a huge position to make a decent profit. In this case, theta is your enemy as well.
Maybe I'll post a chart or two this evening so I can document my method and keep me on track.
 
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