trading the RUT and SPX

The previous link has some good info, but I think it applies if you are already trading live. The reasoning behind starting with IWM/SPY is that you can minimize your risk of loss during your transition from paper to live trader.

As an example:
I am learning to trade the ES futures. I have developed a system that seems promising, am in the process of paper trading it and will eventually go live to test it. However, the ES is $50 a point and even though my account is adequately funded, I know I'll make mistakes once I switch to real cash. So instead, I'll be trading the SSO/SDS ETFs combination as a proxy to start (IRA account so I can't directly short) and my size with be something really small (like 10-25 shares) while I work all the bugs out.
As I hit certain milestones, I'll increase size and eventually migrate to 1 contract of the ES. If these milestones are hit quickly, then great. If not, I obviously had some issues that would have been really costly to learn with the ES.
My $0.0002 (would be $0.02 but I'm starting small)
 
Quote from devilfishlane:

I have been paper trading the two indices using Iron Condors for 6 months, and will start trading soon . I have 30k and plan to put on 3 IC's a month.(10 contracts each) It seems the RUT makes bigger moves and is a bit more volatile. True? I plan to put on either 1 high prob and 2 low probs or the reverse. (50 days and 30 days out) I want to get premiums around $1500 each and if no adjustments required, take them off with around $1000 prem., and out of expiration week.

Could you give me your thoughts?.... Thank you
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I think it's a horrible idea. When you're papertrading, you don't notice many things that you will notice when you're trading live. Daily fluctuations in P/L, IV spikes forcing you to buy back spreads at super high prices on a surprise gap down, huge gap moves overnight and tons of other execution problems that will quickly pull down your P/L graph.

Options trading is also not as simple as some will lead you to believe. You're exposed to many risks - delta/gamma risks and most insidious of all Vega risk, all of which needs a solution to fix as best as you can. And you won't get a good handle of these risks until you've traded through a few storms and then you have to figure out how to fix these problems so it won't happen again.

If you want to do this long term, keep it small and trade 1-2 contracts at most. The worst thing that can happen to you is the market is kind and nothing much happens and you don't get to see its ugly side, then you pile up and trade big and then you learn too late, get blindsided, and lose your hard-earned money.
 
I'm getting the feeling that people here don't like IC's out till expiration ..? Why is that?

I normally trade IC's with the smallest difference between the long and short legs and at least a 20 point range from one end to the other - for instance if GOOG is trading at 590, i will place a bearish call spread at 600/610 and a bullish put spread at 570/580. Premium collected (at expiration) $272 and capital at risk $728 which is about a 37% return one 1 IC. I get into the position 2 weeks or so before expiration and then hold it to the end and then close the short legs on expiration day.

I'm a rookie too, so I'm always open to criticism or suggestions, thanks.
 
Quote from chad_17:

I'm getting the feeling that people here don't like IC's out till expiration ..? Why is that?

I normally trade IC's with the smallest difference between the long and short legs and at least a 20 point range from one end to the other - for instance if GOOG is trading at 590, i will place a bearish call spread at 600/610 and a bullish put spread at 570/580. Premium collected (at expiration) $272 and capital at risk $728 which is about a 37% return one 1 IC. I get into the position 2 weeks or so before expiration and then hold it to the end and then close the short legs on expiration day.

I'm a rookie too, so I'm always open to criticism or suggestions, thanks.
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prolly cos gamma gets very very high during expiration week and a small move can wipe out a huge chunk of your gains. also expiration week has a tendency to be very volatile.
 
Quote from chad_17:

I'm getting the feeling that people here don't like IC's out till expiration ..? Why is that?

I normally trade IC's with the smallest difference between the long and short legs and at least a 20 point range from one end to the other - for instance if GOOG is trading at 590, i will place a bearish call spread at 600/610 and a bullish put spread at 570/580. Premium collected (at expiration) $272 and capital at risk $728 which is about a 37% return one 1 IC. I get into the position 2 weeks or so before expiration and then hold it to the end and then close the short legs on expiration day.

I'm a rookie too, so I'm always open to criticism or suggestions, thanks.
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I can't speak for others, but there are two reasons I try to get out before expiration.

1. I trade index options that settle on the opening print and this is a total lottery. So I try to avoid playing it as it can turn a wining position into a loser in a heartbeat and there's nothing you can do about it.
2. The amount of time decay you gain in the last couple of days before expiration in the expiring options is much less than what you lose in the next month's options during those days.
 
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