Turning Silver into $$: Shortie's Hedge Fund Trades SLV Option Spreads
- Thread starter shortie
- Start date
The Plan.
I. Assumptions:
1. SLV will exhibit mean-reverting properties
2. I will be able to capture some of the turns to leg into Iron Condors (Butterflies) at favorable price levels
3. Implied volatility will go down in the next few months, hence, selling volatility will add profit to the good entry points above
II. Money/Risk Management
1. Have a pre-set amount of capital to utilize in the strategy (can't be exceeded under any circumstances)
2. Have a pre-set maximum amount of risk (can't be exceeded under any circumstances)
3. Attempt to maximize the use of capital. The capital has to be working so I will try aim at reasonable number of entries. There is a trade-off between the frequency of trades and the quality of entries so they must be reasonably balanced.
III. How
I want have simple rules that control capital allocation and risk. These are the simple rules I have come up with. They are not perfect but good enough not to lose track of the position size/risk.
Split capital into 12 units. 5 units is the max exposure to one side (Long or Short) at any given time. Right now I have 1 unit Short.
I try to enter the vertical spread units that are similar to the one in play right now. Per unit I get ~0.90 credit and the risk is ~1.10 (diff between strikes - credit). So I risk 3.1% to make 2.5%.
I can approximate the risk by subtracting the total Long and Short units because the credit on Short essentially covers the risk on the Long and vice versa. This appears to be not perfect but close enough for me and easy to keep track of.
I. Assumptions:
1. SLV will exhibit mean-reverting properties
2. I will be able to capture some of the turns to leg into Iron Condors (Butterflies) at favorable price levels
3. Implied volatility will go down in the next few months, hence, selling volatility will add profit to the good entry points above
II. Money/Risk Management
1. Have a pre-set amount of capital to utilize in the strategy (can't be exceeded under any circumstances)
2. Have a pre-set maximum amount of risk (can't be exceeded under any circumstances)
3. Attempt to maximize the use of capital. The capital has to be working so I will try aim at reasonable number of entries. There is a trade-off between the frequency of trades and the quality of entries so they must be reasonably balanced.
III. How
I want have simple rules that control capital allocation and risk. These are the simple rules I have come up with. They are not perfect but good enough not to lose track of the position size/risk.
Split capital into 12 units. 5 units is the max exposure to one side (Long or Short) at any given time. Right now I have 1 unit Short.
I try to enter the vertical spread units that are similar to the one in play right now. Per unit I get ~0.90 credit and the risk is ~1.10 (diff between strikes - credit). So I risk 3.1% to make 2.5%.
I can approximate the risk by subtracting the total Long and Short units because the credit on Short essentially covers the risk on the Long and vice versa. This appears to be not perfect but close enough for me and easy to keep track of.
I will add another rule: not to enter more than 2 Units in one direction in a single day. This is not a hard rule so I might violate it occasionally if we get an extreme price move (max 3 Units/day - is the hard rule).
It is good to pace oneself while attempting to stop the runaway train.
Shortie "The Philosopher" Out
It is good to pace oneself while attempting to stop the runaway train.
Shortie "The Philosopher" Out