Vertical Spreads for Aggressive Growth

C

Cache Landing

I decided to start a journal for my own educational benefit. If anyone would like to join in with helpful suggestions they are more than welcome. Questions are also welcome as long as they aren't about why I'm such an idiot. :D And for all those that want to make comments (flamers), NO I am not a newbie, and NO this isn't my actual account.

CONCEPT:
I will be keeping a record of P/L on various vertical spreads. I will only be trading stock options and index options. No futures. For the sake of making the numbers easier in the beginning I will have a theoretical account balance of $10,000.

I will generally try to keep a certain balance of OTM, ATM, and ITM. This will take a while to get situated as I will be starting out with 0 positions. In addition I will also try to stay balanced directionally. I believe that no matter the market trend, one can always find good plays going opposite the trend for hedging purposes.

Hopefully the balance will look something like this:
50%---FOTM/OTM
35%---ATM
5%---ITM (or simply long puts/calls single leg plays)
10%---CASH

Commissions will be based on $1.25/contract

I will not include other trades that I might have going in various accounts. Nor will I include trades that I might have made until now. It is also unlikely that I will describe exactly how I search for setups that I like. I will be treating this like I am barely starting an account. I don't like paper trading because it can be cheated. I will not post trade results after they have (supposedly) happened. Everything will be as close to real-time as is reasonably possible.

Suggestions on when to enter/exit trades are welcome. If you see something that I don't, feel free to voice your opinion. Also if you see setups that I might like, they are always welcome. As long as they come before it is too late to act on them. ;)
 
Quote from Cache Landing:

...NO this isn't my actual account...

...I don't like paper trading because it can be cheated.
More...

So, this isn't your actual account but it's not paper trading either?

Btw, what do you consider aggressive growth?

Another options trading journal...must be a sign of the times. The more the merrier.

Good luck!

MoMoney.
 
Quote from momoneythansens:

So, this isn't your actual account but it's not paper trading either?

Btw, what do you consider aggressive growth?

MoMoney.
More...

I guess that was a little confusing. When I started writing the first post I realized that there would probably be a lot of people who would think that my actual account balance is 10K. Then they would spend their valuable time writing to me about how I should have a different strategy until I've built up more money. So I wanted to clarify that my actual account isn't 10K, I am just using that number as a place to start. If I said it was 100K I thought that any newbies might not be able to relate because they may only be starting with a few thousand. Anyone that has been trading for a while with any degree of success gets asked 2 questions more than anything else.

1) How much can I make?
2) How much do I have to have to start?

Reading through many of the posts on ET, it would appear that many people are of the opinion that a person can't make money consistently in options unless they have a large bankroll. Even then, the predominate opinion is that anyone in pursuit of aggressive growth via options will eventually blow up.

I agree that the majority of people that have jumped into the options world, lose their money quickly and leave. But, the trading world is like poker in many ways. Just like in poker, most of the money is not lost, just transferred. What is LOST in poker is known as the rake. In the trading world we call it commissions (along with other various fees).

Anyway, it's not my actual account, but some of the trades that I find, I will actually make. I know a lot of people like to see someone "put their money where their mouth is". Also, no sense in passing up a really good trade. I said I don't like paper trading, not that this won't to some extent be "paper trading". I just think that paper trading can be cheated with better fills, hindsight, and lack of emotion. As much as I can, I will try to avoid these cheats. Having a public journal makes it a little easier to do. Other people can throw the B.S. flag if they think that I couldn't have gotten filled at a certain price or something.

Aggressive growth to many of the people that I advise in long term investing, is 20-25% a year. As far as this thread is concerned. I would be satisfied with 10-15% each month. If all trades worked out well in a given month I would likely get closer to 30% for that month. But if 100% of my trades worked out every month I'd just give everything up next year, retire, and move to my beach house in the keys. :D
 
Quote from momoneythansens:


Another options trading journal...must be a sign of the times. The more the merrier.

Good luck!

MoMoney.
More...

Interesting thing about the investing/trading world. Conventional longterm investors say that all the equity daytraders are dead, or soon will be if they keep daytrading.

On the other hand, those that daytrade stocks say the same thing about options traders. "Everyone that trades exclusively options will eventually blow up their account", right?

Options traders say that options help control the risk in todays market, and that anyone that doesn't use options to hedge must be crazy.

Is anybody right? I don't really care. All I know is what I've been doing to make money. To each his own. But now that you mention it. There does seem to be more options trading journals than I would've thought. Could it be said then that options traders are staying around longer and can therefore keep a lasting journal? Or are we the only ones crazy enough to post our stupidity and leave ourselves open to public scrutiny?:confused:
 
Quote from Cache Landing:

I decided to start a journal for my own educational benefit.
More...

Just to let you know how excited I am about your journal. I'm confident you'll educate - and surprise - a lot of people.

I would be satisfied with 10-15% each month. If all trades worked out well in a given month I would likely get closer to 30% for that month.
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It's interesting to run the numbers...

10%/month = 313% annualised
15%/month = 535% annualised

Not forgetting,

30%/month = 2330% annualised
:eek: :D
 
Quote from Neoxx:

Just to let you know how excited I am about your journal. I'm confident you'll educate - and surprise - a lot of people.



It's interesting to run the numbers...

10%/month = 313% annualized
15%/month = 535% annualized

Not forgetting,

30%/month = 2330% annualized
:eek: :D [/B]
More...

2330% annualized

...ahhh...if only it were really that easy. :p It is nice to dream though. On the other hand. 200-300% is very possible. Of course there are always the bad years, but let's just hope that this isn't one of them. HEHE :D

I might have a couple obstacles to overcome this year. There is a chance that the market could be changing directions right now. This makes the ATM positions much harder because I will be fighting those changes. We have seen a fair amount of whipsaw action lately. The OTM/FOTM positions will likely still be ok, as they have a little (or sometimes big) cushion.
 
Hopefully the balance will look something like this:
50%---FOTM/OTM
35%---ATM
5%---ITM (or simply long puts/calls single leg plays)
10%---CASH

So 85% long gamma, 5% short gamma. The OTM vertical will gain very little from gamma curvature unlike a long otm call or put. I can't make a single argument for buying an otm vertical based upon your methodology.

Going with the discounted vertical[ITM] is looking for hit-rate% while earning a bit of decay for your 5% allocation. Buying an ITM call vertical is selling an OTM put vertical[box arb].

The 5% ITM position won't flatten gammas or add gains from decay due to it's allocation[5%] and $sensitivities, so I would toss out the FOTM/ITM allotments and simply trade all ATM positions. They're the best r/r under one sigma. Good luck.
 
somehow I thought he would be SELLING the FOTM/OTM? Cache?or will it be a combo of buying/selling?
Quote from riskarb:

Hopefully the balance will look something like this:
50%---FOTM/OTM
35%---ATM
5%---ITM (or simply long puts/calls single leg plays)
10%---CASH

So 85% long gamma, 5% short gamma. The OTM vertical will gain very little from gamma curvature unlike a long otm call or put. I can't make a single argument for buying an otm vertical based upon your methodology.

Going with the discounted vertical[ITM] is looking for hit-rate% while earning a bit of decay for your 5% allocation. Buying an ITM call vertical is selling an OTM put vertical[box arb].

The 5% ITM position won't flatten gammas or add gains from decay due to it's allocation[5%] and $sensitivities, so I would toss out the FOTM/ITM allotments and simply trade all ATM positions. They're the best r/r under one sigma. Good luck.
More...
 
Quote from DonnaV:

somehow I thought he would be SELLING the FOTM/OTM? Cache?or will it be a combo of buying/selling?
More...

I think it's 100% credit spreads.
 
Are you currently trading this way, or you're just trying something new? If it's not new, what is your record on trading this? I assume you're talking only debit spreads, although those 50% FOTM/OTM sound like credit verticals. Anyway we'll see as you start posting your trades. Good luck!
Quote from Cache Landing:

I decided to start a journal for my own educational benefit. If anyone would like to join in with helpful suggestions they are more than welcome.
...
Hopefully the balance will look something like this:
50%---FOTM/OTM
35%---ATM
5%---ITM (or simply long puts/calls single leg plays)
10%---CASH
...
More...
 
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