Vertical Spreads for Aggressive Growth

Quote from optioncoach:


For example, I could never do the no touch exotics risk arb does and find them too risky for me, but he does quite well with them, even when he has to eat some big losses lol...
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Tell me about it. I'm not very risk averse at all, but riskarb's got more guts (and more brainpower) than me. I would get slaughtered doing those exotics. Some people simply have the ability to extract money from the markets.

Total repect for both of you, and your strats.
 
I do both, but since I use the same max risk in percentage of portfolio for both, I get better returns on the ATM/CTM.

The way I see it is that, if the options are priced efficiently, then mechanically selling them at any strike without doing any adjustments should have an expectancy of 0 in the long term. The problem with FOTM is that you may not live to see the long term :eek:

The edge is in knowing when to place them and how to manage the risk. That's why both Cache and Couch are successful.
 
how about CloseInTheMoney. When I first started trading stock options I figured out citm bull put spreads could be structured with a risk 2 to make 3 r/r. I would set up 5, and only need to win on 2 to break even. of course this was before I nailed down correlation analysys. :confused:
 
Great example why this is a hard endeavor. Mental game is so much harder than picking strikes or direction lol..

Quote from Cache Landing:



2) Repeated drawdowns for some people can lead to a loss of confidence and inability to pull the trigger. You must be a calm person with the ability to think rationally and accept more frequent losses.
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For those interested, I'm looking to open positions in the following;

Bearish
KBH (OCT 45/50 calls)
DVN (haven't decided yet)
BRCM (OCT 30/32.5 calls)
AAPL is awfully tempting
SHLD (long puts if resistance holds)

Bullish
OIH (OCT 120/115 puts)
NEM or PAAS (haven't decided)
GS (on any decent retrace toward 155)
LEH (any retrace toward 68)

Any opinions/input welcome. Have a great weekend!!!!:D
 
Quote from Prevail:

how about CloseInTheMoney. When I first started trading stock options I figured out citm bull put spreads could be structured with a risk 2 to make 3 r/r. I would set up 5, and only need to win on 2 to break even. of course this was before I nailed down correlation analysys. :confused:
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For me, anything directly ATM/CITM is more of a short-term directional trade (or as rally and I say, "smash and grab")

I'm looking to profit quick and get out. I would have completely eliminated theta/vega from the equation, so I'd be 100% directional. Very similar to buying long calls/puts, but without having to forecast theta/vega. This could be good or bad, depending on what you are looking to do.
 
OK here's a cross-post as this forum seems to be more oriented towards credit / vertical spreads and Coach's seems to be getting into more advanced subjects for this noob.

Here's my SPX October positions so far:

9/11/06 opened a 1350/1360 bearish call spread for $0.80. The market has come up quite a bit, however my rules don't call for an adjustment unless we touch 1340.

I'm hoping the SPX will hold and go no higher than its 52-week high of 1326.70.

At this point due to the drop in VIX, I'm not getting any decent premium at the strike points I'm interested in. Maybe it will come down a bit for some bullish put spreads.

Flint
 
Quote from Cache Landing:

Today's Action
STO 5 SPX OCT 1345/1350 c @ 1.70

Year to Date P/L
Account Value: $15,724.50
YTD Gross P/L: 6,395.00
YTD Commiss: 670.50
YTD Net P/L: 5,724.50
YTD % P/L: 57.2%
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Cache, a great job!

How do you select your strike points?? One sigma based upon 1-year historical SPX data??

Are you looking to open some bullish put spreads now or later after the Fed meeting??

Flint
 
Quote from rsflint:

Cache, a great job!

How do you select your strike points?? One sigma based upon 1-year historical SPX data??

Are you looking to open some bullish put spreads now or later after the Fed meeting??

Flint
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I can give you a couple insights as to what I look for, but if you're a methodical person you won't be satisfied.

Set a target % gain for the month!!!!

1) Develop a directional forecast to determine whether I'm bullish/bearish.

2) Determine a volatility forecast to determine whether I'm short/long vega.

3) If I'm quite confident in my directional forecast, I will commit to a larger position further OTM, with the intent of holding through expiry. A credit spread will rarely be more than 1 sigma OTM. I go further OTM when more confident because this means I don't have to work as hard for the gain.

Less adjustment = Less commiss/slippage = More profit.

If I'm a little uncertain in my forecast I will bring the short strike closer to the underlying. This allows me to capture quick profits easier and risk less. You will almost never see me open a direct hedge.

4) Decide if I intend to hold till expiry, or capture quick profits. This has more to do with how choppy the market is.

Always remember to think "at the margin". If you opened a CTM credit spread and you've made 50% of your max profit in two days, your r/r has just changed dramatically. If you were originally risking $10K to make $5K (r/r = 2:1), you are now risking $12,500 to make $2,500 (r/r = 5:1). If your confidence in the position didn't increase proportionately with the risk increase, then thinking "at the margin" would tell you to take the gains off the table.

You always here the statement, "cut losses short and let winners run". If you intend to be a premium seller, toss that statement into the garbage, and never consider it again. It is one of the most worthless statements you could make as a credit spreader.

Anyway, my forecasts are based on both TA and FA, but as I've said before, 95% of TA is worthless. FA is great but has no timeline. I feel that I need both to succeed.

You'll find out more about my strike selection by reading through this entire journal or just following along from here. I generally post a few insights each time I open a position.

And no..... I don't intend on opening any bull put spreads right now. It is against every fiber of my being to sell a put spread after a big bull move when we are sitting right at demonstrated resistance. We'll see what happens after the FOMC mtg. I'll consider scaling in slowly to some bull puts if we drop back to 1290 or lower, but preferably 1280.
 
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