It's that time of the week again.
VIX printed 10.66 intraday here. SPX still at 1365.
Vertical Spreads for Aggressive Growth
- Thread starter Cache Landing
- Start date
It's that time of the week again.
VIX printed 10.66 intraday here. SPX still at 1365.
Now that is one of the funniest posts I've read in a long time
.I'm glad that Oct expiration has come and gone, it was a bloody month for my CTM plays. Its been quiet over here on this board, I know Cache has other things on his plate now. For me, of the few tickers I follow I haven't really found anything I like.
rally ,
i understand clearly your points about risk and reward trades. i would just like to make one point. a trade is done for a credit of say 2 pts with a maximum risk of 3pts; the profile seems fantastic on a micro view. is it possible that the probability of the trade costing those 3pts may be very high? so my question to you is; has those trades that have gone bad significantly impacted you earnings this year?
a lot of people have been hurt by the runnup, would it not be better for all those premium writers who put on a position to reduce the chances of breaching their short? some of the traders have positions that would return huge percentages in a year if all went "correctly", but if the trades do not go as they planned, their returns are massively negative. why not consider trading for smaller monthly returns that have far smaller chances of going itm? again , when they they into the money, your losses may exceed your previous gains.why not trade so that it almost never comes to that breach? my shorts are generally 12% to 15% away and generate me a great return, just not as much as other strategies do up front. i feel in the end though that i will keep my returns , whereas others give them back.
i understand clearly your points about risk and reward trades. i would just like to make one point. a trade is done for a credit of say 2 pts with a maximum risk of 3pts; the profile seems fantastic on a micro view. is it possible that the probability of the trade costing those 3pts may be very high? so my question to you is; has those trades that have gone bad significantly impacted you earnings this year?
a lot of people have been hurt by the runnup, would it not be better for all those premium writers who put on a position to reduce the chances of breaching their short? some of the traders have positions that would return huge percentages in a year if all went "correctly", but if the trades do not go as they planned, their returns are massively negative. why not consider trading for smaller monthly returns that have far smaller chances of going itm? again , when they they into the money, your losses may exceed your previous gains.why not trade so that it almost never comes to that breach? my shorts are generally 12% to 15% away and generate me a great return, just not as much as other strategies do up front. i feel in the end though that i will keep my returns , whereas others give them back.
Domestic,
i understand your point of view very clearly but it isnt a style that i would be comfortable with. Yes sure, my positions will be breached more often than yours, that just goes with the territory of being closer to the market but lets not forget i am also earning more on risk. Say i have a predetermined monthly income that i wanted to generate and i must note i never actually look at things this way, i rather usually have a predetermined risk amount i was willing to lose, if i wanted to reduce such earnings i wouldnt be going FOTM, i would be reducing size instead. It's a completely different line of thinking. I dont believe in trading strats that need leverage to make income.
Also, i am trading under the premise that my position entries arent at random price points. Am i wrong? Taleb followers, what say you? Well, i am sure if i trade these long enough, one day when things go nutso i will be on the wrong side many more times but until then patterns seem to hold up very well for me. If it isnt broke why fix it? I am not betting the farm here that i need to worry. For two years, the SPX trades have been hitting 85-95% win rate at 1:1 2:1 risk/reward, 2 years is a short period of time but based on that period, i am confident in my entries and classify them as non-random. When/if the returns hit the bad part of the distro, sure i will be losing but so will the WFOTM naked premium strat. Truth be told, if i sell naked WFOTM strikes at my entry points, i would probably hit 99% win rate but then i will have to reduce size so that my average risk stays within a comfortable level and i will probably at best earn the same(as expressed in Yearly PnL gains on port funds) over a long period except this time i will be carrying the gap risk on my shoulders.
Say i have two portfolios, both with 100k in them. I trade naked FOTM strikes in one and my approach in the other. Trades are placed at the exact same time based on my signal. I can guarantee with virtual certainty that if the same risk management approach is employed in both, the WFOTM naked options portfolio will underperform even if we dont get a black swan. the reason is cheap gamma. I have simulated it and its inferior. An adverse move right after your entry causes severe PnL shocks and puts you in a "hope and prey mode", there is no hedging or adjusting. Rolling is no good either most of the times. So my question knowing all this is, why bother? Though, i am sure that you disagree.
Rally,
I am very naive in the terminology. What do you mean by cheap gamma? Are you looking at current IV and compare it with historial IV?
I wonder how you simulated it. Did you backtest it? I think option is fairly priced and it should offer no positve expectancy for any strategies. Most of traders edges come from timing, adjustment or market insights.
Quote from rallymode:
Domestic,
I have simulated it and its inferior. An adverse move right after your entry causes severe PnL shocks and puts you in a "hope and pray mode", there is no hedging or adjusting. Rolling is no good either most of the times. So my question knowing all this is, why bother? Though, i am sure that you disagree.
first, thank-you for the quick response. i am not advocating my type of trading at all; anyway , just the fact that it is naked eliminates most from even considering it.
i have been trading for over a decade like this, successfully. i think some of my success is not being too aggressive, it has allowed me to stay in the game and make a nice income.
you say that knowing that it is an inferior style, why bother? well, i have not determined that yet. i would love to simulate it like you have, if you can tell me roughly how you did that , i would appreciate it.
aside from simulating, i would like to hear in actuality how most have done recently. is that not better than simulation in some ways? last month (oct)the closest the underlying came to my short was 25pts. i had others 35 pts and 45 pts away. most importantly is.....these trades were put on before this massive melt up. i also fared just as well when the markets dropped recently(summer), although this recent one has been the closest this year.
so, in real world trading i made on all trades. other traders did not. is that not worth examining?
Just curious, what information do you hope to glean from that?
Perhaps you're equating winnning % with long term positive expectancy. Win/loss ratio can't be viewed in isolation. One has to always include risk/reward too.
Congratulations on your success but winning percentage is only half the story.
being a business-owner i like real world events and not theory to guide me.what i have seen with the actual events of the past year is , some people made money and others did not. i want to examine closely what the winners did , that is why i am into how things fared for anyone who is willing to share.
i am not isolating risk/reward; in fact i thought that winning % is directly correlated with risk/reward. isn't selling premium way far out a result of my determination of risk/reward? also my ability to decide when to close a position?
let me add something that may be off topic slightly. rally is correct when he says that my p/l is adversely effected when the underlying moves against my position....but, i do not get all worked up when that happens because i know that as days pass and even as it continues to get closer it does not matter as long as it doesn't get too close. is that naive, maybe, maybe not.
honestly, my success is not recent either, i just thought after all this time to finally speak up. i have continuously transferred funds out of my account, always leaving just enough in to trade just in case i have been wrong all this time
additionally, i may consider buying a long against my short to make a spread. i do want to ramp up my trading and live through whatever may happen.
mo, back to my curiosity thing.... how do you trade?
domestic i know quite a few traders who have survived a long time selling cheap gamma. all i am saying is that the mere fact that you have done this for a long time doesnt make it better over the long term. And i think we touched this before but your success this month wasnt your strat but the instrument pick. I gave you credit for that before but correlation can just as likely work against you next time.
I dont want to reveal my results but i have done well. I already said i am hitting a 90% win rate at 1:1 or 2:1 risk/reward. I am not trying to sway anyone to trade my way, anyone can try both strats on their own and decide which is better. All i am saying is that i have done what you are doing also(in simulation) and as i said before the PnL shocks are unavoidable. And no, you cant take Oct in isolation, you have to consider a significant sample. There is however a strategy that outperforms what i am doing and that is naked ATM/CTM premium and no touch exotic barriers. Those 2 come with whipsaw risk so if i am fairly confident i can avoid/minimize it then i do them instead or simply spread my risk across.