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Vertical Spreads
- Thread starter cactiman
- Start date
Quote from cactiman:
Haven't tried Box Spreads yet. Got killed on a SPY Iron Condor this week though. The big gap-up move on Wednesday went right through the Bear Call Credit Spread on Top, and SPY never fell back down. Ahhhhhh! My own fault of course. Shouldn't be trying to play a tight range (to make a few extra $) while things are so volatile.
try adding more longs instead of a 1:1 ratio on those verticals. backtest and see how you would have done.
credit spreads are high prob but also high risk as you have seen already. if you trade them enough, you will always have a time bomb waiting to destroy your acct.
Quote from daveyc:
credit spreads are high prob but also high risk as you have seen already. if you trade them enough, you will always have a time bomb waiting to destroy your acct.
How so? I thought one of the purposes of trading spreads was to limit your risk. Now I suppose if you trade REALLY wide spreads...
Thanks for your post. Not sure what this means: (?)
"try adding more longs instead of a 1:1 ratio on those verticals"
As to:
"credit spreads are high prob but also high risk as you have seen already. if you trade them enough, you will always have a time bomb waiting to destroy your acct"
Quite right. One has to be very careful with the pricing.
9/1 risk/reward ratio? Win $10 if you're right, Lose $90 if you're wrong? Not cool.
Getting in for lower prices during Bull/Bear Flags + making longer term bets can help get the risk/reward ratio into the 1/1 range.
i.e. Betting $125 to make $125 on DLTR going from 83 to 85 by May 18th? How can you make a safer bet than that?
"try adding more longs instead of a 1:1 ratio on those verticals"
As to:
"credit spreads are high prob but also high risk as you have seen already. if you trade them enough, you will always have a time bomb waiting to destroy your acct"
Quite right. One has to be very careful with the pricing.
9/1 risk/reward ratio? Win $10 if you're right, Lose $90 if you're wrong? Not cool.
Getting in for lower prices during Bull/Bear Flags + making longer term bets can help get the risk/reward ratio into the 1/1 range.
i.e. Betting $125 to make $125 on DLTR going from 83 to 85 by May 18th? How can you make a safer bet than that?
Quote from probe1957:
How so? I thought one of the purposes of trading spreads was to limit your risk. Now I suppose if you trade REALLY wide spreads...
yes, there is a limit to your risk on a credit spread, but to make around 10% you are risking 90%. i know thats not always the case if you are closer to the money it'll be less risky but also less probable, a lot of traders just sell the 10 deltas. that makes credit spreads a risky trade and a potential account killer.
my suggestion is to add extra longs for more protection and to backtest both a standard 1:1 credit spread versus one with the extra longs(back ratio). i don't think this is a waste of time for you.
Quote from cactiman:
Thanks for your post. Not sure what this means: (?)
"try adding more longs instead of a 1:1 ratio on those verticals"
As to:
"credit spreads are high prob but also high risk as you have seen already. if you trade them enough, you will always have a time bomb waiting to destroy your acct"
Quite right. One has to be very careful with the pricing.
9/1 risk/reward ratio? Win $10 if you're right, Lose $90 if you're wrong? Not cool.
Getting in for lower prices during Bull/Bear Flags + making longer term bets can help get the risk/reward ratio into the 1/1 range.
i.e. Betting $125 to make $125 on DLTR going from 83 to 85 by May 18th? How can you make a safer bet than that?