I think the point Mav was trying to make was that as time progresses (and the P/L volatility increases as vol increases with time) - slippage/commissions will play a smaller % of your position's P/L. Not so much that slippage tightens over time, more like slippage stays the same but P/L volatility increases.
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What am I missing?
- Thread starter jimmyjazz
- Start date
I think the point Mav was trying to make was that as time progresses (and the P/L volatility increases as vol increases with time) - slippage/commissions will play a smaller % of your position's P/L. Not so much that slippage tightens over time, more like slippage stays the same but P/L volatility increases.
Quote from Maverick74:
If you are going to be holding these for just a day or two, trade the shares and not the options. The slippage is going to be bad over short periods. Picture a demand curve in economics where you have a straight line moving from the upper left down to the lower right with time on the horizontal axis and slippage on the vertical. The further you go out in holding time, the lower the slippage will be in terms of p&l. Hopefully that makes sense.
I guess it makes sense if the underlying moves up as time marches on?
Quote from jimmyjazz:
I guess it makes sense if the underlying moves up as time marches on?
No, OK you're not understanding. I'll try again. It's a function f(x). Slippage costs as a % of portfolio is a function of holding time. The graph has a neg slope and it looks like a demand curve from the upper left going down to the lower right. It represents the effect total slippage costs has on your total account value by holding time.
Let me give an example to make this easier. Say my total equity in my account is $100. And every trade I do I incur $1 in total slippage cost. If I make one trade a year, my total slippage cost as it relates to my account would be 1%. Now say I made one trade a week for a year. So my holding time went from 52 weeks to one week and my total slippage cost would be 52%! So the more frequent I trade, the larger the % slippage will have on my portfolio. The longer I hold my trades, the less slippage I will have.
Hopefully that clears it up.
I might be a "bottom fisher", but my signals are pretty reliable on the underlying, including backtests. If such a system doesn't work with options, so be it. I won't keep beating my head against the wall.
It almost feels like you're saying options prices and the underlying are out of phase to some degree. Not to say it's a pure "derivative" relationship, but that there are certain situations where calls are front-running the underlying and I'm missing the boat.
It almost feels like you're saying options prices and the underlying are out of phase to some degree. Not to say it's a pure "derivative" relationship, but that there are certain situations where calls are front-running the underlying and I'm missing the boat.
Finally. You understand now. Just know that the Put option Demand fluctuations will typically not confound your strategy as much (refering to top-fishing). Happy Trading.Quote from jimmyjazz:
It almost feels like you're saying options prices and the underlying are out of phase to some degree. Not to say it's a pure "derivative" relationship, but that there are certain situations where calls are front-running the underlying and I'm missing the boat.
Read this article:
http://www.investopedia.com/articles/optioninvestor/05/020205.asp
Scroll down to:
Long Calls at Market Bottoms Are "Expensive"
and then:
Long Puts at Market Tops Are "Cheap"
http://www.investopedia.com/articles/optioninvestor/05/020205.asp
Scroll down to:
Long Calls at Market Bottoms Are "Expensive"
and then:
Long Puts at Market Tops Are "Cheap"
THAT was a helpful article. Thanks!
So when I see people say "spread the risk", they are presumably talking about the bull spread strategy. On FHN, if I go from the long Sep13 ATM call to the Sep13 ATM call vertical, I see these changes in Greeks:
Delta: 70.32 -> 59.9
Gamma: 53.16 -> 17.88
Vega: 0.74 -> 0.35
Theta: - 0.89 -> - 0.53
If I look at the Sep13 ATM put vertical, my Greeks go to:
Delta: 70.32 -> 60.17
Gamma: 53.16 -> 18.25
Vega: 0.74 -> 0.36
Theta: - 0.89 -> - 0.53
Virtually no change, although the risk: reward is a bit different (call vertical R:R is 48:52 and put vertical R:R is 55:45). Why did the artical say put spread traders are more "aggressive"? They look almost identical.
So when I see people say "spread the risk", they are presumably talking about the bull spread strategy. On FHN, if I go from the long Sep13 ATM call to the Sep13 ATM call vertical, I see these changes in Greeks:
Delta: 70.32 -> 59.9
Gamma: 53.16 -> 17.88
Vega: 0.74 -> 0.35
Theta: - 0.89 -> - 0.53
If I look at the Sep13 ATM put vertical, my Greeks go to:
Delta: 70.32 -> 60.17
Gamma: 53.16 -> 18.25
Vega: 0.74 -> 0.36
Theta: - 0.89 -> - 0.53
Virtually no change, although the risk: reward is a bit different (call vertical R:R is 48:52 and put vertical R:R is 55:45). Why did the artical say put spread traders are more "aggressive"? They look almost identical.
I'll let someone from the Church of the Greeks answer that. I only do long calls or puts.