Thanks guys, I will keep paper trading them for a few months to get more experience. stevegee58/Bob: Are you generally supposed to have your bought strike ATM? So with a 1-3-2 BWB the 1 strike being ATM?
I'd be looking for the max profit area to be where I think price might go within the time until expiration. Try not to get hung up on static rules about strike placement.
Hi there, I been writing put ratio spreads sell current month / buy next on the emini SP 500 futures for 6 years at least and that is all I do in addition to rarely write call ratio spreads from time to time and naked calls. I am usually able to make 1% every month consistently the strategy makes a little and loses a little and very rarely makes 5% or more ( if you can stay in your trade for about one month ) and it works in a wide variety of markets. The biggest problem is that right after the spread is opened if the market goes up 20 points ( I am talking about the eminis ) you almost get kicked out. There are a variety of things that are difficult to discuss here, but keep in mind that it is totally ok to get kicked out from your spread the difference is how it happens. It's like aiming your arrow at the center of a far away target from a boat moving in a very agitated ocean during a thunderstorm. You can get kicked out with a big loss ( very bad ) but if you manage your trade and good traders take losses, you can improve your trading substantially by getting out with small loss ( 1% - 2% ) or even by getting out at break even ( very powerful if you think about it...you were wrong but you didn't lose any money ) and ultimately you can get out with a small gain. Getting out with small gain is what I aim to do, because it is almost impossible that you'll be able to stay within your spread for 30 days. Almost always when you have a small gain and you are looking at your risk profile you are tempted to stay in to maximize the potential gain. Do not do that because the market will inevitably move and take away that gain. Instead I take the gain, close the trade completely ( the commission cost on IB is $1,41 each emini option you sell or buy )...then wait for the end of the day or if you can another day and open a new delta neutral spread or a spread that is slightly delta positive or slightly delta negative...according to your outlook of the market. Unless there are reasons that are known to you, if the price of admission is low, you don't really need to adjust your spread. Just take it down and start with a new one that is more in tune with your market outlook. Another plus is that you can literally open your spread anytime you like. If the market is open you can put one on right now. Your goal is not to anticipate the future but make money on time decay so it doesn't really matter what time of the day you open it. As a general guideline if you open a put spread is better to do it when the market is reaching the 30 day minute low, but in reality you can get away without doing that. A big and very tempting mistake many traders do is to try to leg in. Don't do that ! The biggest problem that I am and you'll be facing with this simple but effective strategy is that no one can anticipate events like last August 24, but if you trade small you'll make it to another day I was down 2% in August. I already learned my lesson. While many traders wait for the Friday close to open their 14 day spread ( on Monday if the market stays the same you'll be already making a small gain ) Keep in mind that if Friday ends up unusually and very much in the red it's just better to stay out. Your job is not to spot tops and bottoms or predict the market...your biggest job is doing everything you can to manage the disaster case scenario. It's not easy to do that but if there is a panic sell you can buy puts before the market opens on Monday with the emini. Yes there will be a huge spread but you can certainly " cover " your short leg if you kept your trade small. Another problem is that you'll need a capitalized account 100k but better if more than that, so that you can put on margin no more than 20% of your account and stay with the trade if you see a potential to come out on top. Inevitably there are countless stories of traders who blew up because the impossible happened. You will be under pressure, the market will be going against you, you'll be in the red, the spreads will be wide and certainly that very day your broker just increased your margin amount. It does not sound exciting at all. The vast majority of people can't trade for a living with a gain of 1% each month and that is not even realistic because there will be months where you lose money and losing money is part of your job. I can't stress that enough. I have been trading for many years because I learned how to lose money. However if you can support yourself with another job in addition to having a capitalized account this strategy does not take much time. One you open it it a matter of being automatic. This is not by far the best strategy out there, but with a capitalized account, a strong discipline and little time anyone can do. Making modest but positive consistent gains is possible. No need to read news or study much. If you are a new trader send me a private message and I will give you my website. I am not selling anything but I wrote down my mistakes and it will give you a starting point. Good luck.
This has to be the most realistic post that I have read in a long time, spot on. Those who say let your profits run will of course not show you any proof, just the usual internet forum talk! Anyway, enough bout silly statements, your words are real, that I do know, as it resonates with what I have done. Selling puts and calls, even covered , while it can make you good money, if you are overtrading when the shit hits the fan - as it will at sometime, that is for sure - you will be very sorry unless you know exactly how to adjust and readjust when a large drawdown has just hit your account - and I am speaking from experience, as, even though I had 75 winning trades in a row, when the shit hit the fan in aug 2007 my whole world fell apart! I will not bore you with the details, but if you do not know your max loss on each and every trade, and how to get outa trouble without losing too much when you "will" get caught out, then start learning some more, and take your profits when u have them - a small profit is always better than a big loss - plus, as the old saying goes, "100 pennies make a pound". If you don't mind I will send you a pm to get link to your website, in my books anyone who writes something like you did warrants further time, as very few speak their mind on internet forums, as most have alternative reasons which are very clear to some. I recently stumbled across an options book, which to my amazement is free as pdf, but can be bought on amazon, and after reading thru the first few pages I will def be buying it, no matter what it costs, as it is the most common sense book I have ever seen in relation to options trading - we can discuss at later stage if you like, as you might find some of the ideas very interesting, like "how to pick the correct strike". J_S
Bob, you having been a MM will know more than most, so I have a genuine question for you. Current research has led me to believe that there can be far better opportunities trading SPX options at certain times compared to SPY or ES - would you agree with this assumption, or am I just making an error for whatever reason? Also, how important really is OI, for there are times I called the friday level more or less spot on based on OI values, and other times it didn't work at all - do certain values really matter, or do you need to look at something else in conjunction with the OI levels on expiration day? Thank You, J_S
SPX options have a settlement premium built in that is not in SPY options which will give the effect of them having slightly higher premiums at the same interval of time. Of course that is not free, you pay for it in the long run.
Aplologies for my ignorance, even though I done many option trades and made and lost a nice bit of money, I never delved into the nitty gritty, which I am starting to look at now. Does this settlement premium offer any advantages to trading SPX at certain times, compared to using SPY or ES? J_S
Economically speaking no. You are essentially creating a constraint in exchange for some premium but you lose the optionality of that decision. Think of it as being a naked option seller. Or if you already are one, the second order derivative of that. You are a seller of a seller of an option. Or in layman's terms, you are taking more risk then you should.