This is not a remarkable conclusion it simply reinforces the nature of the trades and is well known and understood by (almost) everyone who trades options. You can read this exact computation in any of McMillan's books
:-)
hey here's a place where PM could actually be of use: what's the plural of argumentum ad hominem???
The example and tables oldnemesis (DanShirley), posted for discussion, are all either useless, meaningless or stupid.
Only DanShirley would want to draw investors into such a ridiculous discussion.
I'll just read in amusement, if others want to participate in Danshirley's (oldnemesis) discussion.
As always, I'll allow him the last word, as he will keep this silly banter going for weeks if I don't.
Yet another typical DanShirley ridiculous trade example.
Once again the annualized % return is ridiculous.
Once again there is no theta.
Once again the stock is trading near it's all time high.
Once again the "probability" formula used for this 6 month trade is 100% meaningless.
Once again, a spike in VIX will hurt this wide spread gap, much more than a more narrow gap, if closing the trade.
Once again, if the stock drops a mere 12 - 13% over the next 6 months, the spread investment is wiped out.
Once again, the otm safety cushion for the spread trader is an "illusion",... as he dare not let the stock drop more than a mere 7% over the next 6 months.... let alone 12 - 13%, before closing it down.
Once again, the trader will be using massive margin leverage for this trade, if he wants to consider buying the stock, vs closing it down for a loss.
Take the last trades, that you have entered in the last few days , that are still open and post them along side of similiar stocks spread with a max of 5 strike on the long side. (Think or Swim has historical option prices if needed for this back test
Show todays results into NOV experation if they are not closed.
Looking forward for your mastery of the less dangerous naked puts
Take the last trades, that you have entered in the last few days , that are still open and post them along side of similiar stocks spread with a max of 5 strike on the long side. (Think or Swim has historical option prices if needed for this back test
Show todays results into NOV experation if they are not closed.
Looking forward for your mastery of the less dangerous naked puts
cheers
john
The reason spreads are more dangerous is, because of the excess leverage most traders use when initiating them.
As a result of that excessive leverage they can not consider buying 90 - 95% of their trades that drop below their strikes.
Thus they must close them for a loss BEFORE they even reach their strikes..... or risk a potential total loss.
HOWEVER, i am NOT suggesting traders should never sell spreads.
Spreads should be used on excessively volatile stocks you are chasing,because you like the credit.
These are NOT the kinds of stocks you want to consider owning, if they go breach your strikes.
Thus i initiated a spread on my $45 NFLX, when cd_caveman reminded me of how volatile the stock was.
Yes, now is the right time to write november puts. look at the skew! December future is almost the same as november and its way to high at 19!. November VIX will come down and you can have some free premium.
