<<< Put_Master aka puddy man.. has been trying to say the same thing for a while... and there is not one person that doesn't get what your saying.......there are so many ways to express your views on volatility.. delta... etc.. but you speak in such generalities about spread traders over positioning/ over concentrating.. its a redundent topic ... any of the contributors to the threads on this topic .. ALREADY KNOW THIS.. >>>
I'm obviously not speaking to investors like ATTICUS and other regular posters.
I've made it clear that my message is for inexperienced or uninformed investors, who may not understand the true risk of initiating bull put spread type strategies.
And based on the response I've received from DanShirley, he is a perfect example of who I am directing my messages to.
And I am sure there are, or will be, others who are similarly misinformed as to the potential risks of that type strategy.
And frankly, based on your past comments, you are also an example of someone who thought the "strategic and potential risk", of selling a portfolio of $15 (5 gap) spreads, was the same as selling a portfolio of $50 (5 gap) spreads.
I'm glad to see you now acknowlege the difference.
BTW, I only do cash secured puts, until i decide to sell them on margin.
Usually when there are about 2 weeks until expiration and the majority of those trades are still otm.
i must have been unclear of my aknowledgment... there is such a way to volaitlity adjust those two examples such that the 5 wide 50 dollar stock has less risk then the 5 wide 15 dollar stock.. is the point i was trying to make to you.... you previously said some parameters.. "all being the same" like time to expire, distance in percentage otm... " but you left out a volatility assumption and thats what i was trying to get accross to you.. All things being equal (i don't know when that ever happens.. except in a crash and even then ) yes a five wide on a 15 stk is different then a 5 wide on a 50 stk.. and yes.. beginning options should know the risks about spreads their related margin requirments.. and most importantly "position sizing" becuase most times in options the amount you have bought in premium or the amount you have on margin IE cash secured or strike wide requirment ends up being your margin requirement and the amount you calculate your risk to reward ratio upon.. and just to disclose ...
I have put 30k up on a aapl credit spread trade before as well as a few other large amounts.. which 30k at the time was my entire account just about and my risk of ruin at that particular time was as you would say.. rather high.. haha but as i've said before i woke up in the middle of the night upset realizing this strategy ends my trading life rather quickly.. But i got away with it and made tons of money as a result.. absolutely not recommending..
as this is only one example of the many stupid things i've done.. i'm lucky my intuition has caught me in bad trading habits before ruin caught up to me.. at this point i've done alot more reading then trading.. i've got hard set on ratio backspreading , small position credit spreading.. selling puts against cash...and i was soon to be iron condoring on a little less jump risk asset like an idex or etf with high liquidity.. that being said.. i would rather consider myself the fool and find out i'm not... then be arrogant and not track down all my potiential risks.. my current situtaion that is hurting me is a vixy trade roll costing my money away.. trying to figure out what to do about that.. I am willing to take the loss i'm in at 32 and its trading at 26... sell calls... sell call ratio backspreads for credits and wait it out for volatility to come.. or realize i didn't know all my costs upfront and apply the rule of get out when you don't know wtf your doing... THOUGHTS ANYONE..
BTW, I only do cash secured puts, until i decide to sell them on margin.
Usually when there are about 2 weeks until expiration and the majority of those trades are still otm.
just as a note to you.. i've read in many places professionals taking their profits when they see 80% of the potiential return on the credit from the sale.. As you get towards expiration your gamma risk goes up and the risk reward of holding the position for the remaining 20 percent goes way down.. of course thats at your discretion .. if something is so far otm its not worth the transaction fees it might be worth just letting it expire.. then again you always hear about the person that leaves wing options open all the time and eventually gets smashed as a result..
<<< I have put 30k up on a aapl credit spread trade before as well as a few other large amounts.. which 30k at the time was my entire account just about and my risk of ruin at that particular time was as you would say.. rather high.. haha but as i've said before i woke up in the middle of the night upset realizing this strategy ends my trading life rather quickly..>>>
And that is my point.
In the middle of the night, you suddenly realized the risk you put your self at. Others may be deeper sleepers than you and not wake up in time.
With the snap of a finger you could have been wiped out.
My posts were ment to alert others to the danger BEFORE they find out the hard way,... as too many investors think having your risk limited to the strike gap, is more of a reasuring concept than a potentially dangerous one.
It's not really as "obvious" a concept to new spread traders, as it is to more experienced traders.
just as a note to you.. i've read in many places professionals taking their profits when they see 80% of the potiential return on the credit from the sale.. As you get towards expiration your gamma risk goes up and the risk reward of holding the position for the remaining 20 percent goes way down.. of course thats at your discretion .. if something is so far otm its not worth the transaction fees it might be worth just letting it expire.. then again you always hear about the person that leaves wing options open all the time and eventually gets smashed as a result..
Generally speaking, if i need the cash for another transaction or if I'm on excessive potential margin, I'll close something with very little credit left on it.
If not, I'll leave it alone, assuming it's deep OTM. Unless earnings are pending.
I'm also more likely to close a naked put than a spread, but it's mostly because of the extra transaction fees of the spread.
Time to rest my eyes. Good discussion by all.
