Anyone using Option Swing Folios?

Discussion in 'Options' started by xtrhvydty, Nov 28, 2005.

  1. I have experimented with the following system with some success and am interested in some feedback. Here it goes:

    I. Allocation: 20% of Net Capital
    Type: Speculative Option swing trades
    Risk Measures
    1. Inherent Diversification thru options on ETFs or Indexes. I may add some very strong or weak stock options. I examine all stock components of the ETF or Index.
    2. Portfolio diversification via several uncorrelated ETFs/Index options.
    3. Max position = 2.5% of net capital for a total of 20% max (i.e. max of 8 positions)
    4. High R/R entry. Enter only at extreme pullbacks/pullups with strong volume-supported resumption of trend and favorable put/call volume & ratio.
    5. Check ATM options and near ITM/OTM options for price variations per day. Choose only options with stable variations and good B/A spreads.
    6. Set Stop-Lmt for min of .20 or 20% of the option price (=.5% of net capital or 4% for 8 positions). With a high R/R entry premise, no major whipsaws should be permitted.
    7. Compute daily/weekly/monthly standard deviation of porfolio and determine a suitable hedge w/ QQQQ/SPY options. Kick in this hedge if there is a technical justification. These will hedge the losses and also serve as a redundancy in case the stop-lmts fail.
    8. Additionally, I only choose options which I believe are mispriced at the moment (direction reversal, IV/HV ratio, expected volatility reversion, expectation of a bigger/smaller move etc).

    II. Allocation: 30% of Net Capital
    Type: Hedged Option Spreads (Bull Bear Spreads, Butterfly, Condor, expensive DN strangles, cheap straddles). I lean towards small positions with small profits for small time duration.

    1. I use Stop limits on both options (will a one-cancels-all order leave the stop hanging?). I estimate the price at a critical technical level.
    2. Again, similar rules apply with a max of 2.5% of net capital per position.

    III. The remaining 50% of capital used for other trades, margin, adjustments etc.

    1. TCnet used for all TA. IB used for option data. I make a determination on each trade whether to diagonalize the spread based on the overall picture and time to expiration.
    2. I have manually exited all positions based on technical criteria. The stops are just for insurance.

    Any hidden disasters in this picture? Any suggestions/criticisms welcome.

    Best Regards
  2. flyers&divers

    flyers&divers Guest

    I am swing trading a good portion of my funds with credit spreads using my own TA setups which include MA's, volatility bands and oscillators.

    The entries are generated from 60 min charts but of course they tie into the daily and weekly structure.

    This has been working well for me except when I get careless (lol).
    In my case the edge comes from being right on the next swing most of the time.

    I am not focusing much on the greeks - except I am mindful of IV conditions, my energies are spent on finding the right setups, like needle in a haystack, but with the TA programs today it is possible.

    I have many many positions on both sides of the market so when I get whacked on something it does not hurt that much.
    I do not adjust trades that go wrong, I just get out the best I can.
  3. Hi fly Dive
    Your trading style of predicting turn (overbought/over sold) is some what similar to mine. But Your are conservative with spread style .But I trade more naked call/puts.
    Do you trade always front month or 8 weeks minimum.?
    Credit spreads with PUts/Calls most of the time?
    When you say having both bearish/bullish bets to hedge a adverse market move-How you do it? Sell weak stocks/Buy strong stock concept ot index hedge?