The last part of my options (and gambling) education was to learn how to take a loss. Trying to "salvage" a limited loss can lead to uglier situations. Joe.
Ammo,I am familiar with boxes,but you are confusing me with "diagnol".How do we go from being wrong on a vertical,to rollng into a box and introducing a diagnol?? Once you are wrong on direction,you have an unrealised loss.Any positions added are simply a new bet.Either they stand on their own or they shouldn't be put on.. Salvaging is shuffling the deck chairs on the Titanic
Hindsight is 20/20. My original analysis showed good chance that SPY wouldn't close above 116, and my second analysis show excellent chance it would close above 118. Should have just gone to sleep this month. SPY close at 115.97 today. Damn !
The problem with math and logic: how much more logical can you be vs everyone else? Old news is worse than no news at all.
IF I read all of this right, this only works if all of them are in the money - right? IOW, unless it's over $119 you're SOL, right?
I sell credit spreads as well, and let me tell you. NOBODY made money. Everybody lost money. Thus to say you could have saved this one is impossible. The only way to have saved this one is to have enough margin to ensure that you can stay out of the markets way long enough. Oddly enough this cycle I kept lots of margin available. I had this dark feeling that something should go wrong. AND it did... The real loss on this trade would be around 10% to 20% of your capital if you are a full credit trader. I kept my losses to 3.5%, because I had the margin to keep ahead of the market. So why did I say original 10 to 20? Because most people don't keep enough margin... This month just sucked and there was no winning this cycle, unless you just did not play. And fulltime traders would have played... Christian
it never moves ,it only works if you sell it for more than 3 and buy it for less than 3,its always worth 3
Interesting discussion. Please read my comments very carefully before you respond! Credit spread trading is a very interesting game. Frankly, adjustments are a huge part of how I play (and succeed) . To me, an adjustment is an admission that you have been wrong and need to get out of the way. I do this in part or in whole much before the problem becomes a nightmare. Exiting some of the position is one of my methods of adjustment. The scary thing to me is that many people write credit spreads a long way out of the money, and then wait until they are in the money to adjust, hoping all the time that things will work out, which is a big mistake. Of course, at that point, they will be sitting on a paper loss that will chew up much of their margin. Now they have a difficult decision to make. Closing the position will result in a significant reduction in capital. If the person has most of their margin tied up in the single position (which is another major mistake, of course), they will experience a major depletion in operating capital. Should they simply exit? My position here is probably radical. If you have made the huge mistakes outlined above, then selling will crystallize the loss. This is a certainty. In that horrible situation, I'd recommend rolling out to the next month which gives an opportunity for recovery in the next month. It may be that this rolling has to happen several times, but if the capital loss is going to be more than 50% of the portfolio, it might be the best way. Of course, this is no guarantee of escape and recovery, and at some point (say a few months later) admitting defeat may be inevitable, but exiting guarantees failure. (With American style options, you may also have no choice in the matter.) Rolling also gives the opportunity to use credit spreads on the other side to regain capital. Personally, I play using iron condors and broken wing butterflies because they have both a winning side and a losing side. I also typically hold some "insurance spreads" that gain in value as the market heads toward my credit spreads. The net effect is that you can't lose on both sides. Then you can adjust your position to make it more delta neutral, without chasing the market nearly so much. That's when adjustments make a lot of sense. Keeping margin available is also critical to this process. It is essential to be able to maneuver, and avoid catastrophic failure.