Maverick Thankyou for the honor. That is the only thing I have graduated from I guess? I spent my life as a professional beach bum and yachtie. Mind you, if I had to live it over again, I would do it the same way.
Well the day is over and it went well. If you figure the wudda, cudda and If, components. I might have doubled the days earnings if I had got out at the high volatility this morning. Never mind. It is still February and I am still officially within my 3 month period and the return is now 124%. Everybody says it won´t be so good when real money comes into play. Still it is a ball park figure. Howard is returning 102% for a five or six month period in credit spreads. Now I wait on TOS to tell me if and when my account is activated and I can authorize my cheque to be put in the mail.
Take it easy on howard guys, criticize his trade plans but leave the treadmill out of it. I mean it's GENIUS putting a $20 plastic on top of a treadmill and sell it for $500, i bet you all wish you thought of it. you cant just say that, it really depends on the situation. Also selling naked vs spread, spread is safer unless you talking about cash covered. You have spot traders using option as leverage/hedge, you have option amateurs using memorized combos trying to plug them in like some sort of jigglesaw puzzle, then you have the pros who trade the vol/skew and greeks.
In spite the recent jump in volatility, causing me to exit some positions at a loss, Feb 2011 turned out to be my best month trading real money with this strategy.
My trading unit is a credit spread. I treat an Iron Condor as an artifact with the benefits of adding the companion spread with no additional capital requirement and somewhat neutralizing delta. I experimented with using the Greeks as a spread management tool, however I found it added no value to the outcomes over what I do, it is more complicated to understand and it can be more complicated to execute. My adjustments plan is driven by the Credit Spread Management Dashboard. It divides credit spread management into two areas of adjustments to consider; opportunities and jeopardies. Opportunities include: Adding a credit spread to a spread that does not yet have a companion to form an Iron Condor Rolling a spread that has already achieved 80%+ of its potential. Jeopardies include: Excessive Probability of Touching Days to expiration At risk P/L I do not use weeklies as a hedge. I use them as opportunities to repeat profits more frequently. My results so far is that, with respect to the way I trade credit spreads, they act much the same as monthlies in their last week before expiration. In both cases, spreads in this time of their life require more intense monitoring as they can go south quickly. In some cases I have even been able to add a roll to increase profits even more, or to mitigate a loss. I still trade weeklies in small money mode. However repeating this frequently, weeklies still makes a noticeable contribution to my monthly performance. I do not at the moment, but I am always interested in new methods to improve management to either add profits or mitigate risks. That said, it seem that Theta quickly dominates Vega as expiration nears. After all, credit spreads are built to take advantage of time decay.
I find hedging as a management tool dissatisfying. It attempts to make a deteriorating situation less deteriorating. It may work for some, but for me, it is not compatible with my psychological profile. If the situation sucks, bail and live to fight another day. You must survive to thrive. On the other hand, I am experimenting with methods of insurance at entry to mitigate the risk of a sudden price decline of the underlying. It is not yet ready for prime time. Insurance cost money. Does it have a positive expectation? I don't know yet.
I find managing credit spreads easier than some people fear, but more risky than many gurus tell you when selling their seminar. My focus is always to simplify until there is a significant deterioration in results. The clear implication is that I will sacrifice some return for simplicity. Simplicity is key to crisis management. Trying to execute a complex risk mitigation strategy in the middle of a crisis will likely lead to adding to the problem. I am a lapsed private pilot. The development of the Dashboard and the simplification of my management rules are based on what I learned from the results of plane crash investigations. Any edge I may have is not related to competing against any other person, it is related to my competing with the market. Time decay is the mechanism of developing profit. The edge, if any, is the management methods to take advantage of opportunities and escape from risks before significant harm is done.