Let's take a break and get back to the mission. TheOptionsClub is sponsoring a seminar "Trading the Weeklies with Dan Sheridan." You may have to become a member of their website to gain access to it as I do not see an obvious link from the front page. Another interesting item to be found on their site is an article Why Probability of Success or Touching Does Not Work
No... Like I said, I don't subscribe to their service. I don't really believe in subscribing to services/newsletters. That said, the truth hurts, doesn't it? See - I don't think those people are liars, are cooking the books, or out to scam people. If you think they are... you can always contact them. They seem legit to me. There are many, many other services out there... that I would clearly call scams/reckless. But not ALL of them are... You seem to have this very black-and-white view of credit spreads. When in fact, the world doesn't work that way. A well-managed credit spread strategy can work and can work quite well. I've provided an example. Here is a counter example. I'd stay clear of these folks: http://www.10ppm.com/customer/customerMain.php?section=customer&step=performance2010 Check out May 2010. Many people complained that they lost upwards of 93% of their trading capital.
Optioncoach - i completely agree I do not think you can teach anyone to trade you can only teach them tools of the trade but its up to them to use those tools and make them their own. I'm learning about the "tools" which are the various option strategies and when to use them that would allow me the best risk/reward profile. The iron condor is great but i do believe we are heading into a period of high volatility so i'm looking at strategies that would have greater chance of success while still taking advantage of theta. Best of luck to all!
I would like to chime in on this rather interesting thread. I do have various friends on site, and many know that in my past, I fancied selling premium. When observing data sets and myriads of statistical data, selling premium at the RIGHT TIME can be a very profitable strategy... for a time. However, I caution those following Howard's trading plan to be very careful. I have blown up many times in my decades long trading career doing this very strategy. It must be noted that I did manage OPM in hedge funds, and the payoff structure was friendly to high probability high risk transactions. The most important things to consider are as many pointed out the outliers. When volatility explodes, you are truly a sitting duck. You are completely impotent, powerless, and you will panic. One really does need a trading strategy that will take into consideration events like 9/11, 2008-2009 banking crisis, etc. As others have pointed out, when volatility explodes, if you are trying to buy back your credit spread, you will see how the market makers will make the bid-offer so wide that you will be wiped out no matter what. Trust me on this... Even though I achieved stellar returns during many multi-year periods, my occasional blowups could not mitigate the successes. After all, what if during a 10 year period, I turned your $1000 into a cool million dollars, but on year 11, you mortgaged your house and emptied your IRA (because I was so successful), and then on year 11 the fund blew up? I respect Howard's keen persistence to this strategy, but until we see another sharp spike in volatility, one cannot prudently employ large sums of money into this plan. A few months of success cannot be a proper data set. In my opinion, you should employ a few DECADES at least with this strategy precisely because it IS a HIGH RISK strategy that can easily blow up the account into oblivion. If Howard was suggesting a strategy that risked say only 4% of your trading capital, then I feel it could be safe to use a short backtesting window. But selling premium USUALLY ends up risking 100% of your trading capital! I understand Howard says you can roll your positions, but this is essentially The Martingale Strategy in betting casino terms. Unless you plan to live only one more month, you cannot safely execute this strategy. Now, if someone has a terminal illness and will die in one month, and really doesn't care, then selling deep out of the money puts on the SPX, maybe at the 1000 strike would be a fine and dandy trade. Also, if you hate your wife and kids and wish to live out your life as a traveling Buddhist monk, then this strategy is perfect. But unless your family will enjoy living under a bridge and eating out of garbage cans, beware of selling cheap premium. I am living proof that over millions and millions of dollars and decades of trading, this strategy likely will end in tears. Now, I am not going to disrespect Howard here. And I am not stating money cannot be made. But with all due respect to Howard, he clearly stated his trading of selling cheap gamma and premium has been limited in duration. I wished to share that I did in fact utilize this strategy over decades of real money trading. This is sort of like running across land mines to look for spare change dropped by dying soldiers. You will likely be OK, maybe OK for a LONG distance and time. But eventually... I also had a friend who hated using condoms, and he was OK, for a long time. But a week ago I found out he has HIV...
premium sellers, reread and listen to the previous poster. i have a funny feeling he has done some serious selling, lol.
Yeah, I have a b&w view of any spread that pays 1 to 10; pick a number. I never stated it can't work. It's the default position of "traders" that cannot trade or simply refuse to trade any convexity out of fear. Ironically, they risk far more with this foolish shit. I wish people would read what maverick (and I, and coach, and domestic...) have stated in previous posts about these verticals. You(all) receive an answer, and dissatisfied with the response, pose the question as a statement backed-up by some 3rd-person historical performance written in a word.doc. Loss of opportunity. There are many atm positions that pay 3, 4, 5:1 if you're trading inside 1 sigma on price in many liquid, large caps at 20-vol or lower. 6, 7, 8:1 if trading outside 1 sigma. All vol-trading involves at least a few orders of convexity, so there is a lot of forgiveness in the atm/near-otm positions; you don't need to go into nose-bleed stuff. If you do you're going to see 80% hit rates, but you're going to lose it all, eventually. Rodney has a point that he may earn a couple multiples through retirement w/o getting clipped, but any method with such a poor R/R requires a large collateral req to make it work and therefore doesn't lend itself to AON trades. The OP talks about a >100% YoY return, but nobody would allocate 100% of their portfolio to this crap. The OP views the debit requirement as an investment (working capital), yet nobody looks at working capital as a 100 or 0 binary outcome. There is an assumption that there is a return OF capital, and you cannot safely assume that with these ridiculous credit spreads. The expectancy is marginally + if you're risking 90% on a 5% risk of ruin, but would you want to? You should be buying (long or short gamma) positions that involve convexity on PNL, not selling the terminal few pennies remaining.
Yes I like that post by a decades long professional. The problem with many winning strategies is compounding. As someone said, if you could limit your trading to 4%, or say 25% of your total account, if you blew up, it would not cripple you. Compounding is of course GREED and we all fall for it, over and over again. I also liked the remark about working from a fixed account size and clearing the excess once a month. Something to think about and re-evaluate where you want to be as a retail trader. Certainly I´m thinking about it, as I wait for my TÃS account to be I.D. verified and activated. Last year I decided to study SPREADS, as they were reputed to be safer, instead of straight buying options. I´ve come to the conclusion Spreads are a waste of time. Only this amateur´s opinion, which is worth nothing of itself. If you are going to limit your profit in return for safety and that safety doesnt exist, then why do it? All in all, if you can predict direction, then it would seem just straight buying is better than spreads. It does seem almost all spreads require you to predict market action, direction or no direction, or something. There is no sure thing. And if you can predict direction, then what would I be limiting my potential for using some spread trading? Doesn´t make sense. Why trade a STRADDLE, or STRANGLE if you can predict direction, or alternatively cover your butt, if you turn out slow, or wrong by trading directional.
I used to think it was marketsurfer doing his best VN spoof. But I'm not so sure. Surfy seems like a nice guy, but I don't think he has the writing chops to pull it off... In any case, they are words to the wise about using a lot of leverage selling premium. Of course, here at ET they could be pearls before swine.
thoreau777, Most of your post exactly parallels my advice. Permit me to emphasize some and expand others. I think you conflated strategy with money management. No strategy with potential big hits should be traded with 100% of your tradeable pot. I limit mine to 20%. It would be painful if I lost it all, mostly to my ego, but it would not materially change my life style. All honest advocates of a trading strategy warn those who follow us to not risk more than they can afford to lose. The "nanny staters" among us want to ban the dissemination of this information. There are some traders who are always all in and some that will take some off the table as time goes by. That is not the responsibility of the advocates of the strategy. Some analysis, back testing and paper trading I've done encourages the belief that a black swan event will be very painful, but not terminal with the way I arrange my portfolio. The only real proof will be encountering such an event. Only time will confirm or refute those concerns because such events are certain. It's only a matter of when.
Many reasons that become apparent as you gain experience. Let's assume you're using stops (deep otm long wings) against the short straddle. Say you're bearish on XYZ at 165, with a target of 160 in ten trading days. You can buy the 50/60/70 fly under two bucks with two weeks to expiration. A touch of 160 can return 5/1 in that time (at exp). 4/1 buying the calendar at a flat vol-surface or maybe 6/1 if vol rallies 500-600 bps. Better yet, buy the fly and calendar, and sell an index fly to trade the dispersion. You'll be long g/t/v and short correlation. You can trade the underlying pairs trade to reduce that risk as well. Don't sell stops. It's many layers of stupid.