People have to use the strategy that works best for them not you or me. While there may be better strategies than IC's, you can't indict any strategy since they each perform best under different circumstances. The adjustment argument will rage forever. You prefer to claim that an adjusted trade is a new stand alone trade with new slippage and commish and has nothing to do with the original trade. That's a bit dogmatic but yeh, it's true in a black and white sense. When I adjust, I'm keeping part of the original trade and removing an unacceptable component (adjusting) in order to shift the risk/reward spectrum more to my liking. Yep, it's a new trade if you view it as a new decision to go forward verus closing. I view it as an ongoing dynamic process and as long as I'm pulling out gains or stemming losses, I don't care what you call it. As for saying that adjustments don't work, I assume that's based on your trading, yes?
Spin , I am a bit surprised by your reply. Optionâs discussion should never be about yours/my/his results, rather be on merit, no? We all know how âit working for me!â ended up for most of Spread journal's participants few years ago( even while OC did a very good job on warming of all do and donât)
Options, like a chess game, have unlimited amount of winning strategies that could be constructed depending on a particular expected behavior of the underlying asset. I would be inclined to think that complex option constructs do not often have the way of implementing them efficiently. On another hand, with some proper adjustment techniques they might be consistently profitable.
I don't understand most of your reply but I'm not sure what there is to be surprised about. If adjustments work for me then they have merit. If they don't work for me, then to me, they have no merit. Another example is legging in. Unless the prices are too good to resist, I always leg in. Should everyone? Absolutely not. Merit is in the eyes of the beholder
Are you saying that an IC has a negative expectancy at the time that it is established? If both the sold calls and puts are say at least one standard deviation out combined with the likelihood that at least one side should be profitable and reduce any loss, is the expectancy at the time the position is established not positive?
Think of a discussion about harm of smokingâ¦stats , medical studiesâ¦and suddenly someone is saying â Its all BS , I am 75 , heavy smoker for 50 years and still strong like a bullâ⦠Anyhow , good to hear you still doing OK.
LOL. The problem with that analogy is that there's no upside to anyone who smokes. As you noted, medical studies and stats support that conclusion. Adjusting option positions has an upside so I'm not convinced that I should smoke my options Happy trading!
Accutrader' comment: Are you saying that an IC has a negative expectancy at the time that it is established? If both the sold calls and puts are say at least one standard deviation out combined with the likelihood that at least one side should be profitable and reduce any loss, is the expectancy at the time the position is established not positive? Response: Accutrader, you are confusing the concept of expectancy with the concept of probability. An IC generally has a fairly decent probability of success, but often still has a negative expectancy. The reason is simple. Expectancy combines the probability of success with the payoff you expect to receive. When IC's fail, you typically lose more than you win when they succeed. So even if you win 70% of the time, you still might lose money. And you will, if you don't manage the trade and limit your losses to a reasonable level when they happen. You can't afford to let them go into the money and explode in your face!!
THANK YOU Mr Green for the best and simplest explanation of "expectancy" I have read. Very clear edit...so that is why if you "leg" in (successfully) to either a credit/debit spread or IC you have then created some "positive" expectancy.