Now before you'll go tearing into me, I am fairly new to IC's and am paper trading. I basically follow Dan Sheridans rules for IC's and attended an 8 hr seminar of his 1 month ago. Please feel free to correct , critisize, or add anything , not only for me but for anyone else learning Rules to enter low prob. IC's on RUT and SPX only 1. Fiqure out Standard Deviations for that day(1 to 1 1/2 out) 2. Put on 25-35 days out 3. Short strikes 16-17 deltas 4. .50 to .60 credit(each side) When to Adjust 1. When deltas go up 13 pts to 30 2. If 10 pts from short strike 3. If increase vol. goes up 20 to 25% 4. If the IC is up 12% or down 5% in P/L How to adjust 1. take off IC , wait 1 ,day ,and roll up or down , in 1 st 10 days (if in trouble) increase 50% (for example -10 500 Nov puts to -15 500 Nov puts 2. Buy a put or call for every 10 . Buy the put or call, 1 month out, 30 to 40 pts out and cut delta by 2/3 , but don't cut theta more than 50%. The put or call should not cost more than 5% of Prem. High Prob IC in RUT or SPX Rules to enter 1. Same rules as in Low Prob IC , but put on IC's with deltas of 7 or 8 2. 50-55 days out When to adjust 1.If deltas go to 20 to 22 2. 10 pts from short strike 3 if IC is up 12% or down 5% in P/L How to adjust 1.If over 25 days , take off IC , wait 1 day ,and Roll(adjust)(as above in low prob.) 2. If less, buy a put or call 30 to 40 points out . Cut delta 50% and theta no more than 50%. The put should cost no more than 5% of prem. Misc. 1.Use the take off IC and roll method more in a trending market and put or calls in a choppy market 2. take off IC's before expiration week 3. If Vix is above 30 buy a Put , 1 month out , 30 or 40 points out for protection
Well I trade IC's and I definately don't go to that extreme - It sounds way cool don't get me wrong. I do simple technical analysis and manage my trade in the TOS platform using a risk profile the entire time. I look at my positions every day and I adjust only when near a breakeven close to expiration. My adjustment of course is based on me net credit after commissions and the consideration of what said adjustment will cost. I would love to read more about this style, do you know where I could get more info? have you tried the TOS platform? Take care
I went to a couple Dan Sheridan Seminars . This is basically his strategy. You can go to CBOE.com and watch hrs. of his webinars. What are your rules for IC's ? thanks
I like the way Dan goes about it. I'm not as rigid with my rules on managing of ICs, prefer to stay flexible and work of greek values when determing when to adjust. Also, depending on how many positions in play I may have positions overlapping positions which offset risk and therefore won't adhere to specific adjustment rules. I think if you follow his guidelines and ultimately come up with something that fits your own comfort zone you'll be better off, as there will be times when a situation presents itself that requires an adjustment and it won't fit into the rules. Thats when you need to know the greeks & vol inside out, will go along way in maanging your trades
Adjustments are the key to success with IC's. You can certainly follow Dan's entry rules and do fine. I personally have much more intuitive rules for adjusting that take time to expiry, distance from the short strikes, insurance spreads, and volatility into account. The greeks allow you to quickly assess all the variables and decide whether you need to shift things or not. Your personality and risk profile also matter. I like to sleep peacefully knowing that it is extremely unlikely that an overnight move will hurt me much. It is also a very good idea to keep margin available and to stagger entries which provides some protection of its own.
Grinder, What do you do to evaluate and keep an eye on the multiply IC's you put im the same month and same indice, for example SPX. I have a few IC's on SPX in the same month using TOS and can't fiqure when I need to adjust because the IC's are mixed together? Thank you
Even though I'm not Grinder, I'll make a comment on this since I have traded a lot of real SPX options. Look first at delta. If your overall delta for the position (which TOS displays for you in the summary) is high, then the position has a distinct possibility of running away from you in a hurry. A delta of 0 is considered perfect for IC positions, but generally a + or - 10 is usually quite good. A delta of more than 20 (either positive or negative) is often considered to be headed for more dangerous territory, but the danger zone for your options will be related to how much premium you have generated and how much margin is at risk....
What do you do to evaluate and keep an eye on the multiply IC's you put im the same month and same indice, for example SPX. I have a few IC's on SPX in the same month using TOS and can't fiqure when I need to adjust because the IC's are mixed together? I use http://www.samoasky.com/ to evaluate indices seperatly. Example: One portfolio might be made up of just SPX options incorporating ICs, calanders, DDs, protection while another would be RUT options. Focusing on SPX, would firstly assess the greeks of each of the different ICs & evaluate whether an adjustment is warranted. Then I would evalute the greeks of all the ICs (different strikes) combined to determine my overall greeks position & the present risk. Thridly, would factor in what protection &/or other strategies I have on that may offset my overall SPX portfolio greeks. Finally, look at maybe the RUT portfolio to see how the greeks present weigh in on the SPX portfolio.
erol, I personally do not use support and resistance very much, but I will occasionally have more insurance spreads on the side that I think is more likely to face pressure. I also will shift the spreads a little toward the direction I think the market is likely to go, but usually no more than 10-20 points off a perfect balance. Support and resistance are factors in market movement going forward, but my system is pretty robust and can handle most movements without too much difficulty. I also have come to the belief that predicting the market one month from now is pretty difficult. With that in mind, I usually aim to avoid positions that are really unbalanced. I prefer to have my delta pretty neutral, and will make little adjustments to keep it more comfortable as necessary. I especially like to make these when they cost me very little or generate additional cash without dramatically increasing the risk.