Jeff Augen's StdDev Price Change

Discussion in 'Options' started by dbh21, Oct 28, 2012.

  1. Your point on vol is valid in my experience -- look at IV and know the range of the given product. For OI and volume -- these are critical measures of liquidity and efficiency. Look for bid-ask spread of a penny or three and volume of at least 1 million in the underlying. Look at something like SPY and AAPL to understand liquid, efficient products.

    As for commish, at IB for 75 cents per, or tos at $1.25, or TS at $1.00/contract with no ticket charge, selling a $5 condor one time should bring in say $200 and incur four legs or 4 x $1.00 is $4 for TS or $5 for tos. In simple terms, commish should be considered in terms of the trade price, but even in a four-legged position, it shouldn't be a factor in profitability. Perhaps I've misunderstood your description of selling a $50 IC and paying $10 in commission. In any case, I think it overcomplicates a simple short IC trade to try to understand, let alone manage gamma, just get out by the Wednesday and life is simple -- commish has little if anything to do with a decision to close or roll a position.
     
    #21     Nov 26, 2012
  2. dbh21

    dbh21

    Thanks. I'll definitely take a look at those. At the moment I am looking at the ADX indicator. (Actually, I am sidetracked looking at the NYA200R).

    I read Benklifa's book. I like it. He's very conservative in his trades. 2-3 months out, looking for a 4% gain.

    I'm not necessarily looking for a mechanical system, but to gain confidence in using different parameters or scenarios. This is still a big learning experience for me.
     
    #22     Nov 27, 2012
  3. <<< I read Benklifa's book. I like it. He's very conservative in his trades. 2-3 months out, looking for a 4% gain. >>>

    Am I correct in interpreting the goal above as averaging in the area of 20% annualized?
     
    #23     Nov 27, 2012
  4. dbh21

    dbh21

    He did not say whether he had a long term goal. Only that he managed large pools of money, and was conservative. He could be doing other trades as well. But I recall him saying he aimed for a 4% profit target on his iron condor trades.

    20% annuallized ain't so bad... but not great when he also takes 2/20 off the top.
     
    #24     Nov 27, 2012
  5. getting down to the value at risk in each trade.. and how diversified he is amounts index0s or single names would be a real question.. obviously your better off managing 3 irons in different indicies or single names rather then one name with three times the value..
    so if condors with higher premiums/delta 10+ are better.. (althought i think thats to generalized of a statement) where do iron butterflys fit? your selling a short straddle and capping the losses.. ATM's experience most of their loss near expiration.. so is the profile of a iron condor better then a iron condor at different time frames? and if so when..
     
    #25     Nov 27, 2012

  6. If your average contract is 2 - 3 months out, and you are earning 4% on the average trade, then it sounds like his L-T goal was in the area of 20% annualized.
    My question is, what was the VIX during that time?
    If the VIX was in the 30's that would be a very conservative goal.
    If it were in the low teens, then perhaps not as conservative.
    Just looking for a bit of context.

    Personally, given the low VIX environment we are currently in, my current annual goal is 13 - 16% annualized.
    Back when the VIX was in the 30's, my annualized goal was in the 20 - 25% range, via a strategy of selling naked puts.
     
    #26     Nov 27, 2012
  7. ktm

    ktm

    Commish can be a significant factor. It depends on how safe you want to be - how far you are outta the money. With Benklifa's strategy of opening contracts 60 days out at 8-10 delta, I think the average opening premium is around 13% of the spread for one side.

    So... let's say he has a 10 point spread and gets 1.30 total credit. He also takes it off very quickly. At 5 contracts (1.25 commish per X 4 legs) you are getting $325 initial credit. Your total commish to get in and out is $50. If he gets HALF of his deterioration in a few weeks and removes it, he gets $162.50 minus $50. Commish is taking a third of the profit.

    That's been part of my continued reluctance to really deploy ICs far OTM. If you are getting $5 credit, as in your example then the commish is much less of a factor, but you are going to have your feet a bit closer to the fire.
     
    #27     Nov 27, 2012
  8. My commissions at IB are .70/contract. That's 7.20 round trip on 130.00 dollar credit... 5 condors would be 650.00 credit minus 36 dollar round trip commission.. commissions go down significantly with penny options... so 36 is max..that means commissions are max 5.5%

    Using spx instead of spy, bigger notionals require less condors saving commissions.. not closing long legs that are so far out of the money they aren't even quoted is a thought for those people not holding until expire..

    I can not see how your doing your math but at first glance its wrong
     
    #28     Nov 27, 2012
  9. dbh21

    dbh21

    Also, in Benklifa's case, he uses 25 point spreads. So that would lower his commission as well.
     
    #29     Nov 27, 2012
  10. ktm

    ktm

    My math is correct. I can see that the commissions are half the percentage by using 100 multiplier contracts instead of $50 (ES).
     
    #30     Nov 27, 2012