OddTrader plays ES Collars for vacationers

OddTrader · Jan 25, 2011

Here is an old thread for vacationers. With very different systems, both are using the same position trading style, basically "Always in the market".

http://www.elitetrader.com/vb/showthread.php?s=&postid=2403959&highlight=calls#post2403959

Quote from OddTrader:

A summary of the 5 trades with the real-time calls listed above in this thread:

1st trade: 1.595/1.550 for +450pips;
2nd trade: 1.550/1.600 for +500pips;
3rd trade: 1.360/1.260 for +1,000pips;
4th trade: 1.265/1.325 for +600pips; and
5th trade: 1.325/1.315 for +100pips.

Total: +2,650pips! Ciao!
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OddTrader · Jan 25, 2011

Quote from RichardRimes:

we all know what the spec's are ( I have lived them) assuming the above position......close of trading FEB exp... IF ES is 1180 THEN

the call expires
1289 ES put will convert to a long Mar ES cash and your account will have $5000 removed from it (you collected $2000 for the trade so your only down $3000

The ES cash you bto at 1286.25 will have bled a bit over $5000 and net net you will be long 2 ES contracts and poorer by $8000

THEREFORE I assume you won't leave this and go on vacation....
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In a free world, you may assume anything you like.

Just don't know how to answer your highly intelligent questions.

Please excuse me.

BTW, a friendly question: Have you ever traded collars or es futures/options in your whole life Yet?

OddTrader · Jan 25, 2011

It's funny:

http://www.elitetrader.com/vb/showthread.php?s=&postid=1040880&highlight=husband#post1040880

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3070580>

http://www.elitetrader.com/vb/showthread.php?s=&postid=1327005&highlight=donnav#post1327005

Quote from RichardRimes:

Hey Coach you are obviously unaware that your thread has now become a "cult" legion. It has been downloaded and re-worked into word format only 570 pgs long :eek:, I've spent the past two days reading/editing the 1st 170. You forget how great a thread it was/is. But you are right...there is a lot of "editing" necessary

-mainly editing out all those really stupid comments from that "DonnaV" person.
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OddTrader · Jan 25, 2011

Quote from OddTrader:

Here is an old thread for vacationers. With very different systems, both are using the same position trading style, basically "Always in the market".

http://www.elitetrader.com/vb/showthread.php?s=&postid=2403959&highlight=calls#post2403959
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Perhaps I should have said/added, this current thread for collars with weekly signals is better descirbed, I would say, a swing trading style, probably.

http://en.wikipedia.org/wiki/Swing_trading

OddTrader · Jan 25, 2011

Quote from OddTrader:

In a free world, you may assume anything you like.

Just don't know how to answer your highly intelligent questions.

Please excuse me.

BTW, a friendly question: Have you ever traded collars or es futures/options in your whole life Yet?
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"Don't feed the Troll"
http://rationalwiki.org/wiki/Don't_feed_the_Troll

Q

Characteristics

A troll usually has little or no interest in contributing to the development of the site in question and is interested in :

* Deliberately angering people.
* Breaking the normal flow of debate/discussion.
* Deliberately being annoying for the sake of being obnoxious. For instance, using abusive names to refer to all the members on the site.
* Making itself the main topic of interest or discussion.

UQ

http://www.elitetrader.com/vb/showthread.php?s=&postid=1728800&highlight=atticus#post1728800

Quote from RichardRimes:

There is no big conspiracy...some of the names have been around quite a while and been very helpful (consistently) so they are respected for both their knowledge and generosity in giving it freely

Atticus is the new name for a trader active on ET since 02 and without whom ET would (for us option traders) be a very dull place.

check out optiontrading coach's SPX journal and you'll see.......a great number of good generous knowledgeable contributors.
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OddTrader · Jan 25, 2011

http://www.elitetrader.com/vb/showthread.php?threadid=66507

Quote from Algorithm:

Collars are very effective in squeezing out additional profits during downturns in your stocks, but I think the primary thing we as traders and investors have to keep in mind is the fact that patience is a virtue and that sometimes we can be wrong. Now, what the hell does that have to do with collars? Well, for starters, you're never gonna be right 100% of the time and what is the measure of the trader/investor (and eventually his/her account) is knowing when you ARE GOING TO BE wrong (notice, not when you are already wrong) and adjusting/accepting your circumstance. If you don't marry your stocks/positions, then collars can be used to their greatest advantage. First of all, collars (in my experience) are most effective when you have a good understanding of the underlying and how it moves and also have DEVELOPED AN EDGE when it comes to trading and investing in it. Usually I have little to no problems placing collars on issues I have owned for long periods of time and are comfortable with. The reason I know I can be successful using collars on those issues are:

1.) Extensive familiarity with the issue and developed fundamental/technical analysis surrounding it. (my edge)
2.) Confidence in the fact that I know if I am patient enough the issue will always provide me an opportunity for re-entry.
3.) The discipline to know that stocks don't/can't love me back and are just vehicles to garner more financial resources with which I can attain goals.

You see this horribly esoteric answer is necessary in order to provide your questions sufficient answers because you really are not asking about collar strategies. Rather, you are having problems with some fundamentals regarding trading in general. You see, each and every strategy has advantages and disadvantages as well as times when one approach will reap more rewards than others.

The simple answer to your question about how not to pay too much for insurance is easy to answer. The basic implementation of the collar strategy offsets your cost for "insurance". I refuse to really call it insurance since I see it more as locking in profits and profiting more on downswings. If you are finding yourself unable to sell calls at the time that you are buying puts, well then you are using some other strategy than a collar.

Secondly, how not to have your stocks get called away, well that could possibly be the easiest to answer. Simply put, you have to either unwind the collar at a cost in order to keep your stock, or you must let it go. It's a part of the life of trading. Sometimes you have to sell and take profits, otherwise you are not trading, you're betting and by the sounds of it you are losing some of those bets.

You see, if you have your edge developed and are disciplined as a TRADER, then you will know when to collar a stock and usually you will do just fine. Yes, sometimes the strategy will not work as best is should or could have, but hey we are all human.

Remember, if you are finding yourself hesitating on one side of the collar execution strategy, then you are not collaring a stock. If you are just buying puts without selling the offsetting calls, then you are simply buying insurance, and we all know that insurance is expensive until you need it. I think maybe you are more unsure of when to use a collar on a particular equity than on how to buy "cheap insurance" and avoid "losing" your stocks.

Remember, to everything there is a season.
In options, to every situation there is a strategy. The trick is choosing the correct one and then executing.

Happy trading/investing
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+1! The trick is one has to Choose the right collar structure, not only from the list below, but also, ever better, beyond the listed ones!

Quote from OddTrader:

There are many different structures of Collar strategy that I am currently exploring:
- Long UL, Sell ATM put & Buy OTM call;
- Long UL, Sell ATM call & Buy OTM put;
- Long UL, Sell OTM call & Buy ATM put;
- Long UL, Sell OTM call & Buy OTM put;
- Long UL, Sell OTM calll & Buy ITM put;
- Long 100% UL, Sell 50% OTM call & Buy 100% OTM put;
- etc;

You can pick whichever collar strategy (and your preferred strike prices) you like.
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OddTrader · Feb 2, 2011

Why hedging?

http://www.elitetrader.com/vb/showthread.php?threadid=214413

Quote from FrankSlaughtery:

Scalping ES (or any leveraged instrument) w/o being hedged is like playing russian roulette every day. Instead of playing the odds of eating a bullet (1 in 6) you play the odds of being taken out by a black swan (1 in a really large number).

You can prevent this by only shorting as the OP and surprise said or by buying OTM puts and rolling 15 days before expiry to preserve some time value as Intradaybill said (preferred way since you can participate on both sides of the market and not always feel like you're missing out). To reduce the cost of continually rolling, you can use SPX or ES options since the car size is bigger so you won't need as many compared to SPY (lower commissions) although the spread isn't as tight.

Or you could just not hedge and take the risk. But imagine one day you go to the fridge to get another red bull and come back to find your 2 point "disaster" stop blown through by a locked limit down ES. If it reopens down 10% you just lose 5k per car if ES is at 1000. To bottom line this, if you trade with 5k equity per car (a lot more than some aggressive traders on here do) you are now wiped out but not in debt to your clearing firm. Traders using 500 per car will be put on suicide watch. Sorry for the long post, just trying to pay it forward so your tombstone doesn't read "ETtrader was killed today by a black swan. He is survived by his 16 computer monitors."
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OddTrader · Feb 5, 2011

Why trading longer time-frame?

Not only for enjoying vacationer lifestyle, but also for ...

http://www.elitetrader.com/vb/showthread.php?threadid=213954

Quote from Handle123:

If there is equal amount of experience for long term trading and day trading, in my experiences, much more profits are made in long term and a great deal less time. Day trading, one often misses parts of long swings in price movements and gaps, many more commisions, you eyes and body wears out much faster, much more stress, reward to risk is often 1 to 1 or worse. Whereas long term, reward to risk can be 5 to 1 and much larger, one trade perhaps for an entire year in one stock. And you can be having a full time business doing something else.

And come the end of April, retiring from day trading after 25 years of it. There are much better things to do in my life than be watching every tic any more. I still have many ideas I plan on testing for long term methods that I want to investigate.

Have a fine weekend all.
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OddTrader · Feb 7, 2011

Quote from OddTrader:

Week 24Jan2011 Short 1280.21
Sold ATM Put at 19.22
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Week 07Feb2011 Long 1311.

OddTrader · Feb 7, 2011

Some threads here about performance evaluation of hedge funds/CTAs against S&P500:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=95206&highlight=hedge+fund+sp500

Quote from Div_Arb:

Three points - First, manager selection is everything in the world of hedge funds. The dispersion between the best and the worst can be quite dramatic - much more so than a traditional long-only manager.

Second, over the last fiver years through April 30, the HFR Fund of Funds index returned 8.1% with a standard deviation of +/- 3.9%. The S&P returned 8.5% with a standard of +/- 13.1%. you can see that the Sharpe Ratio is much,much higher for hedge funds than for traditional long only managers. That's why people pay 2 and 20 for their services.

Final point, which was stated earlier, hedge funds are a risk reducer, not a return enhancer. If you feel the markets are poised to go higher, invest in private equity, not hedge funds.
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http://www.elitetrader.com/vb/showthread.php?s=&threadid=111099&highlight=invest*

Quote from makloda:
"Most don't beat the SP500". The thing with hedgefunds is that NOBODY WANTS TO BEAT THE SP500. Investors in hedgefunds are typically not looking for absolute OUTPERFORMANCE of the SP500 but for outperformance on a risk adjusted basis. If you had 100m would you rather invest in something that gives you 10% over the next 15 years with a 40% drawdown over in something that gives you the same 10% over the next 15 years with a 10% drawdown?

How are these returns "awful"? (This is net of all fees)

If anything, buy&hold on equities has an AWFUL risk/reward ratio!
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http://www.elitetrader.com/vb/showthread.php?s=&threadid=64383&highlight=hedge+fund+sp500

Quote from Rearden Metal:

You're right, my post was stupid. By keeping it <b>too</b> simple, I distorted the term.

Here's a much better definition:

Alpha
Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund's excess return on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 25%, and the short-term interest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The expected excess return given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen Index. Related: Risk-adjusted return.
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