This quote from another thread is the one that I think has the most relevance to us. This is also something I lack (the market prediction), and why I will not use real money for a long time. Quote from Maverick74: I have some very bad news to report here. I, however, stand by this statement and have more then enough trading sheets to back me up counting 100's, possibly thousands of traders. The only way you can be profitable over the long run trading options is if you can predict volatility or price better then 95% of the other market participants. End of story. There is no getting around this. This is a non debatable fact. Anyone that tells you that you can just trade condors or calendars and make money should be reported directly to the SEC. I know you don't want to hear this. Nobody does. It's kind of like telling an average slop that he will never marry a supermodel, but I think I have been in this business long enough and around enough traders to not only make this statement, but back it up with cold hard numbers. Now, there is nothing inherently wrong with trading condors or calendars. It's just that both of those trades happen to be volatility trades. If you predict volatility correctly, they will make you money. If you don't, they will not. It's that simple. There are some very very bright people in this business that spend tens of millions of dollars and hire 100's of quants to predict volatility for them and they have a very tough time making money. But wait, some newbie with no option knowledge in the world is going to just slap on some volatility trades and consistently make money? I mean think about that for a second. Just try to use some common sense here. Let's pretend we are in the medical profession, which is not even a good comparison because there are far more successful doctors in the world then traders. Do you honestly think you could perform brain surgery on a patient after a few webinars, some e-mail exchanges, a few live phone calls and a booklet? Anyone? Of course not. Even a trained surgeon with 7 years of medical school, 3 years of residency and possibly thousands of hours of surgery under his belt still has trouble and loses many patients in surgery. Yet some guy on ET is going to go through a quick course and just like that, become a surgeon. Laughable of course. But this is exactly what you believe with your options trading. Guys, you need to wake up. I have nothing to sell here or convince you of. I'm providing some cold hard reality. Yes, I run a prop office and have seen the sheets of 100's of option traders. I've been on the floor of both the CBOE and CBOT. I also have educated 100's of traders for free on the northside of Chicago for almost 4 years now. Almost all of them former optionetics students or seminar participants. None of them are profitable or ever where. I will say it again, the only way you will make money trading options is to be able to predict either direction or volatility better then 95% of all the traders out there. There is no way to get around this mathematically. Sure, due to the limited data sample many of you have, you will string together a few positive months. But in the end, you are playing with a negative expectancy. Good luck. --------------------------------------------------------------------------------
Hi Stanford and Falconview, I have been very busy, and still I am, but I thought to stop by quickly to say hello. I also had to send a response to Stanford's PM which he sent last Friday. I could see a lot of exchanges. Will have to read them. Here are few items I caught and thought to respond to: 1. Falconview: If you use debit spreads, and do not want to pay (all)time value, you can put your strikes at equal distance from current price. For instance if stock is at 100, a call spread at 95/105. (buy 95 call, sell 105) will give you intrinsic value, and time value will cancel out because strikes are at equal distance from current price. There is one little problem: in debit bull spreads, the volty at 95 is typically higher than volty at 105. and you would end up paying a bit of time value. Check it out. In case of a bear spread (debit) of the same kind, it will be in your advantage in terms of time value, because you pay time value at 105 and sell it at 95. Keep this in mind as well: spreads are less sensitive to price movement when time to expire is far away. To play the spreads, one can consider spreads expiring soon if holding time is short. They react more to price. Remember however that a reaction can be good for you, or against you depending on whether you are right or wrong 2. Both of you: Have you thought about the risk of blowing up using the credit spreads at 100%? What if one day you wake up, and the stock is well beyond your short strike (in case of credit spreads). Did you give this some thought? 3. The Edge: what options allow one to do is to consider edges that one cannot trade with the underlying. The text posted inn previous post is not entirely accurate. For instance, the options allow one to trade the risk of where the stock will NOT go, rather than where it will go. Think about this more. To make money one needs to forecast right (but not necessarily the direction of the stock and volty), and use the right tool(s) for the right forecast. Note that one needs to master the tools under any circumstance. 4. Prediction of NDX, SPY, QQQQ: in a bull leg it is easier to forecast where the stock will not go on way down (reverse in case of bear) than to forecast where it will go or not go on the way up. 5. Stanford: My prediction for NDX: sellers expected to appear before 2013. Using a 1.5% band (which is roughly a daily range), sellers would start appearing between 1982 and 2013 on this bull leg. This band can become a ceiling for next 24 days or so if there is a confirmation. It can also move a bit up (but at a pace much slower than the recent rise) if it is not confirmed. Sorry if there are a lot of typos above. I have to run. Regards
Stanford I don't know how long the trend will continue. A few days at least. I'm waiting for the signal from the indicators I sent you by private mail to tell me when it is over. Until then it is not over. The trend is obviously tiring though and I think we are getting closer. As to the guys advice on trading. It is true for most participants. He didn't give the reasons I think are reasons. I think GREED and OVERTRADING is the major culprit. YOU CAN find specific instances of when to make money. The problem is physchological. Once you get a working strategy, stick to it and do nothing else. Just raise the size of your bet and put other bets on other indexes as well, to broaden your financial winnings. I have my own notes going back 30 years. Nothing seems to have changed much. I was surprised recently to find my analysis of the OEX recently the same conclusion as I had in my notes from 30 years ago. Making money is a boring business. Challenging and interesting, until you figure out how. But once you figure it out in any business, you just keep repeating the same old thing, over and over and over again. Which is why we take vacations and have mid life crises and all that stuff. Most people can't do that. An inquiring mind will continue to look for something better. We are our own worst enemy. Control your emotions and you got it.
Stanford I'm enjoying trying to figure out how to make the DEBIT SPREAD work. So far, no luck. But keep reading and thinking of ways to make the darned thing work in some sort of strategy. How to apply it is the problem. I like it mainly for low budget retail traders, because you can start with low level cash amounts and get a decent return. Unlike credit spreads that take tons of money.
Stanford Your question on the trend made me take a look at it this morning. I guess I'm expecting the BULL TREND to continue. That said, I will trade as if it will. However there is a caveat. Somewhere in here, I'm expecting a 15 point OEX pullback, which is substantial and can catch you if you are trading Bull Put credit spreads below the market, I would imagine! The question is how long do you have if you are carrying one? That I can't answer you. There is a balancing act between what the major trend is doing and any short corrections, as far as trades go. I had a BULL DEBIT SPREAD on over the weekend and expected about a 5 point jump yesterday, but got 7 points instead. Not to my surprise, the DEBIT SPREAD still lost money in my experimental trade. I'm working on how to correct this with some adjustments on how I try to work the debit spread into a strategy. Got some ideas scribbled down, but will not know until we try them in real time.
While waiting for something and checking on markets, I read your post. My guess is that your spread is out of the money, and with volty falling while market rising and time passing, your spread is fighting an uphill battle. Out of the money spreads are long volty, but you know that volty will decrease if you right. So there is an inconsistency. Did you check the at the money debit spreads (see above post)?
Trading Journal Your comment on the volatility intrigues, but I'm not familiar with the application in this context. The OEX index was at 509. I put by the book standard BUY at 510, which would have been at the money I guess? Then sold the 515 out the money. 510 for 9.90 and the 515 sold for 6.50 While I expected the spread might lose, I knew I had to get out of it, as the sold side went ITM. So I got 12.30 for the side I sold and got $9.80 which it cost me to cover the previous sold side I bought back. For a net debit of - $2.50. This on 5 contracts worked out to a loss of $450 before commissions. I've had this type of experience before in which you get the market movement, but still lose in debit spreads and I do not know what is wrong? This is memo pad scratch paper stuff. The spread had fluctuated between $2.20 and $3, but my cost in debit was $3.40 to enter the spread. I was expecting to get over $3 with a 7 point favorable move. I was all set to close it at $4. It never happened. This is a repeat as I remember of long ago experiments with a debit spread. The OEX closed at 516.63 ITM If volatility is playing a role here, I am not sure either a) HOW? or b) What to do about it?
the 12.30 in there is strange. The change in the 510 call seems alright. (roughly half the distance between 509 and 515. I would have done this spread: buy 500 call, and sold 515. So the 500 call would have gained more than what the 510 gained (probably gained 60 percent of the move). Le us say you kept it until expiration, and OEX finished above 515. The 500/515 spread would have become worth 15 dollars at expiration. Then you remove your cost, which would have been around 9 dollars, because 509 is roughly at the middle of 515, and 500. I suggest that you go to chain, and check all spreads when OEX is in the middle. You will notice that the price is around the middle of the distance between the two strikes. Check it out.
TJ you have hit on #2 below as the thing that concerns me most with the credit spreads. That is why I am most interested in monthly far OTM spreads. That is also why I am very keen to learn and practice the adjustments because I know it will happen often that the market moves against me. A great example is this month, where we have had a greater rise in three weeks than I remember seeing in the past. If I had not made the two adjustments I would start to get worried. If I was using real money I would have already adjusted more, but I wanted to watch and see what happens if I don't. I am still looking at the strategy to make the adjustment when the cost is 150% of the initial credit I received. I read that somewhere but don't know if that is a good level or not. So far it seems to make sense, will have to watch and evaluate more. How much can it gap overnight? Right now I am a one strategy guy as I don't know anything else, and there is more than enough to digest at this level before looking anywhere else. Take care, Michael QUOTE]Quote from tradingjournals:[/i 2. Both of you: Have you thought about the risk of blowing up using the credit spreads at 100%? What if one day you wake up, and the stock is well beyond your short strike (in case of credit spreads). Did you give this some thought? 3. The Edge: what options allow one to do is to consider edges that one cannot trade with the underlying. The text posted inn previous post is not entirely accurate. For instance, the options allow one to trade the risk of where the stock will NOT go, rather than where it will go. Think about this more. To make money one needs to forecast right (but not necessarily the direction of the stock and volty), and use the right tool(s) for the right forecast. Note that one needs to master the tools under any circumstance. 4. Prediction of NDX, SPY, QQQQ: in a bull leg it is easier to forecast where the stock will not go on way down (reverse in case of bear) than to forecast where it will go or not go on the way up. 5. Stanford: My prediction for NDX: sellers expected to appear before 2013. Using a 1.5% band (which is roughly a daily range), sellers would start appearing between 1982 and 2013 on this bull leg. This band can become a ceiling for next 24 days or so if there is a confirmation. It can also move a bit up (but at a pace much slower than the recent rise) if it is not confirmed. Sorry if there are a lot of typos above. I have to run. Regards [/B][/QUOTE]