If that. I can't tell the years I've aged sitting up nights with the SP near limit down just begging someone to take my crap for well above arbitrage value. When the wheels come off, there is no one there on either side. I've been there - and it's the loneliest place in the world. Spreads are the only way to sleep at night.
I always use spreads, I never use naked. I also trade with IB so they will liquidate me at the first sign of trouble, whether I want it or not... :eek:
I tend to agree with you. I trade ES (weeklys) credit spreads (iron condors) (1 strike ($250)) apart both on the put side and the call side, 10 deltas or less (i.e. 90%, or greater probability of expiring OTM.) I used to set a stop loss order of 2x the premium received but discovered, in doing end of the day research and analysis, that I was getting stopped out even though the market reversed itself above (in the case of puts) or below (in the case of calls) the short OTM position. Markets do NOT, as you point out, trade in a linear fashion. I have quit using stop loss orders on my credit spreads. If the market goes ITM on the short position then I will, generally, sell the position for a loss (a defined loss which I knew going in) and roll up (or down) to the next weekly. But, more often than not, I have seen the positions expire before going ITM. That works for me. Best
Really? I trade with ToS and they never liquidate my credit spreads. Even if the short leg goes ITM. I am curious as to how IB (or you) defines "the first sign of trouble". Best
I was being sarcastic. I guess I should work on that. I thought the emoticon was enough Just Google IB and auto liquidation.
I did and found this; Expiration Related Liquidations https://ibkb.interactivebrokers.com/article/1767 Sorry I didn't pick up on the emoticon. All these new fangled digtal things still throw me for a loop. ;-) I still like the old ascii emoticons. Best Capt. Steve Airline Pilot DC-9, B-767, B-777
Using P/L or things like "double the credit received" seems like an arbitrary and silly way to close or adjust. I sell a lot of different spreads and I always use DELTA as the adjustment criteria. It is a more logical and common-sense approach than some random P/L number. For instance you might sell a credit spread with the short strike at 15 delta, and close/adjust if/when the delta of the short strike rises above 30 delta. Adjusting with deltas won't save you in a crash, but it's a much more mechanical way to trade and will eliminate most/all of the emotions involved.
I have a problem figuring out a good exit from my profitable trades-but my trading improved the day I stopped messing with calls-they are toxic to me ....and Price Headley
That's the beauty of options. There are dozens of strategies that can be employed by a trader. Outright purchases or sales of Puts and Calls, strangles, straddles, spreads, etc. Likewise there are a many ways to enter those trades. E.g. using strikes that are ATM, ITM, OTM, same or different expiration weeks or months, using strikes that are close or far apart, using stop or limit orders, using the greeks (e.g. Delta), IV, probability, etc. And, many ways to exit a position. Expiring OTM, stop orders, limit orders, using delta, using a defined P/L, etc. I have a trading plan (written) and within that plan a trading strategy that, thus far, works for me. I use specific entry and exit techniques that, again, works for me. I don't pay a lot of attention to the greeks except for Delta and Theta and consider that criteria for my entries. Trading credit spreads I know, going in, the maximum profit and maximum loss the position offers. I let the position expire OTM or I exit at a defined profit or defined loss, both numbers known before the trade takes place. I do consider Delta in setting up the spread trade (10 or less for the short strike), I do not consider delta when closing the trade. I also consider IV and the potential for the price of an option to move a certain distance given the current price and with time left to expiration (as discussed in pages 78-80 of Natenberg's Option Volatility and Pricing book (2nd Ed.)) Of course all that is computed for me on the ToS platform. That works for me and has been profitable over the years. Your experience may be entirely different. As I said everyone's trading plan and trading strategies are different and what works for one person may not work for another. However, I am always willing to learn new techniques that might be a consideration in future trading activities. If you want to provide an example of using Delta as the adjustment criteria for a credit spread, I and the other readers, would be most appreciative. Best
Funny that happened to me too. Seemed like someone was looking at my stops and decided to take them when it was to their advantage. After I got stopped, the market usually reversed itself. Not all my stops got taken but it happened often enough I don't use stops now. Since I trade thinly traded options, the counter parties were mostly MMs. Perhaps it is different if it is high volume indices. Can some knowledgeable folks give us some guidance.