repair strategies, OEX and XEO options in particualr

Discussion in 'Options' started by nixodian, Jul 24, 2009.

  1. nixodian

    nixodian

    what would be the most common repair for oex / xeo credit spreads with the short going ITM,

    even before it goes ITM, the premium has doubled or more, so is a decent money management strategy be buy back the credit spread when the premium doubles? and roll over to next month at slightly further OTM
     

  2. A decent money management program has nothing to do with the premium doubling. It has everything to do with no placing too much cash at risk in this (or any) single trade.

    My opinion is that 'doubling' is as foolish a method for deciding when to close a position as there is - unless you simply have no control, no judgment and must have a rule in place to tell you when to exit.

    1) The MOST COMMON 'repair' - but in my opinion a poor choice - is to roll out to another month and increase the size to trade dollar neutral.

    2) That increases risk too much and should be avoided. But too many beginners just don't know any better

    3) Better is to get rid of this position if it makes you uncomfortable, or if it feels too risky.

    3) If you take a loss, you take a loss. What's the big deal? It's not necessary to repair every losing trade.

    4) Best is to adjust this position - if feasible, to turn it into something whose risk is reasonable, considering the reward - and it's a positions you WANT TO OWN.

    If you don't want to own this any longer, then close it and find a brand new position that suits you and your risk profile.

    Mark