added back -2x 89 Put at 2.14 during the drop after Fed announcement. balanced position now -18x calls and -18x puts. will work on trimming position a bit in the coming days. i would like to have ~ -12x each. actually i got confused today. why did i add more short puts if i want to reduce exposure? should have covered some of the calls...
reduced exposure to -16x/-12x calls/puts. this locked in +485 in realized PL the plan is to cover -4x calls if there is a pull-back and then wait until the market moves substantially one way or another. midday update:
A problem with your strategy is that you're adding risk with each adjustment. I would suggest you take a portion of marked-gains and buy some wings. You can buy garbage, with the aim of defining the risk on these strangles. I think you're better-off trading defined-risk from the beginning. For example, long-delta butterflies if bullish, short-delta calendars if bearish. Simple stuff.
i like the defined risk, but i wonder how much it will cost me. i will experiment with limiting the donwside risk only and see how it will work out. i have started buying 83 Sep Puts. They are far enough so that the time decay is slow. Also the strike is around my 82 target so they might actually make money. Midday Update June 26:
Oh my. I donât know whether to laugh or cry. Your first and third "determining factors" of success couldn't be any more unreliable. While your second factor is true, many a trader has lost a fortune on the "hope" and probability of "most" options expiring worthless. You are doing this with play money in a paper trading account...right?
actually, so far i have been right on all 3 counts. but it does not have to continue the same way. actually, it has been TOO easy which makes me worry about a possibility of a curved ball. i have never paper traded. it just does not make sense to me. one must learn with real $$ on the line.
You need to define how much risk you want to take as your stop. For example, lets say you sell out of the money calls and puts for the SPY which will expire in say Sep 18. We know one side of these contracts is in fact going to expire worthless. Now we need to limit risk on the other side. This can be done a few ways. 1) Define how much heat you will take on your position if you are wrong. For example, close the position if it goes 3x 4x or 5x against you. For example, lets say you expect a $ 1,000 profit from the sale of the calls, and now you are looking at a $ 4,000 loss if you close the position today, if you are willing to take a $ 5,000 loss, then nothing needs to be done, but if you are only willing to take a $ 3,000 or $ 4,000 loss, then you need to close out your position. 2) If the position has gone in your favor, you can then buy further out of the money options which then limit your risk of a sudden reversal. 3) You could buy or sell short the actual index to limit some of your risk. 4) You can define actual price points where you theory is wrong and you should close the position. For example market rallies up to 920, you expect that will be the top within 5 points so you sell some calls with the stop loss at 925. Market then heads to 926, you kill the position if there is still many weeks left before expiration. However, if say its just a few days with no major economic reports, you may just want to wait it out.
guys, thank you for your comments! i will sleep on them. today added 6x total 83 Sep Puts (long) to protect the position from a catastrophic market drop. Now i feel a bit overexposed on the short side, therefore, i will be removing some of the short calls next week (hopefully as the market moves lower).