Sharing+Discuss Option Trades/Strategies

Discussion in 'Options' started by Put_Master, May 30, 2009.

  1. Moderator:
    This thread is NOT a journal for keeping records of daily gains and losses. Thus it does not belong in the jounal sector.
    This is a thread for sharing and discussing option trades and strategies.
    It's time to stop blaming me for the trolls and troll goupies disrupting the threads I initiate.
    I respectfully request you keep the thread here, and ask those intent on disrupting it, to leave it alone.
    Put_Master

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    Update:
    The current discussion going on below, is about my initiation of a put credit spread last week, on a $30/$35 CB trade for July.
    Credit of $0.75




    <<< ...your r/r is so poor that no adjustments can be made w/o making the hedge the PRIMARY RISK. >>>


    I asume you are saying my $0.75 July credit is too low to warrant adding an additional long contract.
    In which case I agree.
    But the only way to raise the credit at the time the trade was initiated, would have been to either select a longer contract than July and/or select strikes ITM.
    That would certainly improved my R/R, but it would have also resulted in a lower probability of the stock trading above my upper strike during the contract.
    I suppose I could have selected a wider strike gap than $5, for a higher credit, but that comes with it's own potential risk management issues.

    Thus, this trade was based mostly on the trading range I anticipated the stock would fluctuate in, during the duration of the 8 week contract, while relying on time decay to gradually increase the value of the trade.
    Given my choices of available strikes to work with, that was the strategy that seemed to make the most sense for this particular company (CB).




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    Quote from tancy2411:

    Hi Put Master.
    Why didnt you consider calender (anticipate stock stay sideway) or ratio backspread (anticipate stock going to move) as iv can be considered low at this moment

    Chee Yong
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    Hi tancy. Thanks for your input. Really appreciate it.
    With respect to strategy selection, I'll tell you where I think the stock is going to trade, and what my market concerns are.
    Then you'll have a better idea as to what might be the more appropriate strategy for me to consider.
    Over the next several weeks, I think the stock will trade between $35 and $43... depending on overall market influence.
    But I think its unlikely to actually hit within 1 point of either end.

    I can make a reasonable argument for the VIX remaining in a trading range, but I can just as easily make one for it trending down. But given the world we live in, I can just as easily see it spike up over a variety of concerns.
    Thus, I'd rather not have to worry about how individual stock or overall market volatility might negatively affect my investments.

    I didn't actually look into it, but I briefly considered doing an IC, given that I think CB will remain within the range I discussed.
    But I'm not ready for it emotionally.
    I mean that in the sense that I don't want to worry about stocks getting close to either end in volatile markets. I like being able to relax knowing its trending in one direction and I'm sitting with a nice otm cushion. Not ready to deal with managing both ends, with the potential of either over reacting too soon, or not soon enough.

    Given my volatility concerns and where I think the range CB will trade over the next several weeks, I decided to allow it to do its range thing, and just let time decay increase the value of my trade.
    That's why I initiated a credit spread.

    Knowing that I don't want to worry about guessing the "where and whens" of volatility, potentially negatively affecting my investments, and where I see the stock trading, does that affect which alternative strategies you think I should have considered?

    BTW, when I say "where and whens", I'm refering to worrying about where volatility is heading and when.
    Rather then "guess or hope", I'd rather simply take that issue off the table. Thus the reason for the credit spread.
    But I'm open to and appreciate alternative suggestions.
     
  2. Mods , please move it to Journals ( actually Urinals would be a better place)
    TIA

    :p
     
  3. Moderator:
    This thread is NOT a journal for keeping records of daily gains and losses. Thus it does not belong in the jounal sector.
    This is a thread for sharing and discussing option trades and strategies.
    It's time to stop blaming me, rather than those who disrupt the threads I initiate.
    I respectfully request you keep the thread here, and ask those intent on disrupting it, to leave it alone.
     
  4. Assuming I understood tanci2411 statement, I was asked why I didn't consider doing a ratio back spread, instead of my credit spread on my $35/$30 July CB trade, given that the IV is low.
    It certainly is low, but I'm not particularly bullish or bearish on the stock. I simply think it will remain between $35 and $43.
    Given the strikes I desire, and the credit earned, a back spread would have eaten too much of the already borderline credit, even with the low IV. Perhaps tanci was assuming higher strikes than my $35/$30.

    Although, I was evaluating the potential of adding a long $25 put contract, as a very slight added hedge against disaster, if the stock continues to rise toward $40. (Adding an addtional $30 put would be too expensive.)
    Between the low IV and stock movement, it wouldn't cost much.
    The downside, would be that it would only offer that slight hedge for about half the length of the contract, and only if the stock had a significant drop.
    Hardly seems worth the expense,... even though it wouldn't be much.

    My overall concern is, my portfolio is mostly credit spreads and long positions. In other words, a bullish portfolio.
    Rather than adding the occasional cheap long put or two, to some of my portfolio's credit spreads, as a very mild hedge against a market disaster, perhaps I should consider investing in a inverse ETF type of portfolio protection.
    I considered doing some bearish spreads, but I'm not as good at picking individual stock tops, as I am at picking bottom ranges.

    Putz Master:D
     
  5. Hi Put Master,

    In this case, you could do something like double calenders, or diagonals. This will give you better risk/reward ratio.

    Chee Yong
     
  6. ----------------------------------------------------------------------

    Thank you Chee Yong.
    I really appreciate receiving "specific suggestions" to consider for future trades, vs folks just stating the obvious, that my R/R sucks.
    However, before I look into horizontal type strategies vs my current vertical, I have a question.
    Based on your experience, do these type strategies, while improving ones R/R, also tend to lower ones "probability of success"?
    For example, I could improve my current R/R doing verticals, by simply selecting higher strike prices. But that would lower my "probability of success".

    A reasonable argument can be made for either side, as to which perspective is more important and relevant an issue for ones trade and wallet.
    I'm curious to know your perspective.
    I've always put probability of success ahead of R/R.
    But that may be a mistake on my part. Perhaps I should reverse that, and be willing to spend more time managing the risk on lower probability trades.
    Do the trade strategies you've suggested, have the potential to alter that balance between "R/R vs probability of success" in a sig way? Or is it simply a question of how I choose to set them up?

    Putz Master
     
  7. Hi Put Master,

    I trade based on what I anticipate what the underlying will be doing (bullish, bearish, or sideway with range defined) and where the iv will be heading (up or down). After this, I will select an options strategy to trade it or create greeks that will be appropriate to my view. Trade's probability does not matter that much. More important is your view and the risk that you are able to accept.

    You can always review your trades to gauge how accurate you are in your assessment and learn from there.

    My experience is different and it may not be appropriate for you. I cant really tell you how to do the setup as one person's risk tolerance is different to another.

    Chee Yong
     
  8. <<< I trade based on what I anticipate what the underlying will be doing (bullish, bearish, or sideway with range defined) and where the iv will be heading (up or down). >>>


    I've always taken a different perspective to option investing.
    Rather than trade based on what I anticipate the underlying will do,... I've always selected my strategy and set up my trades, based on what I think the underlying will NOT do.
    In other words, will not drop below a price of "X".
    And rather than try to anticipate which way IV may go, I've simply attempted to neutralize that variable as much as possible.

    You've given me some new perspectives to consider.
    Perhaps I've been too locked into my current way of viewing and analyzing stocks and strategies.
    Over the coming months I will start viewing my trades from both perspectives. I need time to gradually adjust my comfort zone, from the perspective of "probability of success" to R/R.
    Thanks for your input. Really appreciate it.

    Putz Master
     
  9. RobtF

    RobtF

    PM, hoping to be constructive. I'm not crazy about this trade on it's own terms. I see a .73 p/p based on 100 day hv.; less using a longer history and with a relatively modest .75 credit for a 5 point spread with 46 days to expiry I'd pass on this credit spread. That's just my opinion.
    Regards, RobtF
     
  10. <<< I see a .73 p/p based on 100 day hv.; >>>


    Could you explain what you mean by .73 p/p?
    What is that?
    How did you arrive at that calculation?
    What is its relevance to my CB trade?
     
    #10     Jun 1, 2009