Mark, Good point! Thats why I trade small size for directional bet. I always prepare for being wrong.
It was sarcasm. It's nice to be making good money. it's nice to have confidence in your system. But a big ego tends to get crushed when playing the stock market. Just advising you to be careful. Mark
piccon, I think we are concerned about your exit strategy when case 1 happens. Do you cut your loss quick, or you average down because of your directional outlook?
You always need to have a breakout point. If I am @790/800; My bet is that RUT won't break 801. If it does I lose so I have to take action. maybe close or open 790/780 PUT to pickup more credits and then let time do it's things. Either way my loss will be minimum compare to FOTM. Don't forget the market can move against any trade FOTM or CTM. My loss will always be minimum. Also you can compensate for your loss by openeing other CTM or OTM as the market becomes OB/OS. Don't forget the market is dynamic. I don't expect to make money in every trade but I expect to manage my trades such that if I have to lose I keep it under 2$ and when I open FOTM or OTM to compensate I end up break even. What I like about it is that I don't panic as much as when I am FOTM.
Thats a good point. But why don't you sell the option at 800 like i did today (Of course, protected by whatever way you choose).
Yes but if I am 22-26 days away and I know a possible resistance failure point, I can adventure 10 points below it. Once I put the trade, I am concerned mostly by number of days to expiration. I could do 800/810 but I want to pickup enough credit just in case I am wrong. Question to you? Why did you decide to open Call spread on a down day? That's something I am fighting myself with. It doesn't matter the opportunity, I try to open Call Spreads only on up days and PUT on down days. If another down day tomorrow, I will close my 820/830 to make room for 810/820 on a bounce
If you trade CTM on OB/OS only, The risk of losing money dimunishes substantially. that's my experience with RUT.
I suppose that's dependent on what you use to determine those conditions. Which leads directly to my question. What do you use to determine those conditions?
I didn't open the call spread on a down day. I closed 2 contracts of my short call at 810, and shorted 1 contract of 800 call. The net cash balance is almost 0 with my margin released half. Delta of the whole book is unchanged (almost 0) with lower gamma. I was trying to reduce the negative gamma as i expect big swings in the next several days. My plan was to release the margin so I can open the put verticals tomorrow if the market continues to sell off. My 810 call was opened at 6.4, and closed today at 2.5. My 800 call was opened today at 5.1. I still shorted 5 contracts of 810 (at 5.4), 1 contract of 790 (at 11.8), and 1 contract of 800 (at 5.1). [edit] I was trying to learn from your experience to sell CTM calls but at reduced size (still manage the whole book using my own method).
Yip, i'm still a little uncomfortable being so close to the money as the 10 point spread x # of contracts is quite a big chunk of change as a possible max loss considering the probability that the position could end up in the money by expiration. So, how are you protecting your positions? buying ER2 when it starts to move? I'm a little curious myself so may try a bit of CTM plays but at 1 contract only to test the waters.