as far as leverage goes; i initiate all positions 100 points outside the market; and i use 15% of my funds. as i get better i obviously plan on reducing that figure. i have been within 25pts of my shorts (calls) in the past and my margin was quite manageable. i have very good discipline that keeps my desire to make larger sums of credits in check.
Demestic, How do you compare the performance of this new strategy with your naked writings? This new strategy seems to have a much lower span margin when compared with naked put. Do you open both put and call sides?
Yipp, Did you enter your 780/770 PUT yesterday? Now You understand why I questioned the rationale behind your decision to enter a PUT Vertical yesterday when there was no indication the market would keep going higher from there. I was waiting for my indicators to line up before I enter more call vertical yesterday but I never get the signal I wanted so I stayed away. If I got that signal, I was going to play 780/770 PUT debit spread; I got the signal today but the market went down too fast and 780/770 became too expensive. Yipp, What is important is not to let the market movement dictate when you need to enter a trade; You need a strategy (your own) that will tell you when to short or when to go long. JMHO
Your suggestion is not for everyone. In fact, I believe that almost no one can consistently predict market direction. I find that allowing the market to dictate my timing works very well. Instead of predicting which way the market will go, and instead of sitting on the sidelines waitiing for an opportunity, I sell call spreads on rallies and put spreads on dips. That method allows me to profitably enter and exit my diagonal speads. Obvioulsy an extended move in one direction can produce losses, but I have confidence in my risk management abiities to hold those losses to acceptable levels. If anyone here believes he can predict the market, then he should trade accordingly. Mark
my performance is running the same. i am not doing calls for many reasons, mainly because the return and is not there.
Thanks for the kind words Murray. Although I thought everyone on here already knew what a great guy I was. Is there really anyone else out there we need to still convince?
Mark, From your last post, how do you add more call diagonals as the market rallys? In the past you've said you try to stay delta neutral (somewhat). That would seem to require adding put diags as the market rallys. As always, thanks for sharing.
piccon, I didn't get my 780/770 fill. Instead, I opened a put diagonal Apr/Feb 760/790. My portfolio was negative delta, with negative gamma. The negative delta was so big that I was uncomfortable and was worried that the market would continue move up (no confidence with my directional outlook). If the 780/770 vertical was opened, my delta would be reduced to a very comfortable level. When IV went lower, I decided to open a put diagonal that would reduce the delta a little bit, but bet on an increase on IV. Today the market went back to my initial outlook. Though my hedge (put diagonal) did lose half of the value in one day, I am happy with my decision made yesterday. I can't predict the market well, and so I hedge my book when necessary regardless my directional outlook. I like my hedging strategy and it serves me well. I am learning to predict the market, but I will continue to use my adjustment strategy to protect myself from big loss. [edit] I did look at 790 call calendar or put calendar as a potential candidate for betting on IV. Didn't understand the synthetic well enough to open the trade. http://www.elitetrader.com/vb/showthread.php?s=&threadid=85504
Eric, When the market ralles my DD portfolio becomes delta negative. But only for awhile, as I own extra calls. (Sadly, I do not own extra puts to protect the downside.) I treat put and call positions differently and independentlly. For reasons explained below, I make no attempt to stay delta neutral. One of the benefits of the rally is that my put spreads do well because they are delta positive. That means they become more and more profitable. At some point I close those put positions. That occurs when when the credit available for closing the position becomes attractive, or when the delta for a specific spread gets to zero, or when I simply prefer to redeploy the margin elsewhere. It's easy to make these trades, as each one is quite profitable. I don't pay any attention to how profitable or what percentage return I have earned. I open each spread for a cash credit; I close for an additional cash credit; and the profit is whatever it is. As I close the put positions, my portfolio becomes even more unbalanced, as it then contains a large excess of call spreads over put spreads. I do not let that deter me. I still open new call spreads - usually at strike prices that are higher than my current positions. But, sometimes I simply add to current positions. I fully understand that this method leaves me exposed to a big loss should the rally continue. However, although I do not predict market direction, I see no compelling reason for a huge rally and am willing to continue to sell call spreads. If the upside continues, then my risk management personna takes over. By owning some positive curvature, thanks to the extra calls, upside losses are limited, and at some point, my gamma turns positive and further upside would no longer be painful. But, I still manage each spread separately. If the strike is breached and IF I lack curvature near that strike, then I take the loss by closing the position. I usually open a new position at a still higher strike price (similar to rolling a position, but I do not look at the trade that way). I find this works very well - but I recognize that if the market were to take a huge, sustained move, it would not work so well. On declines, I close call spreads and open new put spreads in a similar manner. But, without any protective curvature. And because I lack that curvature, I am not as aggressive in selling new put spreads on declines. I still sell, but I sell more call spreads on rallies than I do put spreads on declines. Why not delta neutral: When market rallies and I am exposed to losses on the upside, selling some extra put spreads for additional cash credits may seem to provide some upside protection. And it does. But, it's minimal. It's a very poor way to 'adjust' a portfolio when the market is moving strongly in one direction. I do not want to jeopardaize my overall portfolio - in case the market reverses direction - merely to take in a few extra dollars in put premium. Thus, I stay delta short and sell puts when it becomes attractive for me to do so. That occurs when I can obtain sufficient credits for selling spreads that meet my flexible criteria. I prefer to sell options that are reasonably OTM - perhaps 6-7% - and do not want to be forced into selling put spreads that are nearer to the money in an attempt to raise extra cash to protect the upside. What works for me is not suitable for everyone - especially those who time their exits and entries. Mark
Mark, I think your method works well for credit diagonal. In general, it depends on the choice of strikes. When the market rallied with a big drop in IV, it is a good time to bet on a reverse on IV (i.e. the market drops). So there are many ways to play this game. To bet on IV, you can add debit call diagonal, or debit put diagonal. However it works with credit call diagonal too because an increase in IV comes when market drops. So to me there are 3 possible choices. 1. debit call diagonal 2. debit put diagonal 3. credit call diagonal The third choice requires a higher margin requirement because of a wider strike difference in order to get a credit. If you open a debit call diagonal with negative delta, the first option gives you a double benefit when market drops. If you open a debit put diagonal with positive delta, it serves as a "hedge". When market drops, this debit put diagonal will lose money on delta, and gain on IV. This serves as a hedge, and you don't expect to make money with your hedge. There are many possible choices with diagonals because you can have any values of delta, gamma, theta and vega by choosing the strikes and the ratios. I didn't choose option 1 because of the margin requirement. I am uncomfortable to spend too much buying power in the early option cycle but I will choose 1 in expiration week. Eric, There are many factors affecting your decision, your reserve capital, your current positions, your risk tolerance, your outlook or lack of outlook, the time of the week (yes, it is an important factor for me), the time of the option cycle, etc. We are offering our own "reasons" for adjustment, but you have to create one for yourself.