Thanks, Mark. That's very interesting. Two things of further curiosity for me.... The 'extra calls' - I know you buy upside curvature that way but doesn't buying extra calls overwhelm the smallish credits taken in? Are they really needed given your "close at short strike" risk management? And why not buy extra puts as well? This fall/winter was probably an interesting test case for your strategy. Did you have any issues with that rally? With the rally, you must have been a) closing lots of spreads early and b) establishing new spreads at increasingly favorable volatility levels. How did that work out? On the downside, I see more risk. You have wider spreads, thus more absolute risk and lower vega. Downside moves are faster. And if you continue to establish additional put spreads, you'd be doing it at unfavorable volatilities.
Yipp, I wasn't trying to offend you. I thought you were trying to enter a Bull PUT to protect a call vertical 800/810 or 810/820. What I meant in my original message, If you are trying to adjust every time the market moves against you, you will be saturated wiyh positions. But if you trade with good indicators, you tend not to panic when the market moves against you. Yesterday I wanted to enter some 800/810 calls but my indicators were not there yet so I decidede to stay out. It was 3:30 when I had a signal So I decided to enter 2 RUT 800/810@2.60. You see, even tough the market was beaten up, I decided to enter but small. I am just trying to understand your concept and learn from you too. Me I try to enter on signals, You on guts or outlook, I am trying to understand your technics. Sorry, if I hurt your feelings
piccon, I don't feel your message offensive. I am trying to learn from you so we continue our discussion here. It is great to discuss different ideas (though I am not a great trader yet). In the beginning of the month, I usually open positions (usually with ratioed diagonals) to give me about 3 to 5% of my portfolio as my monthly income. Once I have my income trades, I will try to [/B]control my risk[/B] and adjust my positions if necessary (I usually don't adjust to delta neural). I don't expect to make money with these adjustment trades. My bottom line is to have around 2% to 5% as my return with a very tight risk control. This tight risk control allows me to stay in the game without any big loss. I don't have 800/810 verticals. I have Feb 790, 800, 810 short calls protected by many long calls at back months (similar to the Marks' diagonal with extra calls). The difference is the selection of short strikes. I tried in these 2 months to open CTM short calls instead of OTM short calls. I can open CTM short calls with smaller size to get the same credit for OTM short calls with larger size. The main reason is the margin requirement. By opening short calls with smaller size, my margin requirement is smaller. In short, I don't open my position by guts. I think my strength comes from tight risk control and leverage (or margin) management. I am trying to learn to use indicators for my entry and exit too. Even without good directional indicators, my risk and margin management serve me well so far.
Off topic, but: I was quoted in the Sunday NY Times; article in business section. http://www.nytimes.com/2007/01/28/business/yourmoney/28hedge.html Mark