Soros is doing nothing more than GARCH modelling within gaussian parameters, my guess running monte carlo's to verify the dataset(oil), and univariate returns. I would be more interested in creating algorithms for gold, on an exponential auto-regressive conditional heteroscedasticity for diagnostic hypotheses testing of residuals. Any ideas?
Any ideas? Are you kidding? I am still trying to decipher what you just said!!! Was I suposed to get a decoder ring when I signed up for this thread? -Cash
Coach, Wondering whether I want to adjust down my FEB 1230/1225 PUT position now that we've broken 1260. Thinking of moving down 10 to the 1220/1215. I figure closing the 1230/1225 for -.45 and opening the 1220/1215 for .20. Originally took .25 on the 30/25 spread so it would be a wash. I'm already positioned in the FEB 1220/1215's so it would be adding to this position if I moved down. Regardless of FIB lines, I see some support @ 1250 based on the bounces from 11/30/05 and 12/30/05. What do you think ?
Well nice spike down through support and I wonder if this fortells continued moves lower. I have been playing around with different ways to limit potential losses on the MARCH - 150 SXP 1185/1195 put spreads and we have discussed PREGO FLYs. The other adjustment not discussed is boxing the spread. In other words, rolling the bull put spread into a BOX spread by selling the same strike call spread. This way I would be short the box and the maximum loss is capped at the difference between the strikes minus the premium received * number of spreads. I was toying with this idea all morning to lock in a limited loss and then find more spreads to sell OTM if the market keeps falling. After playing with the paper for an hour or so and comparing rolling into PREGO FLY which would have resulted in a limited loss over $20K but with the potential for huge returns should the market really fall far or boxing the spread and locking in a limited loss now until expiration, clearing up margin and looking for new spreads to enter for MARCH, with at worst a small loss for the month. Well back and forth I decided to feel the box out since the loss would be limited and easily swallowed and I would be able to recoup it with more spreads potentially. So today I sold - 150 SPX MAR 1185/1195 Call Spreads @ $9.00. Remember I sold the SPX MAR 1185/1195 Put Spreads for $0.40 so I am short the box for $9.40. (Tried to improve upon $9.00 price but MM were not having it). The maximum value of the box is $10.00 so the locked in loss is $0.60 or ($9,000). Adjusting the spread down would involve a small cost but still involve a loss though smaller than the box but still leave me open. This way I can get out of the margin risk and still enter a new position if the market drops at better prices. If the market keeps dropping I will sell more OTM spreads (have an order for the MAR 1165/1175 now) to bring in more premium to reduce the loss. So I went from a $150,000 exposure to $9,000 loss with the ability to reduce that further. If the market drops and shows some strong support I could always buy back the call spread for less and make a profit there and then face my put spread again. But as time passes the box expands to full value so it really depends. Why did I do this? Because paper is only good for so much. I needed to work through this in a real trade scenerio to play with the numbers. Also it is a small loss to take this early on and worth it for the risk reduction. I know I am still 60 points OTM but the technicals are turning down and a large shoe could drop soon if Iran starts up and drives oil higher. For you, think of it is an education at my expense. For me, I have no problems anymore in my put spreads so they are clear and my FEB 1205/1195 is safe with just over a week to expiration. That is a $5k profit and I already banked $4,500 for the year in January so my worst case scenario now is I am flat for the year in MARCH with the market pretty much flat too. Risk Management folks.... better to be flat taking a small loss than deflated taking a huge loss. Not to mention I still have MAR opportunities to take in more premium.
Coach, What is the down-side to waiting to see what the market is going to do? As of right now you look to be 70 points OTM with a couple of support areas between your short leg and the index. Would the $9k loss that you are locking in be sure to increase if you waited for the index to drop another 20 points? Just trying to get my arms around this. Thanks, -Cash
At the time, the cost to close the spread outright would have been about $9,000 - 11,000 depending on fill which could have been reduced by rolling down. The credits at lower strikes are a little light right now. I saw the potential to box for little or tiny loss but I could not get filled at all at better than $9.00. The goal was to get a fill near $9.50 since the spread was so wide ($4.00!) So after pouring over the charts and the position I decided I wanted to see how this adjustment would play out. After a while, the calculations on paper become meaningless without seeing how it would play out. So in most cases I would simply hold pat or add a SPY partial hedge but a lot of technical indicators I follow on the charts indicate more downside potential. So I would like to enter some more OTM put spreads after more of a drop to grab lower strikes at better premium as well as increase number of contracts. Is it a gamble? Yes the market could surge back higher over the month and leave me with a small loss. But I had this nagging feeling that I had to try this adjustment and test it out for real under these conditions. As many here know, I find the best test of ideas is to put some money on it and have done so in the past . So is the smartest move now? Time will tell . I do know that I now hope for a nice downward drop so I can enter more put spreads. If the market reverses strongly, then yes folks, I will find the call spreads of interest since the headwinds appear stronger than before.
Coach, An earlier post a few weeks back drew my interest in looking at credit spreads on XAU. There is a rather large PUT skew on the index which is made up of 13 gold related companies. After backtesting data for a five year period.... the index shows some interesting results. 1. It is not significantly correlated to the SPX, r = .72 2. It appears to be a 'flight to safety' index, thus hedging against a 'black swan' event. It also is viewed world wide as a more acceptable trading commodity of value. 3. The return on margin appears to be greater per deviation from the mean than on the SPX or XEO.... greater $$$. It may be of interest as a group, even though GOLD is currently extended, to use credit spreads as a "non correlated" hedge against the SPX. In other words, equivalent portfolio distirbutions in SPX and XAU. Any thoughts? Murray
The only problem I see is the Long-Term Capital Management problem where two items expected to move inversely, move together, i.e. SPX moves against you and XAU drops. This would be a double loss. If bullish on XAU is a good hedge agsint drops in the SPX, perhaps long call spreads on XAU makes more sense since you will not have a huge loss on XAU to go with any losses on SPX.
Well to conitnue the theme of the BOX adjustment I decided to grab some premium today on the SPX MARCH PUTS and sold the following: -175 SPX MAR 1165/1180 @ $0.75 Credit = $13,125 Risk = $262,500 - Credit = $249,375 Return = 5.2% SUBTRACT BOX LOSS of $9,000 = Credit of $4,125. (Explains why I always say never use your full portfolio of option margin. If you always have gunpowder then you can use it when you really need it like I do now for more positions and not get handcufed in an overextended position. As always I still am not more than 50% of my margin so I have more room if needed and also will not blow up). I feel 1200 is a remote possibility by expiration if we fall hard and that would really squeeze my 1195 original short puts. I do see support in the 1250-ish range and then 1225 and 1200 on the way down. Moving down another 15 points on the short is more comforting given the distance and time. If I am wrong in that we move higher, stay flat, move lower to an extent, then I still pocket $4,125 net for 1.6% return after (before commissions) all adjustments are taken into consideration. If I am wrong in that we really fall hard, then I will be glad to locked on my 1185/1196 spread and not have to worry about it and then will address any steps to take on the 1165/1180 puts. So this is my approach. I know some will find different routes but as I said I am comfortable testing it out this way and getting a feel for this type of adjustment. Since I can still get out with a nice profit I am fine with the moves. The market seems to be at a key juncture and I have taken the moves I think will protect me from further moves lower.
Hey coach..Thanks so much for the BOX idea. I actually like it much better than the prego for limiting the downside.