I trade OEX, SPX Spreads and I folow the trend to hedge with SPY. But I make money on FOTM with RIMM SNDK RMBS etc I try to respect my 10/10 rule. At least 10% return and 10% protection for my short. Before I enter a trade in stock I make sure I can get at least 10% return for at least 10% protection; otherwise I look for something else or I take 0.50 cent on OEX FOTM. With OEX it's easy to get 1000$ on each 5000. That's why I like OEX. Wait for OEX to be oversold, enter the PUT spread, and wait for overbought situation to enter the Call spread. This way you complete the condor with 5000 margins. You can accept 0.50 or more and still be FOTM. Entry is key. When the market is going up, you wait for overbought situation to enter to write call. Don't enter Put spreads when market is going up, it doesn't make sense. Last week, when I saw that NDX was way overbought at 1700, I just bought 10 MNX 1625 and 3 days later, I close the trade for 100% return. Technical analysis is important for good entry point. good trading
Can you provide a small review of your experiences with the OEX vs SPX. I used to trade the OEX and SPX spreads, 50/50 on each, and then they were so highly correlated I just didn't think it made sense, so I just went with the SPX. What has your experience been recently with the OEX in comparison to the SPX? sd
Thanks for the contribution! We now welcome you as we do all those who pay respects with a JA pic . Lurk away!
Will try and be brief XEO mostly. Occasionaly MNX or QQQQ but it's a lot harder to hold your nerve with those. Mainly I trade butterflies on individual issues where IV is higher than these indices as that makes the fly cheaper. For other ways of reducing the cost of flies, you might be interested in Riskarb's combo to fly conversion journal here: http://www.elitetrader.com/vb/showthread.php?s=&threadid=62104 Alternatively, if I feel like getting cute with direction I might place a single or vertical, wait for my "prediction" to be correct, but rather than taking profits on the directional bet, convert to a less than fair value fly from there if doing so is consistent with my directional outlook at that point. I have a propensity for adjusting/building/locking in profits when I'm right vs. just closing positions when I'm wrong. Anywhere up to 30 days before expiration but normally around 21 days. As you probably know, flies are cheaper the further out you go. Normally have to close the fly early in OPEX week so a 10 day fly would not yield much IMO, or rather doesn't fit my trading style. However, I'm aware that some people employ the shorter term approach with success too. You can go shorter term on individual issues. I don't know the first thing about support and resistance LOL except that they are there to be broken. Originally I chose long strikes based on probabilities/std. deviation in combination with a risk/reward I was after. However, these days, I just "know" what fly to go for if it is an issue I have traded before e.g. GOOG, normally 20 or 30-wide flies. XEO, 10 or 15-wide flies etc. It depends how much time I want to spend trading and how much commission I want to give my broker (4 legs at a time!) It's difficult in my experience to trade baby flies until you get close to expiration. That is the main drawback with butterflies in general: you can die of old age waiting for profits. When I do trade babies (something wrong about that statement) it's normally when I want to take money off the table and/or the underlying seems to have developed a directional bias. However, if things look decidedly sideways, then I will normally leave it alone and let the underlying bounce up and down. The effort/benefit ratio for just leaving things alone seems to be the most attractive most of the time! Well this is tricky. It's difficult for me to really outline the exact rules that I use to make this decision. Its' done more by intuition. Essentially it's a combination of: mental stop loss on running p/l, break-even points of original fly, time to expiration, risk/reward and probabilities of converted condor. Andy Smith outlined a more coherent KISS approach here: http://www.elitetrader.com/vb/showthread.php?s=&postid=904745#post904745 Interesting and profitable. The main drawcard for me is the tiny amounts you have at risk if you choose your candidates wisely e.g. to pique your interest, the 565/575/585 XEO fly I have on right now was done for 1:3 risk/reward three weeks ago and is currently showing 100% return on risk i.e. double money. That means I can have a position size 10 or 20 times smaller than some of our FOTM practitioners here for the same reward OR have the same position size for 10 or 20 times the reward! Of course, things have been very sideways so that helps LOL - it's not always that easy. This is a higher maintenance strategy than FOTM credit spreads so the comparison is probably not entirely fair. You can certainly combine the two and lift the entire risk profile of the fly above the line to result in a profit zone akin to a naked straddle. So much for being brief. Good luck! MoMoney.
Coach, I'd like to ask a corollary question as to when to put on trades with respect to market timing vs. the effect of theta. In general I follow the same rules of the game that piccon laid out. I currently trade when I feel there is a strong over(bought/sold) condition and then put on the call/put spreads to generally form a IC with a little bit more than one std dev from the current over(bought/sold) price. Each month as we approach ex and my spreads expire worthless (I generally don't close due to commish) I'm faced with the dilemma as to put on the trade ASAP to mitigate the effects of theta vs. waiting for a STRONG over(bought/sold) condition. Can you say with any certainty whether you would get a larger credit waiting for the over(bought/sold) condition such that the delta/vega rose, vs. entering ASAP to prevent theta. Thanks, sd
sleepy donna alert...decided not to fight theta any longer placed an order to sell balance of put contracts for 1295 (5 pts higher) for 2.95 but forgot to change my defalt(which is set to 10)...got filled for 10contracts but am now on another order for 15...may or may not get filled...
Honestly there is no correct way since wild price swings would offset theta with respect to entry. There are many ways you can time your entry but it will be quite difficult to devise a specific fixed rule without taking the SPX movement into account. There is that one downside about waiting until after expiration because the time starts getting closer and theta starts making it harder to go as far OTM as you would have originally liked. SOme months it may be fine because you get some nice price swings after expiration which makes entry easy, other times you mught have to wait a week and theta shrinks the premiums even more. One tip that I try and do occasionally when I can is to have two sets of money for spreads so they overlap. So while I am sitting on a MAR position, I still have cash margin set aside to roll into APRIL posiitons when they are in the 35 to 45 day to expiration zone. This way you enter the next month's position at the time you think is best as opposed to rushing in after expiration. Case in point is that while my FEB posiiton was in place I entered my MAR position. When FEB shrunk considerably, I took it off for a dime to grab that profit and free up the margin. The best result is of course the market moves tremendously and you close out your current month position with time left to expiration and thus have plenty of time to enter into a position for the following month. I think you need to be flexible. For example, right now, my plan is to simply ride everyting to MAR expiration and will not look into APR unless I have a great opportunity to close out the MAR position. THis might mean I do not have a great entry in APRIL so I might only take a small one and save some gunpoweder for MAY. It would be nice to load up each and every month but it just is not possible and overlap or holding to expiration may mean you skip a month while waiting for a better oportunity. If you only have positions in 10 out of the 12 months, you still can make good money. So instead of forcing yourself into a position just to be into a position for that month's expiration, let the opportunities come to you. Sometimes you have to sacrifice a little. For example, I closed my JAN position the first week in Jan so that I would be free for the coming FEB expiration. That meant not taking the full profit on JAN in order to be ready for FEB. So I took maybe half the profit on the table so that I would not be handcuffed for FEB. I then overlapped FEB and MAR. Taking this approach will help you get in as many months as possible without chasing or forcing it.
hadn't even had my coffee....just got my coffee and the rest of my fill....1195 so for half of my leg I had to widen the spread to 20 pts 1175/1195 and didn't do well...net credit of .85 for the other half which I did last week credit was very nice on 1175/1190 for a net credit of 1.50 so as everyone can see you takes your chances....I'm predicting a severe decline in the market....tomorrow:eek: