Coach: One thing I like about your trading style is that when you put on a position you live with it and don't seem to voice (at least in this forum) regrets over having missed a short-term high or low where you would have gotten more premium. For me it's a good example of not dwelling on what could have been but dealing with what is. Thanks for the calm, even approach which is certainly a good example for me to follow.
I leave my missing high and low whining for my daytrading where I constantly bitch to myself about getting in and out too soon or too late lol. As for credit spreads, I will never time it right and it did not take long to convince myself of that fact. If the credit was enough to convince me to get in, then I get in according to my plan and let the position do what I expect and even if I could have gotten better the next day, I also could have gotten worse so they even out. You have to trade with confidence that THIS trade will be profitable, not that THIS trade is at the BEST price possible since that is truly difficult to know in advance. (gleamed from Market Wizards in a sense).
Phil, I had typed a long response here to this post but accidently deleted it. I really don't feel like re-writing it. So I'll try to sum it up very quickly. I gave Donna a proportional response to the absurdity of her comment. I understand now she did not make herself very clear at all. She never said anything about her history only relating to that strategy. Anyway, I am very blunt with people. Most people hate that, some people like it. Good thing I have nothing to sell or I would be in trouble. Real quickly now on your credit spreads, I am not arguing whether the strategy is good or bad. Simply that people don't understand it. Credit and debit spreads are EXACTLY the same thing. I went into a long diatribe on this before I deleted it and don't feel like writing it again. LOL. This is why I prefer to have these conversations in person vs the net. It's much easier to communicate. LOL. I went on a long spiel about how I think it's in our genes to be self destructive. I used an example of gay men having unsafe sex. They are going after the whole instant gratification thing knowing that somewhere down the road they will meet their grim reaper. This is mery much akin to the option credit trader who needs the assurance of small profits month after month knowing that they too could meet their demise down the road. Of course as a society we see this everywhere. We see it in our addiction to popping pills, over eating, smoking, unsafe sex, gambling, we have a pre-disposition to destroy ourselves and that carries over to our trading. I also asked you some questions as far as why we should assume a debit trader has to hold his positions to expiration. I then went on a long spiel about how option trading really comes down to making probability bets. The only thing that changes is how the p&l is being distributed. But the odds never change. Every adjustment you make is simply re-distributing the p&l. That's all. Sure we call them hedges, blah, blah, blah. But those are things we tell ourselves to make us feel better. Kind of like a guy justifying his cheating on his wife by saying she is cheating too. It's all so we can feel good. Once you start thinking about options as simply being a probability bet, you will get away from this whole credit vs debit thing. Remember the dice game. You are paying 3.40 for the right to play and selling that right for 3.60. Very simple.
Mr Subliminal speaks: Quote from Maverick74: Phil, I went on a long spiel about how I think it's in our (my) genes to be self destructive. I used an (personal) example of (wonderful!) gay men having unsafe (w/o chaps) sex. They (me) are going after the whole instant gratification thing knowing that somewhere down the road they will meet their grim reaper (dreamboat).
Hi Murray, As I stated in my previous post, I believe we tend to over complicate things too much. The whole idea of theta and gamma and vega is really pointless in the understanding of options. The reason those greeks exist is to manage very large complicated positions that can't be broken down easily by dissecting out synthetics. When you make a simple option trade, you are making a probability bet. No strategy is any better or worse then the other. I was trying to argue a case for the role luck plays over the long run in this profession. If you have a strategy with large amounts of risk, sooner or later, bad luck will get you. There is nothing we can do about this. And the inverse of that is true. No matter how bad of a trader you are, and you could be the worst trader on earth, if you have a position with huge upside potential, sooner or later, you will trip over some good luck and make a fortune. There are many stories like this in the floor where guys made millions on out trades there were merely mistakes on their part and they left the floor to retire. LOL. I agree with what Taleb says for the most part regarding luck. Making money does not in and of itself justify the strategy. No more then someone who cheats on their wife and never gets caught. Taleb made some great arguments concerning how we tend to focus our trading over short term results. Look, I could sell naked puts in the NDX every month 200 pts OTM for .05 and .10. This strategy would produce a terrific track record over lets say 5 to 10 years. Hell i might be able to go 300 pts out. People who do not know what I am doing will call me a god. A natural, the next Soros, how does he do it. The guy never loses! But the day will come when I not only blow out my account but probably my broker and perhaps my clearing firm as well. Now the trick is, how long can I push my luck. what if I just did this for 5 years. What are the chances, what are the odds? Will I get away with it? This is not trading. But to an outsider, this guy looks like the greatest trader ever.
What I do not understand is why if your argument is that they are the same, you argue for doing the debit over the credit? Also, in the past year, my results show FOR ME only, not in general, that the debits would have been a loser just going on intraday swings of the spread, not holding to expiration. (I cannot assume I would have gotten out at the top of the spread value). I think the strikes I select are not conducive for debit spreads. If you took the other side of all my trades you would be flat more or less. I do not think we can discuss this in a vaccuum without looking at the SPX and IV skews and distance of strikes OTM. This is not self-destructive as you say. If the debits are not self-destructive, then how could the credits, which you say are equivalent, then be self-destructive. If you can sell a debit spread before expiration, why cannot one get out of a credit spread before expiration if it is moving against you. You cannot assume a credit spread always goes to maximum risk when against you. It can be partially hedged quite easily and no one would sit in a spread as the market approached your short strike and watch it pass you by. You present clear aguments why credits and debits are equivalent in theory but in practice they operate differently in a portoflio depending on how the positions are managed. I already guaranteed that I will never blow up, never wipe out my capital account, never tkae my broker down with me and never be forced out of the trading game no matter what happens like a naked put seller would be (Niederhoffer). I also know my threshold for losses and what I can absrob and when to get out. Even a 9/11 event would not wipe me out, even less so if the futures market stays open. The strategy is not the key, but how it is managed. Someone who feels more comfortable doing debit spreads and just waiting for the big bang (Taleb) can certainly do so if they have deep pockets but does it make his approach the right way? I can take a piece of my portfolio and generate monthly income year in and year out and manage my losses where appropriate. Am I a good trader or just lucky? It would be wrong to assume it is pure luck since the risk is managed. Moreover, luck or skill are words people use to define others. The market has plenty of opportunities to make money and I am just taking mine .
Mav: A while back I posted a graph showing how program trading has increased to account for 60% of the volume traded. I'd be curious to hear your opinion on program trading and how it affects the probabilities you've been discussing. Since program trading seems to be controlled by a relative few, aren't they in effect "stacking the deck". Edit: Well, maybe I should say that they have the ability to "stack the deck" which they may or may not choose to do.
Mav , what about diff vols on diff strikes ? Both cannot be "placed" fairly , something has to give. If one can gamma scalping it , isn't an small edge ? And any large move in any detection is very welcome here.
Just curious on why you seem convinced of people's lack of understanding and more interestingly why it irks you so LOL. Never fear, your long diatribe on this topic is well replicated on many other threads for those that are interested! (including this thread some 7 months ago). For those that aren't - they wouldn't have read it anyway. That poor spiel. Hope you don't weigh too much.