John, You can argue till you're blue in the face about how debit/credit spreads are the same. The only way that people will make money trading is if the their system matches their personality. That is a much more important concept, as far as I'm concerned. If you are worried about black swans, do backspreads, at least on the put side. Like you said before, be net long contracts and short prem. Since Tiv is part of <b>your</b> group and you probably taught him everything he knows, I wonder if he is long or short prem?....hmmm
I am also looking into getting my feet wet in diagonals this month, but am still working on the right strike/ratio scenario. I will either do that or the buy 1 sell 2 call combo. I've been bored the past 5 months, looking for some variety.
Do as I say; not as I do: Not one contract in long gamma or futures hedge. What was that comment about unprotected sex?
Vol: Couple of points: 1. In post 9/11 market went from 9/10 close to 9/17 low of about 5.3%. In absolute numbers it was a 50 point drop. It did not gap open to the 5.3% drop but certainly fell fast nonetheless. 2. Just because the market drops does not mean the spread moves to the maximum value of loss immediately. So a drop in the market does not translate to a $500K loss. To use an example that would make MAV happy, assume you have a deep OTM $50/$55 bull call spread when the stock is at $20 and the stock jumps $35 points. The spread will not be worth $5.00. 3. The futures market is the best place to hedge against these kind of events. If the market is crashing because of a major event, I can short futures immediately to put bandages on and get out of my positions if necessary. 4. Although the validity of this has not been fully tested and was debated here, I am loaded up on VIX Calls for MAY assuming a huge drop in the index will accompany a VIX spike which could push those options significantly higher acting as a hedge (if it all goes according to plan ) 5. I am hedged even before I get into any position by not putting 100% of my assets in any one position. So I will never be wiped out or taken off in a stretcher. 6. If the market drops and I have to take a loss to get out, I am fully prepared to do so. I will also trade the heck out of the market on the way down to mitigate my losses (I daytrade Es futures as well so I would short them like crazy in a fall until I can get out of everything cleanly with as little damage as possible- taking a loss is not the issue, doing what I can to mitigate it is my goal). But the Point is really that if the US is being blown up and the market crashed, I can only limit my losses and get out. People always aks me how to hedge the position and I always have to tell them that there is no way to perfectly hedge this posiiton because it is not a risk-free trade. For normal market months I use my experience and skill in selecting strikes and for potential abnormal moves I put on partial hedges where I can or have the futures market if needed and accessible. Right now I am using VIX options for adverse down movements as a potential hedge. There are also position adjustments where I can roll into a Prego FLy (skip strike butterfly) and create a position with a limited risk debit much much lower than the credit spread risk and potential for more profits if the market stays down. I could also adjust if the move takes the market to my doorstep but there is little time to expiration and I just need some distance. I could box the position and open new spreads at lower strikes and keep reducing my net loss little by little until I hit expiration. The goal is to stay on top of the position and keep reducing losses as best you can to get out and trade the next month. The thing about such a drop is that with IV spiked, you can get some good premium the next few months and with SPX put skews go deeper OTM and collect premium. Post 9/11, July 2002 and even 1987 drops were all followed by consolidation and strong reversals. The key is to stay on top of your positions and trade past the loss. You will not make it back immediately but thinking long-term you can do it. Portfolio management is what ensures you are not wiped out and still have capital to trade with after such moves.
BTW Mav, I would have to disagree. I think that was flat out wrong. Does it make you feel good to act like a big shot when you are hiding behind a computer. I hope that translates to better trading for you, but I doubt it. Big egos tend to bite traders in the ass (just to stick with your gay male theme). Cheers and GTTY
Cory, I never said otherwise. My point was that people were not understanding the very strategies that THEY are trading. That's it. Don't turn this into something that it's not. Oh and btw, I never said how Tiv traded, or Mike, or Jeff, or ......, you get the point. There are a million ways to trade. And I'll tell you this Cory, Tiv does understand what he is doing. That's what matters. I don't care if he is a long or short premium trader. That was not what this thread was about. Cheers to you too.
Tiv has been trading for 17 years. Do you want to put your sheets up against his? Nobody on this thread said he was a long premium trader. If they did, I must have missed the post.
It's not a personal affront from me, Mav, but what consolation is it that Tiv "knows what he's doing" when the spoos drop 70 overnight? Based on that run he'd lose 750 large at minimum. But I am sure he hedges in another account. I am sure he's experienced and proved himself at your firm and elsewhere. Does anyone at VT actually buy gamma?