Thanks optioncoach for the explanation. Little knowledge is not good. Thanks it is only one contract. I assumed that only one spread call or put can go wrong so the margin would be the higher of the two. Next time I hope I will do the right thing. Thanks
Coach Phil, I was just wondering, out of the capital that you have to work with, on average what percentage of that capital do you put up for margin every month?? Thanks. Daytrader85
Coach is teaching this subject in it's purest form. So far through this thread it has been assumed that the trader does not have a clue where the market is going or not going. There are some very simple methods that can improve one's returns. Overbought oversold oscillators and volatility bands, seasonals, sentiment etc. Using the 20 day 2 st deviation Bollinger Band as an example one can see that the indices regularly bounce back from or spend time crawling on the upper lower boundaries. This does not happen like clockwork every month but it does occur often enough that one makes it part of one's playbook. Coach and gang, thanks for your contributions.
You really touched upon the essence of trading here. Coach Phil does such a fabulous job of explaining the basics, getting the essential concept into our heads, and instilling a sense of "doability" into the act of trading. However, you can move beyond those basics and refine you own trading based upon subtle modifications such as the identification of an overbought or oversold condition. This is how you take it to the next level...
I had said in my earlier post that commission was 2.40 each leg. That was a mistake, the commission with IB is only $1 per leg. Is there a difference in BOX and Iron codor. Looked few textbooks but could not find the answer. Explanation much appreciated. Thanks
Although it varies month to month, i.e. I do not have a preset amount I try and use, I would say it can go from as low as 30% to as high as 60%. Some months I use more and load up when conditions cooperate (JULY), other times I hold back. I sectioned off cash in another account where I can go up to 100%. I guess it all comes down to your own risk tolerance and risk management style. Phil
I think you are only limited by your imagination. Any indicators you find you can use consistently to better help you in strike price selection or risk management can only make you a better trader. I only caution against having an abundance of indicators which just results in a lot of noise. But the tools are their to help you make more informed decisions and that is crucial to risk management. Phil
A BOX is a bull call spread and a bear put spread using the same strike prices. So a $40/$45 bull call spread and a $45/$40 bear put spread. The maximum profit is a guaranteed $5.00 no matter where the stock is at expiration. However, to enter the BOX spread at once, the odds are you will not get it for a net debit much less than $5.00. If so, commissions and taxes probably eat most of the profit away, that is why market makers are the only ones who can truly do a BOX since their transaction costs are so small. Even so, a BOX spread is a risk-free trade since $5.00 is guaranteed so it will never be priced to yield more than the risk-free rate of return. If it yields more, it is a momentary mis-pricing only MMs can exploit. If you get in, the commissions and costs will wipe away that edge and usually result in a lower than risk-free return or perhaps guaranteed loss. BOXs re easier to leg into once the stock has moved as expected in one direction. An Iron Condor can be described as: 1. Selling a strangle and then purchasing a deeper OTM strangle; or 2. Selling an OTM bull put spread and OTM bear call spread Lots of info on IRON CONDORS online with good detailed descriptions of what they are. Phil
Hi coach, I really like this thread and I am curious with how many contracts you advise us to start this strategy if you know what you are doing off course. In other words is this strategy worth the effort to do it with 1-3 contracts if your broker is IB? Best regards, Maurice
Trying to get a order filled on 1140/1150 Oct Put Spread 10 contracts @ .60 credit I know I'm pushing it a little bit on the credit but we shall see. Pyhootie