Murray: What you are doing seems interesting and I believe you noted that you have pretty much eliminated the black swan event (dear to my heart!). While credit spreads are my bread and butter, I'm looking to diversify and may want to start placing paper trades on the strategy you're talking about. Would you mind summarizing the position that you mentioned n the post. What it was, when it was put on, etc. Sorry if it's a lot to ask. Thanks.
earlier when i said i've been waiting for the correction here is what i was talking about. have a great weekend!
So, to open diagonals you: 1) Check the volatility range of the index (for the long month ..?). Buy when the volatility of the long is at a low point. 2) Also, open when the stochastics are turning down (at the top of the range). Looks like this is when you opened the June/Jul diag. Do you place your short strike at 1std. dev? or closer? Also, what is the width of the diagonal spread you open? 10 - 20? Thanks. I like the way you trade with technicals. Very logical.....
rdemyan, you may want to rethink this strategy.... I've heard from some TOS folks that in the last 3 to 4 years, almost all the adjustments on their condors/spreads have been on the call side... check with them...
No bounce, this market is going down like a mafioso with a lead coat, it'll melt down like buttttter, like a snowball in hell, [add your favorite cliche here]... that's my story and I'm sticking with it. I'm wrong only 50% of the time.
Andy: I'm sure your right! But, here's the thing. If there is a black swan event, I may not have seen it coming and then I'm left with my bull puts, which will probably be ITM. Further the SPX may be well below the long put with minimal chance to have my bull put get back to OTM. This can all happen in the matter of hours. Although I've jumped in the boat with Coach on buying the May VIX as "insurance", I'm not sure that will work. So, in short, the black swan could wipe out all my bull put margin in a matter of hours (overnight) without me able to do anything. However, on the call side, I should be able to see it coming because the moves really aren't as dramatic. Strong moves up and down to me are like natural catastrophes. But the black swan is like an earthquake; you don't know it is coming and it is extremely severe. A strong move up, however, is at best like a hurricane; I should be able to see it coming and adjust or get out of the way for well less than maximum loss, assuming good risk management. Let me ask you, if a dirty bomb goes off tonight and the market drops 10% overnight (because downtown LA is pretty much uninhabitable), what would happen to any bull puts you have. Even our FOTM bull puts are seldom, if ever, 10% removed from the SPX price. People will argue that we've not seen a 10% drop. I counter with, except for 9/11 we've never really seen foreign terrorism on our soil. Eventually, the technology these terrorists employ will get more sophisticated, which probably involves the "R" word (radiation). Also don't forget, I took a huge loss last summer. I can't afford to let that happen again or I'm out of the game. Maybe once I've recovered those losses and esp. if we come up with better black swan hedge, I'll get back in the game on the bull put side. Still, having said all of this, I placed a bull put spread today, but then cancelled it. The premiums are irresistable compared to bear calls. I think it was you who once said that these credit spreads can become like a "drug". That credit coming in month-after-month, becomes habit-forming. But eventually, the party ends or is at least interrupted and, let's face it, our potential risk to reward is very large (which is why Coach stresses risk management so much). I'm just worried that I don't have any risk management options available to me if a black swan occurs. Thanks for the warning, as it forces me to write down my reasons for what I'm doing and then to ascertain if they still make sense.
rdemyan, first of all, I understand your position and sympathize with your loss last summer. I hope you recover it, and more. OK, catastrophes. Here it gets philosophical. Where does worry end and paranoia begin? When does one realize that life is what happens to you while you are planning your life [John Lennon, I think]. Pigmented swans are the same species as earthquakes, fires, car accidents, heart attacks and the sudden onset of insanity... does one actively avoid all of these, hedge against them, or just pray?
Andy, thanks for the good wishes. I'm not adverse to doing bull puts, if I can find an adequate hedge for the black swan. We've talked about VIX options and shorting futures. I don't trade futures and learning how during a black swan event will only compound the losses. Am I being paranoid, maybe. It's just that I've come to the realization that if I want to live well in my retirement years, I'm going to have to trade options. As I said, if I incur one more large loss, I'm probably done with options. Fear is a strong emotion. Do you have a hedge for the black swan that you're using?
Staying on the subject of black swan, I would love to know what some of the professionals traded during and right after 9/11. How did they try to protect their own or their client's investments? Riskarb, Maverick, and other pros, a response would certainly be educational for all of us on this thread. Thanks.