The ES position you documented here last month was a dream entry. It went big in your favor. That is the ideal for placing a hedge as you get to build up a comfort zone and can move stops up to entry or better and eliminate the whipsaw risk. I was very jealous!
Thank you for the reply. I think we're a bit different. I'm a bit more of a mechanical trader than discretionary. Also, I believe that I'm taking high probability trades. If the trade doesn't go in my favor, I want out with as small of a loss (or break even) as possible. I really don't want to stand around and hope it comes back or get whipsawed around, I just want out and I'll wait for another opportunity. It seems like a lot of folks start to get flustered (myself included) when they're losing money and really do nothing but lose more money trying to turn a loser into a winner.
My problem is I can't remember HOW or WHY I did it at the time:eek: I was never comfortable with the trade at any time. Once it started in my favor I did set at stop loss so I wouldn't lose and I took it off just because I "felt" like it all terrible "trades"
Sorry, I wasn't clear, even in my edited version! You're too quick on the response. If your short strike is at say 1340, i'm suggesting you might want to consider hedging early e.g from 1310 perhaps. As the underlying moves towards your short strike, you can feasibly win on both the hedge and the credit spread if it expires worthless. This is what Riskarb calls convergence gains. It's a pseudo-short straddle at 1340. Hedging earlier also means needing less contracts and thus reduces whipsaw risk. The problem is, it's very tempting to leave the hedge too late. You may also wish to consider static hedges e.g. long strangles that don't require constant babysitting. These will have the effect of reducing the credit received as a matter of course but with friendlier risk profiles. Good luck. MoMoney
I'm actually very big on probability and I do know the "probability" of my SPX short at all times. How do you determine the probability on the ES? Do you compare it to the SPX? Also with the ES because it trades 24hrs setting a too tight stop WILL cause you to be tossed out of it.
LOL. I was laughing and seriously scratching my head at the time as it was an ultra-bullish position. You had a naked long CALLs AND a long ES "hedge". It would have made more sense to hedge your long CALLs whilst you legged into the credit spread with short ES! As it turned out, there was a big rally so you made bank on both CALLs and futures Just face it, you have the knack of making money.
I've been trying to formulate a plan a'la Momoney's suggestions. Right now my short call for SEP is 1330...so tentatively IF the ES gets to say 1315 AND the oscillators are showing neutral to overSOLD I would buy. If the oscillators on the other had are overbought and other TA leads me to believe the odds are we will head down then I wouldn't buy. We will see more next week when the "big" boys get back into the market and either take it to new highs or sell the crap out of it.
I was just using the ES options as an example, but you make me think I'm missing something. The ES value is 1/2 of SPX, correct? I assume the probabilities are the same. Is the ES more volatile? I may be wrong, but isn't the ES trading at 24 hours an advantage? I think I might rather be tossed out instead of gapped against. I'd like to set wide stops to avoid whipsawing as much as possible, but when my stops are hit, that means I want out. It's no different than if it were the middle of the day, your stops are hit on the SPX options, SPX backs off the move, you curse.
Thank you for the clarification. This sounds like something I'll need to do my homework on as it seems like it fits my risk profile. I'm sure I'll bother you later with questions.