rallymode stated previously, "I already said i am hitting a 90% win rate at 1:1 or 2:1 risk/reward." If he is getting that kind of %win/loss with trades that are CTM, then we are having an entirely different discussion. He is obviously very confident in his market analysis, entry and exit timing, to achieve those results. That's a good thing (tm), don't get me wrong. But its not a question of strategy, its mostly related to trade entry and exit. Trading WFOTM carries an implicit admission that I do not have a timing method that I trust to give me a high %win/loss while also keeping a low risk/reward. Instead, I just rely on brute force statistics to achieve a good %w/l. I throw a little timing in there too, which also helps with discipline. Don't be afraid to ask questions of riskarb. He has been very generous with his time and knowledge. Whether or not you will understand his answer is a different matter
Well that is a bit silly, trade entry and exit is the difference between a winner and a loser. LOL If one's signal isnt as good, all the more reason to stay closer to the market as they will have to endure more PnL shocks. It is very intuitive to me that if one isnt confident in their signal they should not be taking crap shots selling cheap gamma. Just my 2 cents.
Round and round it goes. Where will it stop? Nobody knows. At the beginning of the this journal I discussed the cheap gamma concept in detail: http://www.elitetrader.com/vb/showthread.php?s=&postid=965200&#post965200 More than you ever wanted to know about flies (note the embedded links): http://www.elitetrader.com/vb/showthread.php?s=&postid=1126552#post1126552 Discussion of the shape of the gamma curve and it's implications: http://www.elitetrader.com/vb/showthread.php?s=&postid=982460#post982460 An approach to selling expensive gamma and buying cheap gamma on indexes: http://www.elitetrader.com/vb/showthread.php?s=&postid=1115645#post1115645 and reiterated again here: http://www.elitetrader.com/vb/showthread.php?s=&postid=1208724#post1208724 Any questions? MoMoney.
That's why it's so popular with beginners as evidenced by the length of the SPX Credit Spread thread. The high winning % is alluring and requires no trading skill to enter the position. I can summarize the first 80% of the thread here: 35-45 days out look for options with delta of .10 and write a spread. The width and number of spreads adjusted to match your desired credit for the month! Ignore risk/reward as you'll never need to worry about the maximum risk. Further the illusion of safety by placing spreads outside of support and resistance. You can always adjust... Oh, what does SET mean? :eek: Have my cynic hat on at the moment LOL. MoMoney.
alright mo.....thank-you again for your well thought out posts. also, if no one else has said to you i must be among many who are grateful for the clarity and time you put into your responses. so as not to burn you out , can you answer this in a yes or no fashion? ratio spreads and ctm credit or naked writes if done intelligently is far superior to fotm credit spreads and naked wfotm writes. thanks
YOU do have your cynic hat on at the moment...uhmmm a drink or too as well? Reality is that beginners are afraid of trading and FOTM means less trading (thinking). Eventually the market forces the trader to learn and actually trade. Hopefully they have made enough trading FOTM that they still have recourses to trade with
Great point. Believe it or not the SPX credit trading thread really started to get me thinking about different strategies because I was really just never comfortable with the risk. I tried to paper trade credit spreads pretty CTM to increase the likelihood of a short strike breach and just never liked what I saw and how I reacted. Mind you, I'm still trying to get the hang of adjusting them in a passive fashion, but I knew this could not be my primary strategy. So to put the optimists hat on, I've never lost a dime on an SPX credit trade but learned a ton.