I think the point Mav was trying to make was that as time progresses (and the P/L volatility increases as vol increases with time) - slippage/commissions will play a smaller % of your position's P/L. Not so much that slippage tightens over time, more like slippage stays the same but P/L volatility increases.
No, OK you're not understanding. I'll try again. It's a function f(x). Slippage costs as a % of portfolio is a function of holding time. The graph has a neg slope and it looks like a demand curve from the upper left going down to the lower right. It represents the effect total slippage costs has on your total account value by holding time. Let me give an example to make this easier. Say my total equity in my account is $100. And every trade I do I incur $1 in total slippage cost. If I make one trade a year, my total slippage cost as it relates to my account would be 1%. Now say I made one trade a week for a year. So my holding time went from 52 weeks to one week and my total slippage cost would be 52%! So the more frequent I trade, the larger the % slippage will have on my portfolio. The longer I hold my trades, the less slippage I will have. Hopefully that clears it up.
Oh, sorry, I didn't get what you were saying. Sure. If I'm trend trading where I go from long to short on the SPY once every 4 years, then yeah, slippage is in the noise compared to P/L. I'm with you.
This only applies to someone who is in a position to "let profits run". If you look at FHN, you'll see he's a bottom fisher = he's part of the Herd as I suspected.
I might be a "bottom fisher", but my signals are pretty reliable on the underlying, including backtests. If such a system doesn't work with options, so be it. I won't keep beating my head against the wall. It almost feels like you're saying options prices and the underlying are out of phase to some degree. Not to say it's a pure "derivative" relationship, but that there are certain situations where calls are front-running the underlying and I'm missing the boat.
Finally. You understand now. Just know that the Put option Demand fluctuations will typically not confound your strategy as much (refering to top-fishing). Happy Trading.
Read this article: http://www.investopedia.com/articles/optioninvestor/05/020205.asp Scroll down to: Long Calls at Market Bottoms Are "Expensive" and then: Long Puts at Market Tops Are "Cheap"
THAT was a helpful article. Thanks! So when I see people say "spread the risk", they are presumably talking about the bull spread strategy. On FHN, if I go from the long Sep13 ATM call to the Sep13 ATM call vertical, I see these changes in Greeks: Delta: 70.32 -> 59.9 Gamma: 53.16 -> 17.88 Vega: 0.74 -> 0.35 Theta: - 0.89 -> - 0.53 If I look at the Sep13 ATM put vertical, my Greeks go to: Delta: 70.32 -> 60.17 Gamma: 53.16 -> 18.25 Vega: 0.74 -> 0.36 Theta: - 0.89 -> - 0.53 Virtually no change, although the risk: reward is a bit different (call vertical R:R is 48:52 and put vertical R:R is 55:45). Why did the artical say put spread traders are more "aggressive"? They look almost identical.