What's wrong with this trading approach?

Discussion in 'Trading' started by HumbleBobby, Feb 3, 2010.

  1. Hi guys, currently I am selling strangles on SPY and ES about 39 days or less until expiration. My goal is to make about 2% profit per month. When volatility is increasing I also like buying straddles about 90 days until expiration, but in general depending on the market condition, I am more seller than a buyer of the options (about 2 to 1).
    Currently I am not day trading, although I have done it many times in the past. When it comes to day trading I have mixed results, made money one year lost money the next year, until about four years ago. Four years ago I came to a conclusion: The only way to day trade is to have a strategy with 90% + probability of making money.
    Since then, I have succeeded twice. First time it was for about one year and it was a strategy with 95%+ probability of making money (near riskless arbitrage). The second time lasted about six months, with similar percent probability of making money (95 %+).
    So my question to you guys is: is this all that I can do and expect from trading? Or is there more? If anybody is currently trading a strategy with 90% + probability of making money (trading with real money, no hypothetical stuff) please let me know, or at least give me a hint what should I look for.
  2. Your goal should be to learn the mkt you chose to trade like the back of your hand. Any arbitrary monetary goals are pointless if you aren't already consistent. The fact that the below is your second sentence tells me a lot.

  3. why did you stop trading the 95% strategy?
  4. The reason I stopped trading the strategy is because the strategy has stopped working. Every time when you create 90% + strategy, they never work for a long time. But when you do create one (if you ever do) you can make lots of money!
  5. Hey Bobby, is there a reason 75% of your posts contain a link to some website?
  6. Yes, I am helping these guys with the content and the deal is there are no advertisers or sponsors; they created this website to help other traders.
    If you are interested I am sure they would like to have you as a contributor to help other traders (website is in the beginner stages and needs help).
  7. tomk96


    since when did selling strangles become an original strategy?

    maybe you should analyze your execution for both entering and exiting the trade.
  8. drcha


    Yes, you can make money at this. I happen to use straddles, not strangles. I have traded butterflies for a long time, so straddles are just more intuitive for me.

    I recommend this paper and this book. The paper shows how you can make a 12% return with very little work. The book discusses how you can make a 40% return with some daily effort. Personally, I do not think a 12% annual return justifies the risks in a naked short position, but I am just putting the reference to that paper here to illustrate that even a non-managed approach can be profitable.

    Stick to liquid stuff, noncorrelated assets, stagger your entries across time and strikes, wait for a volatility spike to get in, get out early (at least 2-3 wks before expiration), and you should be able to make money in short straddles or strangles.

    I do find it possible to make 40% with these methods. But the question is, 40% of what? And the answer is, 40% of not-very-much-of-my-portfolio. It is necessary to keep in mind what I call "1987 risk"--risk of total loss--so keep a boatload of cash and don't ever get very big. This should be considered strictly risk capital, and your "mental margin"--i.e. cash set aside--should be at least 4 times the initial broker-required margin. I use ETFs. I would never do this type of trade with a stock.