I've moved our trade history and record and activities over to ELITE TRADER.
Currently using OEX WEEKLY OPTIONS
We were on SPX Credit Spread Trader for a while in the ELITE TRADER forums, but eventually moved from there to OEX WEEKLY OPTIONS for debating, reporting and educational purposes.
If you wish to follow our option trading education and success or failure, follow it here.
Monday, September 27, 2010
Friday, May 21, 2010
JUNE OPTION MONTH TRADES ( report #32 )
Report #32
JUNE OPTION MONTH STARTING 21ST OF MAY TO JUNE 18 TH ( Third Monday of May, to third Friday of June month )
TRADES: Goal is to duplicate the success of May with 16 trades entered and won. It has taken 10 months to get to this point in the evolving trading methodology. This is the June Trading Month as we go along.
Number of trades to date: 4 ---- June 1st ---
Number of winning trades: 0
Number of trades exited at breakeven: 2
Number of losing trades: 0
Open trades pending working: 2
Percentage of total annual wins to losing trades: 100%
_________________________________________
Return on GROSS ACCOUNT CAPITAL is running between 3% and a little over 5% per month. Individual trade returns vary slightly.
___________________________
Trade 1 with ThinkorSwim: 1 Long Call Aug 490 @ 26.30 May 27th OEX 494.52
( Trade 1 exited at breakeven one week later ) Failed to get timing right.
Trade 2 with Option House: 1 Long Call Aug 490 @ 26.65 May 28th OEX 495
( Trade 2 exited at breakeven one week later ) Failed to get timing right.
Trade 3 with Thinkorswim an IRON CONDOR
a) * 10 - 510/510 Bear Calls at .50 cents Vertical Spread -- OEX 493.75
b) * 10 - 480/475 Bull Puts at .65 cents Vertical Spread __ " ___
_________________________________________________________
JUNE OPTION MONTH STARTING 21ST OF MAY TO JUNE 18 TH ( Third Monday of May, to third Friday of June month )
TRADES: Goal is to duplicate the success of May with 16 trades entered and won. It has taken 10 months to get to this point in the evolving trading methodology. This is the June Trading Month as we go along.
Number of trades to date: 4 ---- June 1st ---
Number of winning trades: 0
Number of trades exited at breakeven: 2
Number of losing trades: 0
Open trades pending working: 2
Percentage of total annual wins to losing trades: 100%
_________________________________________
Return on GROSS ACCOUNT CAPITAL is running between 3% and a little over 5% per month. Individual trade returns vary slightly.
___________________________
Trade 1 with ThinkorSwim: 1 Long Call Aug 490 @ 26.30 May 27th OEX 494.52
( Trade 1 exited at breakeven one week later ) Failed to get timing right.
Trade 2 with Option House: 1 Long Call Aug 490 @ 26.65 May 28th OEX 495
( Trade 2 exited at breakeven one week later ) Failed to get timing right.
Trade 3 with Thinkorswim an IRON CONDOR
a) * 10 - 510/510 Bear Calls at .50 cents Vertical Spread -- OEX 493.75
b) * 10 - 480/475 Bull Puts at .65 cents Vertical Spread __ " ___
_________________________________________________________
Friday, May 7, 2010
Report #31, Trades status TEST SPREADS
REPORT #31 TRADES STATUS UPDATE
MAY 21st., 2010 May Expiration Friday for options.
Number of trades to date: 16
Number of winning trades: 16
Number of losing trades: 0
Open trades pending working: 0
Percentage of wins to losing trades: 100%
_________________________________________
THE LOWEST RISK, EVOLVING TRADING SYSTEM
I was looking for the lowest risk trading system possible. In ten months, we have tried numerous things and discarded anything that had regular losing trades as part of the methodology.
What is evolving is a LOW RISK, TRADING MONEY MAKING MACHINE!
What is the actual risk I am not yet sure? We haven’t lost anything yet.
Some statistics can be extrapolated from trading so far:
1) The trading method is earning an average of 4% on invested capital / per month.
2) That means $10,000 will earn $ 400 gross profit return per month on average.
3) Dependent on the size of your account, you can judge whether you will have enough money on a monthly basis to use as an income flow.
4) This is gross income, and I have not yet found an accurate figure for income tax payments. But these seem to be between 28% and 30% per year off the gross income.
5) Annual income would be on average, 48% per year of capital invested. Income tax would reduce this to a gross income of 48% per year, to a net income FLOW OF 33.6% of capital invested, return on capital.
6) There are several things involved in RISK MANAGEMENT. To get the lowest RISK PROFILE, the available account capital to trade on a per month basis is divided into 8 trades. This is called diversification. The individual return on capital per each trade varies, dependent on the part of the month the trade is implemented. More diversification of trades can lower the 4% gross return on capital invested somewhat. Concentration of trades into fewer choices increases the profit profile but increases RISK. Some months; the opportunities only allow 6 trades, leaving some account money unused for that month with which to trade. This lowers the return slightly.
7) INCREASING THE PROFIT monthly profile, requires changing the risk profile and increasing RISK.
8) There are two ways to increase the PROFIT PROFILE. The first is to consolidate the 8 diversification trades into only 3 trades per month and place these at the early part of the monthly trading strategy, when the premium gap is largest. You can get increased profit return, over 5% per trade this way. This of course increases your risk of loss from concentration.
9) The other way is to increase your number of contracts traded on a per trade basis. Or more selectively throughout the month. We are working on this study.
10) It would seem that $250,000 would be a comfortable trading account to work with? The particular market I am trading, which is the OEX CASH INDEX is very liquid and can absorb this amount and the gross return would be $10,000 per month. Or $120,000 per year, GROSS.
11) For larger amounts of money, you would have to go into parallel cash indexes, or stock screening and run a number of parallel operations at the same time.
12) This cash machine utilizes ALL your capital each month. It is a monthly / weekly trading system.
MAY 21st., 2010 May Expiration Friday for options.
Number of trades to date: 16
Number of winning trades: 16
Number of losing trades: 0
Open trades pending working: 0
Percentage of wins to losing trades: 100%
_________________________________________
THE LOWEST RISK, EVOLVING TRADING SYSTEM
I was looking for the lowest risk trading system possible. In ten months, we have tried numerous things and discarded anything that had regular losing trades as part of the methodology.
What is evolving is a LOW RISK, TRADING MONEY MAKING MACHINE!
What is the actual risk I am not yet sure? We haven’t lost anything yet.
Some statistics can be extrapolated from trading so far:
1) The trading method is earning an average of 4% on invested capital / per month.
2) That means $10,000 will earn $ 400 gross profit return per month on average.
3) Dependent on the size of your account, you can judge whether you will have enough money on a monthly basis to use as an income flow.
4) This is gross income, and I have not yet found an accurate figure for income tax payments. But these seem to be between 28% and 30% per year off the gross income.
5) Annual income would be on average, 48% per year of capital invested. Income tax would reduce this to a gross income of 48% per year, to a net income FLOW OF 33.6% of capital invested, return on capital.
6) There are several things involved in RISK MANAGEMENT. To get the lowest RISK PROFILE, the available account capital to trade on a per month basis is divided into 8 trades. This is called diversification. The individual return on capital per each trade varies, dependent on the part of the month the trade is implemented. More diversification of trades can lower the 4% gross return on capital invested somewhat. Concentration of trades into fewer choices increases the profit profile but increases RISK. Some months; the opportunities only allow 6 trades, leaving some account money unused for that month with which to trade. This lowers the return slightly.
7) INCREASING THE PROFIT monthly profile, requires changing the risk profile and increasing RISK.
8) There are two ways to increase the PROFIT PROFILE. The first is to consolidate the 8 diversification trades into only 3 trades per month and place these at the early part of the monthly trading strategy, when the premium gap is largest. You can get increased profit return, over 5% per trade this way. This of course increases your risk of loss from concentration.
9) The other way is to increase your number of contracts traded on a per trade basis. Or more selectively throughout the month. We are working on this study.
10) It would seem that $250,000 would be a comfortable trading account to work with? The particular market I am trading, which is the OEX CASH INDEX is very liquid and can absorb this amount and the gross return would be $10,000 per month. Or $120,000 per year, GROSS.
11) For larger amounts of money, you would have to go into parallel cash indexes, or stock screening and run a number of parallel operations at the same time.
12) This cash machine utilizes ALL your capital each month. It is a monthly / weekly trading system.
Friday, April 30, 2010
Option House spread trading ELIMINATION STRATEGY account trials. May 1ST, 2010. ( Report #30 )
OPTION HOUSE FOR MONTHLY SPREAD TRADES ( Report # 30 )
Starting balance: hypothetical $20,000, paper trading virtual platform. ( started roughly middle first half of month ? )
MAY - 2010 OPTION HOUSE BROKERAGE
______________________________________
Trade 1 :May 4th, 2010 ( MONTHLY trade May) OPTION HOUSE BROKERAGE
10 contracts - Sell OEX 560/Buy 565 strikes @ .30 cents spread
Order I.D. 251 49211
+$300 credit, expenses $22.50 (commission + fee )
SPREAD IS WORKING TOWARD EXPIRATION ON MAY 22ND. Basically the bet is that the trend is down, for next two weeks or so.
-- WIN--
__________________________________________
Trade # 1 for THINKORSWIM WEEKLY THURSDAY TRADE
10 oex 540/545 CALLS @ .20 cents limit order FILLED
+$200 - $40 commissions
Net profit: $ 160---- WIN -----
__________________________________________
MONTHLY TRADE FOR OPTION HOUSE
Trade 2
SELL 10 oex 550 Calls, Buy 10 OEX 555 Calls for spread of .30 cents.
( credit $300 - $22.50 commissions and fees )
---WIN --- Expires Dec. 22nd.
___________________________________________
**** I just noticed that ThinkorSwim costs per trade are double that of Option House! In the above case; Option House does not offer WEEKLY EXPIRATIONS, so there is no choice. Unless it is the 4 th weekly, which overlaps the last week of option period ( 3rd Friday ending of Month )
_______________________________
Trade 3 Weekly - Option House ( LAST WEEK OF OPTION TRADING MONTH( expiration is third Friday of May ) Monday first hour trade.
seel 12 535 Calls/Buy 540 Calls @ limit order .25 cents + $300 - $24.50 costs
= +$275.50 --- WIN ---
____________________________________
Trade 2 for thinkorswim brokerage Monday a.m. trade.
WEEKLY sell 10 535/540 CALLS Limit order was for .25 cents, but they executed at a .30 cents spread. $300 - $70 costs = +$280
--- WIN --- _________________________________
Trade 1 Experimental PUT - Paper Trading straight 1 PUT BUY August 520, @$30,80
Trying to see what 10 OEX points would bring, on a safer 3 month out option. You need more index point moves to get dollar moves, for less TIME DECAY trade off.
+$370 WIN ( OEX moved 10 points on a 1 PUT August $3080 trade for a gain of + $370 Net after commissions.WIN
______________________________________
Starting balance: hypothetical $20,000, paper trading virtual platform. ( started roughly middle first half of month ? )
MAY - 2010 OPTION HOUSE BROKERAGE
______________________________________
Trade 1 :May 4th, 2010 ( MONTHLY trade May) OPTION HOUSE BROKERAGE
10 contracts - Sell OEX 560/Buy 565 strikes @ .30 cents spread
Order I.D. 251 49211
+$300 credit, expenses $22.50 (commission + fee )
SPREAD IS WORKING TOWARD EXPIRATION ON MAY 22ND. Basically the bet is that the trend is down, for next two weeks or so.
-- WIN--
__________________________________________
Trade # 1 for THINKORSWIM WEEKLY THURSDAY TRADE
10 oex 540/545 CALLS @ .20 cents limit order FILLED
+$200 - $40 commissions
Net profit: $ 160---- WIN -----
__________________________________________
MONTHLY TRADE FOR OPTION HOUSE
Trade 2
SELL 10 oex 550 Calls, Buy 10 OEX 555 Calls for spread of .30 cents.
( credit $300 - $22.50 commissions and fees )
---WIN --- Expires Dec. 22nd.
___________________________________________
**** I just noticed that ThinkorSwim costs per trade are double that of Option House! In the above case; Option House does not offer WEEKLY EXPIRATIONS, so there is no choice. Unless it is the 4 th weekly, which overlaps the last week of option period ( 3rd Friday ending of Month )
_______________________________
Trade 3 Weekly - Option House ( LAST WEEK OF OPTION TRADING MONTH( expiration is third Friday of May ) Monday first hour trade.
seel 12 535 Calls/Buy 540 Calls @ limit order .25 cents + $300 - $24.50 costs
= +$275.50 --- WIN ---
____________________________________
Trade 2 for thinkorswim brokerage Monday a.m. trade.
WEEKLY sell 10 535/540 CALLS Limit order was for .25 cents, but they executed at a .30 cents spread. $300 - $70 costs = +$280
--- WIN --- _________________________________
Trade 1 Experimental PUT - Paper Trading straight 1 PUT BUY August 520, @$30,80
Trying to see what 10 OEX points would bring, on a safer 3 month out option. You need more index point moves to get dollar moves, for less TIME DECAY trade off.
+$370 WIN ( OEX moved 10 points on a 1 PUT August $3080 trade for a gain of + $370 Net after commissions.WIN
______________________________________
Monday, April 26, 2010
RE-FOCUSING ON DIRECTION OF TRADING STRATEGIES ( report # 29)
Report # 29
RE-FOCUSING ON CORE STRATEGIES
I'm eliminating all other trading right now and concentrating on Credit Spreads. Am also concentrating on only one BROKER, which is THINKORSWIM, as they give the detail and capability needed for trading both MONTHLY AND WEEKLY SPREADS.
a) Option House account has been raised to $20,000 for monthly spread trading, except possibly for a position directional trade in sure thing type trend starts, when the volatility is high. Though for a LOSS FREE trading system, money earner, I think I'm going to have to eliminate the taking of any position directional trades?
b) Position trading, based on market direction guessing has been terminated with my THINKORSWIM account, since that loss last week on a directional trade. There were too many losses. It works, but the results were not consistant enough. One position directional trade loss can wipe out all the accumulation of months of small steady incremental profits from spread trading, small as they are. It is more important in my mind, not to EVER have a losing trade.
My goal is as far as possible a LOSS FREE trading system. I realize this is not totally possible, but as close to it as I can get, is the goal.
For this reason, I'm concentrating on Vertical Credit Spreads, IRON Condors and IRON Butterflys. I have not even started to try, or study Butterflys yet. These three systems are CREDIT SPREAD strategy systems.
TRADES OPEN April 26th.THINKORSWIM BROKERAGE
MONTHLY Expiring third Friday in May/ 2010
1) Vertical Call Bear Spread 5 OEX 565/570 Calls @ .50 cents + $225 --results pending - trade working
2) Vertical Call Bear Spread 5 OEX 570/575 Calls @ .55 cents+ $250 --- results pending - trade working
____________________________________________
WEEKLY EXPIRATION April 26 - 30th/2010
1) Vertical Call Bear Spread 5 OEX 560 Call/ 565 @ .45 cents + $200 --- WIN
___________________________________
2) WEEKLY TRADE - THINKORSWIM This trade was made on Wednesday morning. I attempted to put a limit order, at .10 cents, but got a FILL at .05 cents. I don't know why?
(2) Vertical Call Bear Spread 20 OEX 550/555 Calls at .05 cents Wednesday trade expiring on Friday evening. At only a (+ $100) I''m not sure what the brokerage fees and commissions will do to this? The 5 cents is too little.-- WIN! ---
Net profit: $100 - $70 commission = $30.
_________________________________________
I do have plans to POSITION TRADE, but only when a NEW TREND starts, at the point of highest VOLATILITY. When the meat is in the trend position trading, in the first third of the trend BEFORE volatility drops off and it no longer is practical. There are only 6 to 8 trends a year, so there are not many high quality trades otherwise, that more or less guarantee winning. That's the theory anyway. We shall see how it works out in practice.
____________________________________________
FOR VERTICAL CREDIT SPREAD RESULTS SEE REPORT #25
I'm studying on how much margin would be required to do a steady set of staggered, or overlapping Vertical Credit Spreads. One 5 contract Vertical Credit Spread requires $2500 in margin. So it looks like in one month, I might like to do up to 8 Vertical Credit Spreads. That would mean an account size of $20,000. If I can get a local faster internet service provider. In the meantime, will continue the practice and learning process using ThinkorSwim funny paper money account for another 6 weeks or so.
RE-FOCUSING ON CORE STRATEGIES
I'm eliminating all other trading right now and concentrating on Credit Spreads. Am also concentrating on only one BROKER, which is THINKORSWIM, as they give the detail and capability needed for trading both MONTHLY AND WEEKLY SPREADS.
a) Option House account has been raised to $20,000 for monthly spread trading, except possibly for a position directional trade in sure thing type trend starts, when the volatility is high. Though for a LOSS FREE trading system, money earner, I think I'm going to have to eliminate the taking of any position directional trades?
b) Position trading, based on market direction guessing has been terminated with my THINKORSWIM account, since that loss last week on a directional trade. There were too many losses. It works, but the results were not consistant enough. One position directional trade loss can wipe out all the accumulation of months of small steady incremental profits from spread trading, small as they are. It is more important in my mind, not to EVER have a losing trade.
My goal is as far as possible a LOSS FREE trading system. I realize this is not totally possible, but as close to it as I can get, is the goal.
For this reason, I'm concentrating on Vertical Credit Spreads, IRON Condors and IRON Butterflys. I have not even started to try, or study Butterflys yet. These three systems are CREDIT SPREAD strategy systems.
TRADES OPEN April 26th.THINKORSWIM BROKERAGE
MONTHLY Expiring third Friday in May/ 2010
1) Vertical Call Bear Spread 5 OEX 565/570 Calls @ .50 cents + $225 --results pending - trade working
2) Vertical Call Bear Spread 5 OEX 570/575 Calls @ .55 cents+ $250 --- results pending - trade working
____________________________________________
WEEKLY EXPIRATION April 26 - 30th/2010
1) Vertical Call Bear Spread 5 OEX 560 Call/ 565 @ .45 cents + $200 --- WIN
___________________________________
2) WEEKLY TRADE - THINKORSWIM This trade was made on Wednesday morning. I attempted to put a limit order, at .10 cents, but got a FILL at .05 cents. I don't know why?
(2) Vertical Call Bear Spread 20 OEX 550/555 Calls at .05 cents Wednesday trade expiring on Friday evening. At only a (+ $100) I''m not sure what the brokerage fees and commissions will do to this? The 5 cents is too little.-- WIN! ---
Net profit: $100 - $70 commission = $30.
_________________________________________
I do have plans to POSITION TRADE, but only when a NEW TREND starts, at the point of highest VOLATILITY. When the meat is in the trend position trading, in the first third of the trend BEFORE volatility drops off and it no longer is practical. There are only 6 to 8 trends a year, so there are not many high quality trades otherwise, that more or less guarantee winning. That's the theory anyway. We shall see how it works out in practice.
____________________________________________
FOR VERTICAL CREDIT SPREAD RESULTS SEE REPORT #25
I'm studying on how much margin would be required to do a steady set of staggered, or overlapping Vertical Credit Spreads. One 5 contract Vertical Credit Spread requires $2500 in margin. So it looks like in one month, I might like to do up to 8 Vertical Credit Spreads. That would mean an account size of $20,000. If I can get a local faster internet service provider. In the meantime, will continue the practice and learning process using ThinkorSwim funny paper money account for another 6 weeks or so.
Wednesday, April 21, 2010
Report #28 Difference between CONDORS and IRON CONDORS
Some profit numbers for SPREADS (Report #28)
1 Condor Spread - 2 Iron Condor Spread - 3 Butterfly Spread - 4)Iron Butterfly Spread
Debit/Credit: 1 Debit - 2 Credit - 3 Debit - 4 Credit
Max Profit: - Low - High - Higher - Highest
Max Loss: - Highest - Higher - High - Low
Cost of Position: - High - NIL - Low - NIL
Profitable Range: - Wide - Widest - Narrow - Wider
_______________________________________________
I have learned the difference between the CONDOR SPREAD and the IRON CONDOR. Something I did not know? The CONDOR spread is either the upper and lower channels only in CALLS, or in PUTS. Whereas the IRON CONDOR SPREAD is the playing of; out-the-money, on the bottom of a channel, as in PUTS for a BULL move, or as in CALLS out-the-money, in a BEAR move at the top of a channel. In other words the VERTICAL BULL PUT Spread is on the bottom of the channel and the VERTICAL BEAR CALL SPREAD is on the top of the channel. Since so far, I always leg in, I hadn't made that realization. Yet I see in THINKORSWIM, they list the CONDOR a debit Spread channel, as different, to the IRON CONDOR a credit spread channel.
I had not realized this difference. In fact, I had not even considered the CONDOR as something separate, much less a DEBIT SPREAD TYPE CHANNEL.
So an amateur learns! Guess what I want are IRON CONDORS which are credit spreads and will remember that in future.
Perhaps in the not too distant future I will study the IRON BUTTERFLY? Sounds interesting? It does sound like the IRON CONDOR and the IRON BUTTERFLY seem the best spread strategies? These are credit strategies.
1 Condor Spread - 2 Iron Condor Spread - 3 Butterfly Spread - 4)Iron Butterfly Spread
Debit/Credit: 1 Debit - 2 Credit - 3 Debit - 4 Credit
Max Profit: - Low - High - Higher - Highest
Max Loss: - Highest - Higher - High - Low
Cost of Position: - High - NIL - Low - NIL
Profitable Range: - Wide - Widest - Narrow - Wider
_______________________________________________
I have learned the difference between the CONDOR SPREAD and the IRON CONDOR. Something I did not know? The CONDOR spread is either the upper and lower channels only in CALLS, or in PUTS. Whereas the IRON CONDOR SPREAD is the playing of; out-the-money, on the bottom of a channel, as in PUTS for a BULL move, or as in CALLS out-the-money, in a BEAR move at the top of a channel. In other words the VERTICAL BULL PUT Spread is on the bottom of the channel and the VERTICAL BEAR CALL SPREAD is on the top of the channel. Since so far, I always leg in, I hadn't made that realization. Yet I see in THINKORSWIM, they list the CONDOR a debit Spread channel, as different, to the IRON CONDOR a credit spread channel.
I had not realized this difference. In fact, I had not even considered the CONDOR as something separate, much less a DEBIT SPREAD TYPE CHANNEL.
So an amateur learns! Guess what I want are IRON CONDORS which are credit spreads and will remember that in future.
Perhaps in the not too distant future I will study the IRON BUTTERFLY? Sounds interesting? It does sound like the IRON CONDOR and the IRON BUTTERFLY seem the best spread strategies? These are credit strategies.
THE NUANCES OF VERTICAL CREDIT SPREADS ( ( report # 27 )
The NUANCES of CREDIT SPREAD VERTICALS Report #27
In studying the Vertical Credit Spread, there are some misleading stuff out there. It only takes ONE TRADE in which the market sweeps through your CREDIT SPREAD to maximum destruction, to wipe out the small accumulation of profits you gained for the whole year. In 2008 a lot of CREDIT SPREAD TRADERS got wiped out. COMPLETELY! They of course were pyramiding. They had to start back again from rock bottom. The 90% winners garbage quoted for CREDIT SPREADS is very misleading.
The best advice I read was a guy who said he closed his CREDIT SPREAD when he had gained 80% of the TIME DECAY and swallowed the cost of paying the extra commissions. I've tried this in practice. It works out, but the CREDIT SPREAD is a low earner at the best of times, versus the money you have in margin at risk. Closing out when you have only 80% of the value earned is not I feel the right answer.
On the other hand, I've experimented ( paper trading and virtual account trading ) and there are some rules you can apply. A bull market goes up more slowly than a BEAR down market. If you are going to be threatened, it is most likely a rapid DOWNWARD BEAR MARKET drop will wipe you out. You will not have the time to place the order, or get it executed, Particularly in short term weekly trading expirations. Maybe in Longer monthly expirations? Mostly the problem is GREED and the tendency to keep pyramiding profits. You should be taking money off the table, or out of the account regularly. Say every quarter?
In a BULL MARKET you can start entering your order, about 2 OEX points before your SOLD side is touched by the market action. In a BEAR MARKET plunge, you should be closing out your SPREAD at least 6 points away from your SOLD side being touched. Better to end up with nothing, or a minor plus couple of dollars than lose everything?
Narrow channels and weeklies are most dangerous. You don't have enough time! A Friday expiration that coincides with news reports can drop right out from under you and in such short term trading, will sweep through your bet so fast, all your profits for the year will be gone.
- Just something to think about! -
In studying the Vertical Credit Spread, there are some misleading stuff out there. It only takes ONE TRADE in which the market sweeps through your CREDIT SPREAD to maximum destruction, to wipe out the small accumulation of profits you gained for the whole year. In 2008 a lot of CREDIT SPREAD TRADERS got wiped out. COMPLETELY! They of course were pyramiding. They had to start back again from rock bottom. The 90% winners garbage quoted for CREDIT SPREADS is very misleading.
The best advice I read was a guy who said he closed his CREDIT SPREAD when he had gained 80% of the TIME DECAY and swallowed the cost of paying the extra commissions. I've tried this in practice. It works out, but the CREDIT SPREAD is a low earner at the best of times, versus the money you have in margin at risk. Closing out when you have only 80% of the value earned is not I feel the right answer.
On the other hand, I've experimented ( paper trading and virtual account trading ) and there are some rules you can apply. A bull market goes up more slowly than a BEAR down market. If you are going to be threatened, it is most likely a rapid DOWNWARD BEAR MARKET drop will wipe you out. You will not have the time to place the order, or get it executed, Particularly in short term weekly trading expirations. Maybe in Longer monthly expirations? Mostly the problem is GREED and the tendency to keep pyramiding profits. You should be taking money off the table, or out of the account regularly. Say every quarter?
In a BULL MARKET you can start entering your order, about 2 OEX points before your SOLD side is touched by the market action. In a BEAR MARKET plunge, you should be closing out your SPREAD at least 6 points away from your SOLD side being touched. Better to end up with nothing, or a minor plus couple of dollars than lose everything?
Narrow channels and weeklies are most dangerous. You don't have enough time! A Friday expiration that coincides with news reports can drop right out from under you and in such short term trading, will sweep through your bet so fast, all your profits for the year will be gone.
- Just something to think about! -
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