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Raleigh Durham Open Stocks Futures FX Options Traders Meetup Message Board Trading Discussions › How would you have done it

How would you have done it

Claude
user 11186660
Cameron, NC
Post #: 4
Not sure were everyone is at in their knowledge of trading but I would love to find out. Please look at a recent and a current trade of mine on your platform and tell me what I did wrong in your eyes. Or tell me what I did right in your eyes. Or tell me if you would have handle it totally differently. Please refer to the dates as you see the trade progress through time. ( the files section....wk5aug and wk1sept are the pictures)
Don B.
DonBrady
Group Organizer
Raleigh, NC
Post #: 995
Here are links for people's convenience:

http://files.meetup.c...­
http://files.meetup.c...­
Don B.
DonBrady
Group Organizer
Raleigh, NC
Post #: 996
You sold premium, both a call spread and a put spread and made good money in both cases.

Good work!

I will comment only on general risk issues. Hopefully someone else will comment on technical analysis angles and alternative spreads, which is probably closer to what you were actually looking for.

The spreads were wide. I would assume that to justify spreads this wide, you must have a monitoring plan to limit risk by getting out or adjusting if things go wrong, which it seems you do have.

There is nothing to criticize.

Of course, the risks in selling premium are sudden unexpected large moves, or worse yet gaps. Sooner or later, some of these will occur (or worse yet runs of them could occur) and the premium seller will lose money on those particular trades.

But your risk is limited, to be sure, and it is just a matter of the per cent of your capital than you are risking on each trade, trading frequency, and the overall statistics. If these are planned conservatively enough, you will make good money overall. If the premium seller gets too aggressive, he can suffer large losses if he has a run of losing trades. You know all that already. But one would need to look at those overall risk parameters to assess the trades fully, or to say much about varying the trades.

You are trading fairly aggressively in terms of the width of your spreads, which is fine as long as you track them very closely to limit risk and/or limit the per cent of capital risked on each trade.

You should talk about your trading at a meeting at some point down the road in a later month (not right away as we have other topics to cover). People would be interested.
Mark M.
user 10583849
Raleigh, NC
Post #: 9
I know this is an older conversation, but I was looking over your trades for study, for I am still learning. It takes some guts to sell spreads so close to the money, without making it a butterfly or something? You could just as easily had some crushing losses had the SPX not behaved the way you intended, right? Are you still employing these methods and how is that working out? How are you timing entry points? Thanks...
Don B.
DonBrady
Group Organizer
Raleigh, NC
Post #: 1,043
I know this is an older conversation, but I was looking over your trades for study, for I am still learning. It takes some guts to sell spreads so close to the money, without making it a butterfly or something? You could just as easily had some crushing losses had the SPX not behaved the way you intended, right? Are you still employing these methods and how is that working out? How are you timing entry points? Thanks...

They were still limited risk spreads though, like butterflies, right? How would the risk differ from butterflies? In a butterfly, you can also place your protective wings as far away as you want.

The expectation of spreads close to the money is not much different from spreads further out. It is just the risk per trade that is different. But if the amount risked per trade is a sufficiently small fraction of your capital, the statistics still work out fine.

After all, every time you buy a stock, that is implicitly a naked short put, combined with a long call. So it is really only in the context of the trade risk relative to the size of your trading capital that a short position in an option may have the potential to be a problem.

This issue is basically the often-discussed question "high-probability trades" versus "low-probability trades". You can trade either way but have to adjust the amount risked accordingly.
Claude
user 11186660
Cameron, NC
Post #: 6
To Mark: yes i agree with you it does takes guts to sell spreads so close to the money and yes i have had times where i have gotten caught on the wrong side of the trade. What allows me to feel comfortable when i do this is good ole fashion chart reading. That is how I as you say "Time my Entry" points. There is also another key component for me as i sell so close to the money. I won't take the max profit on most weeks. Sure i've seen some traders set a OTM credit spread up for a .25 return and wait til expiration and that's fine. I on the other hand I will set up a $5 or so max return and take half of that well before expiration. That's just how i trade credit spreads. ( here are the rest of my trade entry and exits date for the rest tail part of 2012. It should pick up from were you left off from my last file.

http://files.meetup.c...­
Dave
user 4198647
Raleigh, NC
Post #: 48
To Mark: yes i agree with you it does takes guts to sell spreads so close to the money and yes i have had times where i have gotten caught on the wrong side of the trade. What allows me to feel comfortable when i do this is good ole fashion chart reading. That is how I as you say "Time my Entry" points. There is also another key component for me as i sell so close to the money. I won't take the max profit on most weeks. Sure i've seen some traders set a OTM credit spread up for a .25 return and wait til expiration and that's fine. I on the other hand I will set up a $5 or so max return and take half of that well before expiration. That's just how i trade credit spreads. ( here are the rest of my trade entry and exits date for the rest tail part of 2012. It should pick up from were you left off from my last file.

http://files.meetup.c...­

So it looks like you have no stop?

That first trade you traded against the trend? Honestly, without a stop, if you sell premium and trade against the trend thinking about a reversal, be very careful. IMO you would have been better to cut your losses after that next huge bar down and on the next little bounce. If you trade against the trend and don't have any risk management you're sure to get eventually get wiped out selling premium IMO. What did you whole equity curve look like while the trade was going against you?

The second trade seems more reasonable as far as entry (selling a call spread) since it looks like a sideways market, plus, it's Sept.

In my somewhat limited experience, the trades which immediately go against are ones to get out of immediately as they sap profit, and most of all, the mind's concentration and energy. IMO it is not good to hold on to a trade through a huge downdraft like that to eek out a profit. That mindset is very dangerous.

Net-net: I personally would see that first trade as a failure and the second trade as a success. The first trade would have been more of a success if you recognized the entry was wrong and took a small loss.
Don B.
DonBrady
Group Organizer
Raleigh, NC
Post #: 1,045
It is indeed a good point to always keep in mind the risk of a sudden adverse move. These may occur so rarely that they do not show up in tests over any given period, but can be devastating when they do occur (depending on your exposure).

In this case, he is selling a spread, so his maximum loss is limited to the width of the spread. Could one view that as similar to a stop?

I think it all comes down to:

(1) the risk
(2) the statistics (especially tail risk)

We will have to get Claude to talk at a meeting sometime if he is willing!


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