tag:blogger.com,1999:blog-5375291312433129989.post4687397913645967337..comments2023-06-03T05:06:58.216-04:00Comments on The Lazy Trader: Alternatives for selling out of the money Credit SpreadsHenrikhttp://www.blogger.com/profile/05792195649092816606noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-5375291312433129989.post-1104469248524387862014-11-03T07:36:41.609-05:002014-11-03T07:36:41.609-05:00Thanks Andrew
LTThanks Andrew<br />LTThe Lazy Traderhttps://www.blogger.com/profile/08598866019359750526noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-3832704661326052032014-11-03T07:36:18.821-05:002014-11-03T07:36:18.821-05:00Hey Thomas,
The problem is that it is true the ma...Hey Thomas,<br /><br />The problem is that it is true the market can go down, but the drawdowns although deeper tend to be shorter in duration. Up moves on the other hand, although not as steep generally speaking, can and will be sustained generally longer.<br /><br />Notice how I mentioned that even when the market was negative for the year, I had been tested on the Call side more frequently.<br /><br />On a persistent bear market, Calls will help, that's why I won't stop selling them altogether. But like I said, Put adjustments are very healthy and very far from the market. How many months of -20% will we see? Probably 1 or 2, maybe 3 during our trading careers. I'm not too concerned about a -40% correction if it happens throughout an entire year. My concern really is a month or two.<br /><br />In 2011, people forget there was a bearish environment for quite a while (even in the middle of the 2009-2014 bullish cycle). 2011 was pretty challenging with all the US Debt ceiling issues, yet, I would have been tested on the Call side more frequently. Again confirming my assumptions that market upside moves are generally underestimated by probability models, at the same time that downside moves are consistently overestimated.<br /><br />Regards,<br />LTThe Lazy Traderhttps://www.blogger.com/profile/08598866019359750526noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-56701626730061410872014-11-03T06:45:50.505-05:002014-11-03T06:45:50.505-05:00First of all, thank you for this great article!
In...First of all, thank you for this great article!<br />In the last years the markets have been a bullish bias, so I was wondering if your conclusions on the call spreads depends on this. Selling call spread is a a bearish strategy, so it is not surprising that it had a negative performance last year. But we cannot predict the market. What if, after the last 5 year rally, the market bias will change?Thomashttps://www.blogger.com/profile/11727267606100021683noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-63212421764514901392014-11-02T22:46:06.798-05:002014-11-02T22:46:06.798-05:00Thanks for the great analysis!Thanks for the great analysis!Anonymoushttps://www.blogger.com/profile/13638935634253574623noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-484100541343009042014-11-02T21:14:41.794-05:002014-11-02T21:14:41.794-05:00Thanks for the feedback Jonathan. I think your tak...Thanks for the feedback Jonathan. I think your takeaways, clearly summarized, are of great value for any reader of your comment. Which to be fair, were points you had already mentioned to me in the past.<br /><br />Good luck this week.<br />LTThe Lazy Traderhttps://www.blogger.com/profile/08598866019359750526noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-21559094656417338172014-11-02T19:24:08.897-05:002014-11-02T19:24:08.897-05:00Nice analysis. I came to the same conclusion after...Nice analysis. I came to the same conclusion after suffering some big losses on my credit call spreads in 2012 and 2013. I even toyed with the idea of just selling credit put spreads like someone we both know. But at the same time, I feel that having some credit call spreads can mitigate losses when the market starts going down like early in October. <br /><br />My strategy is to wait for the market to become overbought before selling credit call spreads. I would only sell a small credit call spread position. I don't want to be a hero and sell too much because the risk/reward is just not that great for credit call spreads.<br /><br />My credit call spreads are always hedged with credit put spreads. I would have 3 to 5 credit put spread positions for every credit call spread position. It is unbalanced for the same reasons you have clearly expressed in this article. <br /><br />If my credit call spreads become threatened (30% delta or triple the credit received) then I would close the position and redeployed a new further out of the money credit call spreads with a delta around 15.<br /><br />One thing that I do which can be risky is that I will roll up the safe credit put spread side too so that I can receive even more credit. I know this is not a good idea when the market is super overbought. But I also know that if I need to adjust the credit put spread later on, the VIX will be very high and I can double the number of contracts on the way down with confidence. <br /><br />Here are 3 things I have learned about credit call spreads:<br /><br />1. Only sell when markets are overbought<br />2. Keep the credit call spread positions small<br />3. Always hedge with more credit put spread positions<br /><br />Good luck with your new revised strategy. I will be watching with interest.<br /><br />You can follow me on Twitter @lienjonathan where I tweet my 90% probability credit spread trades in real-time for free.Jonathanhttps://www.blogger.com/profile/14635010979050643513noreply@blogger.com