tag:blogger.com,1999:blog-5375291312433129989.post207042091094051171..comments2023-06-03T05:06:58.216-04:00Comments on The Lazy Trader: August 2014, SPX Bull Put spreadHenrikhttp://www.blogger.com/profile/05792195649092816606noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-5375291312433129989.post-25595487197193151662014-08-03T09:55:26.950-04:002014-08-03T09:55:26.950-04:00Thanks for the comment Tony.
I laid out a plan in...Thanks for the comment Tony.<br /><br />I laid out a plan in the weekend portfolio analysis yesterday on how I would adjust my trades if the market keeps moving against me. In reality I wouldn't be severely hurt unless the market keeps a sustained move of say 10% down in two weeks. Which would be a serious correction. Other than that, if the market just goes down 2% - 4% in the next two wees, yes I will probably have to adjust one of the credit spreads but the adjustment will be so comfortable (so far out due to the higher volatility) that I wouldn't be too concerned. Again, nothing is bullet proof and a major correction would impact me negatively, that's for sure. But it would have to be something exceptional that hurts my trades and their potential adjustments further down as well.<br /><br />Cheers,<br />LTThe Lazy Traderhttps://www.blogger.com/profile/08598866019359750526noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-78304182617987094152014-08-03T09:25:17.322-04:002014-08-03T09:25:17.322-04:00I echo the view of Motu that "the trader in m...I echo the view of Motu that "the trader in me does tend to agree with you that we will most likely get a bounce soon". <br /><br />But we never know.<br /><br />There is not much to consider if it goes according to plan. What to consider will be what if it didn't goes according to plan? With 14 days to expiration, you will have little or no room to do adjustment in the same month. If you adjust to further month, you end up with what you didn't want to originally - uncomfortable of too many put credit spread in September.<br /><br />Regards, <br />Tony<br />Tonyhttps://www.blogger.com/profile/10829262996768456738noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-15098147771869152222014-08-03T04:57:08.672-04:002014-08-03T04:57:08.672-04:00Fair enough...I'm taking my "Devil's ...Fair enough...I'm taking my "Devil's Advocate" hat off now ;-)<br /><br />Meanwhile, not wanting to give you more work and stuff to research, but this is an interesting article I reckon: http://seekingalpha.com/article/311882-2-ways-to-use-the-great-reverse-iron-condor-option-strategy<br /><br />Cheers, MotuAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-75001412336395656272014-08-02T10:22:16.891-04:002014-08-02T10:22:16.891-04:00Yes Henrik. I tend to wait a bit longer to adjust ...Yes Henrik. I tend to wait a bit longer to adjust than you. 40 delta is a good rule of thumb but I would like to take it on a case by case basis. For example, if I have allocated a big size to a position, I might adjust half of the position early and see what happens with the other half. It is hard to say what I will do without the proper context of the market, my position size and many other factors. Jonathanhttps://www.blogger.com/profile/14635010979050643513noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-31283172155962279572014-08-02T08:24:26.937-04:002014-08-02T08:24:26.937-04:00Would you adjust Put spreads based on a 40 deltas ...Would you adjust Put spreads based on a 40 deltas ?<br />Take into account that in the case of Puts,because volatility expands, the 40 delta may be reached and your strikes still be 20 or 30 points away (in large indexes) or 2 - 3 points away when using ETFs<br />For this reason I've been thinking of adjusting the Puts later than I do now at the 30 deltas mark. But it would be interesting to know your opinion.<br /><br />Regards,<br />LTThe Lazy Traderhttps://www.blogger.com/profile/08598866019359750526noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-15623408805746037242014-08-02T08:22:12.722-04:002014-08-02T08:22:12.722-04:00Motu,
That is a very valid concern of yours and I&...Motu,<br />That is a very valid concern of yours and I'm glad you brought it up because that is something I have analyzed endlessly.<br /><br />A simple way to do your same analysis, an arrive at the same conclusion is to just divide the credit received (0.30) by the difference in the strikes (5.00). That gives me 6%<br />To be fair, this trade should have a 100 - 6 = 94% probability of success based on the risk/reward ratio that I'm playing. However it didn't have a 94% probability of success, it only had a 90% which is a little lower.<br /><br />This means, as you correctly guessed that I should have received more credit for a position like this one (0.50).<br /><br />However, and this is the interesting part, you will NEVER, get a 90% probability credit put spread in SPX for 0.50 credit. Never. 0.30 is the number the broker gives you over and over again. 0.60 for ten point wide spreads which is the same thing.<br /><br />This doesn't only happen with credit put spreads on SPX. It also happens with call spreads and Iron Condors.<br /><br />Which means, if we were going to strictly make our decisions based on your model, Credit spread traders wouldn't exist.<br /><br />However, I think in the end, the issue is more complex than that. Because the real probability of making money is not based on just one trade which you leave unattended. I adjust positions earlier (taking more losses than what the model suggests, although smaller losses); I deploy new capital farther out of the money and playing more contracts when one position is threatened etc. So, its a whole strategy and not just one position. I don't know, but after three years doing it, I think it works.<br /><br />Thanks for the comment.<br />LTThe Lazy Traderhttps://www.blogger.com/profile/08598866019359750526noreply@blogger.comtag:blogger.com,1999:blog-5375291312433129989.post-1702156885701883962014-08-02T01:42:00.238-04:002014-08-02T01:42:00.238-04:00I like your position for August. I should have don...I like your position for August. I should have done the same but I am going to see what happens next week before deciding if I want to sell more credit put spreads. I think a bounce might be due next week, but who knows. My positions are looking good at the moment. A bit bruised because of IWM going down the last few days, but still far away that I don't have to adjust. Jonathanhttps://www.blogger.com/profile/14635010979050643513noreply@blogger.com