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Steven PlaceKeymaster
5. Stephen, you mentioned you didn’t quite understand my note on “Am I missing something? I read you need at least 10 lots to have SPX or SPY hedges work effectively – with e.g. 5 lots you end up hedging with long options which are too OTM. Is this true?”
Pretty sure that isn’t true. If you have 10 iron condors you can hedge with SPX, but less you should go with SPY.
Your strike selection should be pretty consistent any time you put on a hedge. I wouldn’t worry about the option being too OTM– just make sure you’re actually cutting down your NET delta.
7. I should aim for 1.5x initial credit as my Maximum Allowable Loss (MAL).
Question – this is true regardless of what profit level I take out the IC, right? For you it is 50% profit level and for me I get out at 35% profit. With this 35% profit rule, I still use 1.5x initial credit as my MAL, yes?So you’re not actually using our strategy if you’re always getting out at a 35% profit.
Our goal is to exit with 50% credit in 30 days. Now if we can get, say 15% in a week, then we’ll close and move on to another
Another question – do you guys take out profit at 35%? I currently sell my put spreads at 16 delta and call spread at 10 to 12 delta. Given that I get more premium on the put spread side, I try to exit at 35% profit, as opposed to IWO’s approach of 50% profit. What do you think of exiting at 35% (may or may not be good – I get out of the market faster but also end up incurring more commissions).
Frankly I think closing at 35% credit everytime is stupid– you don’t end up getting paid for the risk you’re taking on. Try following our strategy EXACTLY instead of making modifications of your own.
If short call delta side hits 20, I hedge with a long SPX or SPY option. So I will exit if the underlying price ticks up “25 to 30 handles” more? When you say handles you mean SPX points, yes?
Yes. 30 points of upside on the SPX
Steven PlaceKeymasterMade a video for this:
- This reply was modified 6 years, 3 months ago by Steven Place.
Steven PlaceKeymasterHi Bob.
Today was a “trend up” day, meaning the market didn’t pull back today.
Now your question is should you enter now at a higher price or wait…
The best answer here is to go with a different strike.
Remember, we buy the 9 delta option and cut our NET delta in half.
So from where I sit, a new hedge *right now* would be to pick up the 2500 call.
Steven PlaceKeymasterExplanation of the roll:
- This reply was modified 6 years, 4 months ago by Steven Place.
Steven PlaceKeymasterGoing to roll these calls higher to take profits on the trade and try to hold on for further upside. This one smells like it’s going to go parabolic.
So you’re selling to close the Apr 50 call, and buying to open the Apr 60 call. You move strikes up 10 points and you capture about 5 bucks in a credit.
IWO Premium Order Ticket Type Asset Duration Strike C/P STC SHOP 21 Apr 17 50 Call BTO SHOP 21 Apr 17 60 Call Total Credit: 4.9 Steven PlaceKeymasterOpex is getting close so we’re going to close these spreads out.
IWO Premium Order Ticket Type Asset Duration Strike C/P STC NFLX 17 Feb 17 130 Call BTC NFLX 17 Feb 17 140 Call Total Credit: 9.6 Steven PlaceKeymasterStock has moved above its upper bollinger band and is gapping up today.
Good time to take profits.
SELLING HALF
IWO Premium Order Ticket Type Asset Duration Strike C/P STC HALF TXN 17 Feb 17 75 Call BTC HALF TXN 17 Feb 17 80 Call Total Credit: 2.60 Steven PlaceKeymasterTake profits here:
IWO Premium Order Ticket Type Asset Duration Strike C/P BTC AKAM 16 Dec 16 70 Put STC AKAM 20 Jan 17 70 Put Total Credit: 0.99 Steven PlaceKeymasterWe’re going to take a loss on this trade. It’s sitting around a -1.5x credit loss which is our normal stop loss point on iron condors.
I want to impress upon you how important it is not to try and massage the trade back to a profit. It is MUCH MUCH easier and simpler to get profits on a new trade than it is to try and turn it into a winner.
Here’s the closing order:
IncomeLab Order Ticket Type Asset Duration Strike C/P STC SPX 6 JAN 16 2170 Call BTC SPX 6 JAN 16 2180 Call BTC SPX 6 JAN 16 2300 Put STC SPX 6 JAN 16 2310 Put Total Credit: 3.5 Steven PlaceKeymasterQuick update on this trade.
We’ve done a few things so far….
First, we added the upside call hedge to reduce directional exposure.
And then the market ripped higher.
So our next step was to close out the hedge for a profit and then use those profits to help pay for the cost to roll the call spread to the upside…
IncomeLab Order Ticket Type Size Asset Duration Strike C/P BTC Full Size SPX 6 JAN 16 2270 Call STC Full Size SPX 6 JAN 16 2280 Call STO Full Size SPX 6 JAN 16 2300 Call BTO Full Size SPX 6 JAN 16 2310 Call Total Debit: 1.8
IncomeLab Order Ticket Type Asset Duration Strike C/P STC SPX 13 JAN 2290 Call Total Credit: 8.7 Now what we are going to do is add some put spread sales. This will generate additional credit to the trade to help gain more income. It will also cut down on how net short we are on the trade.
IncomeLab Order Ticket Type Asset Duration Strike C/P STO SPX 6 JAN 2170 Put BTO SPX 6 JAN 2160 Put Total Credit: 1 We now have an iron condor where all the strikes have been shifted higher.
Steven PlaceKeymasterAdding to this trade:
IWO Premium Order Ticket Type Asset Duration Strike C/P STO GS 20 Jan 17 205 Put BTO GS 21 Apr 17 205 Put Total DEBIT: 4.45 Attachments:
You must be logged in to view attached files.Steven PlaceKeymasterAdding to this trade
IWO Premium Order Ticket Type Asset Duration Strike C/P STO SPG 16 Dec 16 170 Put BTO SPG 16 Dec 16 165 Put Total Credit: 1.20 Looking to exit this add at .80
Steven PlaceKeymasterOk so the market was limit down last night, but has recovered to about 2100.
Ideally, it hangs out here and some vol gets sucked out, which means the profits on this trade should come in pretty quickly.
It’s a VERY GOOD IDEA to push out some closing orders here… you may not get filled but it is a possibility.
IncomeLab Order Ticket Type Asset Duration Strike C/P STC SPX 23 DEC 16 2210 Call BTC SPX 23 DEC 16 2200 Call BTC SPX 23 DEC 16 2080 Put STC SPX 23 DEC 16 2070 Put Total Debit: 4.10 - This reply was modified 6 years, 7 months ago by Steven Place.
Steven PlaceKeymasterOk so here is what we’re looking at:
Dec 145 Put 4.70 x 5.05 — Mid: 4.87
Jan 145 Put 6.50 x 6.95 — Mid: 6.72
Price: 1.85Dec 140 Put 2.66 x 2.90 — Mid: 2.78
Jan 140 Put 4.45 x 4.80 — Mid: 4.63
Price: 1.85So with an initial buy of 1.50 and 1.30
And both sets of options running 1.85
We’re looking at a gain of about 30%.
Time to ring the register:
IWO Premium Order Ticket Type Asset Duration Strike C/P STC UNH 20 Jan 17 140 Put BTC UNH 16 Dec 16 140 Put Total Credit: 1.85
IWO Premium Order Ticket Type Asset Duration Strike C/P STC UNH 20 Jan 17 140 Put BTC UNH 16 Dec 16 140 Put Total Credit: 1.85 There’s nothing wrong with walking the spreads down to about 1.80
- This reply was modified 6 years, 7 months ago by Steven Place.
- This reply was modified 6 years, 7 months ago by Steven Place.
- This reply was modified 6 years, 7 months ago by Steven Place.
Steven PlaceKeymasterIF FDX breaks 180, I will reenter in a similar trade using Dec/Jan options.
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