Posted by DigiNomad on 15th of May 2023 at 05:09 pm
Junkie, no problem. Keep in mind that you have to establish a
way to size your portfolio. There are many methods. Some people use
theta but I have been successful by targeting a reasonable return
per period and working backwards with the knowledge that I may have
to defend a position, if touched. Which, if I want to keep my
period return intact, involves rolling up or down....but not
out...and adding contracts. In 2022 when the bottom was
falling out, because I started positions at extremes, I never had
to double down more than twice before we got a reversal...but that
wouldn't have been the case if I was selling 30 deltas. My
current target is 24% annualized. That means I have to start with
4% of Net Liq on the board for each months expiry if my intent is
to take profits at 50%. Once you get into defense mode, that 4% can
balloon quickly. During 2022, I was targeting 12% so I only started
with 2% on the board in order to achieve 1% per month. Maybe I was
lucky and now I'm taking too much risk...but I'm always willing to
change as the markets change.
DigiNomad, assuming that you took 4370-4420 Bear CS last
at 4160 on SPX cash index, and the market moves to touch 4230. How
would you defend your position by doubling up?
If the market moves 5 waves down from 4160, you could close your
position for a profit, I assume in order to buy higher again. I
could replace the 5 waves with a measured move from a pattern
(wedge, etc.).
Posted by DigiNomad on 15th of May 2023 at 05:18 pm
It's hard but when the market moves against me hard I try and
take the pain until I actually get touched (as long as it's not
much above 200% of credit) then I roll up to the next 16 delta
short strike and add spread contracts until I'm back to the same
premium level (often a double). It's definitely not the
textbook way of doing it. I would ONLY do it with large, stable
index trades (SPX, but never something like IBB). If you used
this same method with single stock options, you would eventually
get your ass handed to you and break your account.
Posted by DigiNomad on 15th of May 2023 at 05:25 pm
That and diffusion. Because SPX has 500 components, there's not
much chance of it squeezing to the moon and crashes to the downside
are also much less likely to maintain momentum past a standard
deviation or 2...maybe 3, but only on very rare occasions. If
you sell 16 delta on an index and wait to defend until that strike
gets touched, you are rolling at an extreme, by definition. It's
only supposed to reach that price 16% of the time.
DigiNomad, I will paper trade
SPX Daily
Posted by junkie on 15th of May 2023 at 05:00 pm
DigiNomad, I will paper trade your method a few times. I may post a few for a confirmation/feedback on this site log. Thanks a lot again!
Junkie, no problem. Keep in
Posted by DigiNomad on 15th of May 2023 at 05:09 pm
Junkie, no problem. Keep in mind that you have to establish a way to size your portfolio. There are many methods. Some people use theta but I have been successful by targeting a reasonable return per period and working backwards with the knowledge that I may have to defend a position, if touched. Which, if I want to keep my period return intact, involves rolling up or down....but not out...and adding contracts. In 2022 when the bottom was falling out, because I started positions at extremes, I never had to double down more than twice before we got a reversal...but that wouldn't have been the case if I was selling 30 deltas. My current target is 24% annualized. That means I have to start with 4% of Net Liq on the board for each months expiry if my intent is to take profits at 50%. Once you get into defense mode, that 4% can balloon quickly. During 2022, I was targeting 12% so I only started with 2% on the board in order to achieve 1% per month. Maybe I was lucky and now I'm taking too much risk...but I'm always willing to change as the markets change.
DigiNomad, assuming that you took
Posted by junkie on 15th of May 2023 at 05:13 pm
DigiNomad, assuming that you took 4370-4420 Bear CS last at 4160 on SPX cash index, and the market moves to touch 4230. How would you defend your position by doubling up?
If the market moves 5 waves down from 4160, you could close your position for a profit, I assume in order to buy higher again. I could replace the 5 waves with a measured move from a pattern (wedge, etc.).
It's hard but when the
Posted by DigiNomad on 15th of May 2023 at 05:18 pm
It's hard but when the market moves against me hard I try and take the pain until I actually get touched (as long as it's not much above 200% of credit) then I roll up to the next 16 delta short strike and add spread contracts until I'm back to the same premium level (often a double). It's definitely not the textbook way of doing it. I would ONLY do it with large, stable index trades (SPX, but never something like IBB). If you used this same method with single stock options, you would eventually get your ass handed to you and break your account.
Yes, liquidity is the key
Posted by junkie on 15th of May 2023 at 05:21 pm
Yes, liquidity is the key here.
That and diffusion. Because SPX
Posted by DigiNomad on 15th of May 2023 at 05:25 pm
That and diffusion. Because SPX has 500 components, there's not much chance of it squeezing to the moon and crashes to the downside are also much less likely to maintain momentum past a standard deviation or 2...maybe 3, but only on very rare occasions. If you sell 16 delta on an index and wait to defend until that strike gets touched, you are rolling at an extreme, by definition. It's only supposed to reach that price 16% of the time.
Do you work on daily
Posted by junkie on 15th of May 2023 at 05:29 pm
Do you work on daily charts or weekly charts for 3 StandDiv's? I would work with 3ATR Keltner channels and a weekly chart for this method.
One standard deviation is equivalent
Posted by DigiNomad on 15th of May 2023 at 05:30 pm
One standard deviation is equivalent to a 16 delta option
ok.
Posted by junkie on 15th of May 2023 at 05:30 pm
ok.
I could try to paper
Posted by junkie on 15th of May 2023 at 05:25 pm
I could try to paper trade with all this information now. Thank you very much, DigiNomad!