tag:blogger.com,1999:blog-973587304515257848.post8819343557238000812..comments2024-02-11T00:12:56.047-08:00Comments on IN THE MONEY TRADES: Evolution of an Amateur TraderAnonymoushttp://www.blogger.com/profile/02083421527404780093noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-973587304515257848.post-25789376442436758402011-03-15T12:38:24.636-07:002011-03-15T12:38:24.636-07:00I fell victim to this scenario last summer. I was ...I fell victim to this scenario last summer. I was short a SPY ratio spread and it was one of those days where it was ripping to the upside. I forget the strike price but let's just say it was 1080 and my short SPY was 108. The futures kept fluctuating back and forth above and below 1080. So unless you're around to watch and getting filled exactly at 1080 each time you're just playing a losing game. Between the headache and commissions I decided I wasn't really interested in trying to micro manage that type of situation in the future. <br /><br />So I just peaked at the ES and a short position would have made you very happy this morning but unless you pulled it off the table at your entry point you would be upside down on it right now. This type of trading (hedging with futures) doesn't fit my personality and I usually stick to trades I don't need to actively manage. However, it's a very valuable and useful tool so I'm glad I'm aware of it.Jason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-41024806257681313092011-03-14T23:17:22.665-07:002011-03-14T23:17:22.665-07:00I've never looked into it much, but I think th...I've never looked into it much, but I think the strategy I was envisioning might be some variation of gamma scalping - in this case using a futue to keep the delta 0 and collecting the theta. I am sure it would fail miserably as the spread would not be able to keep up with the future, and even if there were a way to do this with just straight options or stock it is not something a small retail customer could ever make work.<br />sAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-29393018649518047902011-03-14T22:41:34.465-07:002011-03-14T22:41:34.465-07:00Yeah, I understand that if you did try to hedge th...Yeah, I understand that if you did try to hedge the position with a future you would have to watch it closely for reasons you mentioned. At the moment with futures down about 25 points that ES hedge would be looking pretty good if I had it since that 128 short put is probably not going to be in great shape tomorrow morning.<br />sAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-70785879137054883092011-03-14T19:54:47.958-07:002011-03-14T19:54:47.958-07:00Sandeep, let's look at this from a theoretical...Sandeep, let's look at this from a theoretical point of view and a practical. Theoretically you seem to understand the basics, which is that yes short one ES would give you negative delta exposure of -500. But let's talk about practical. If you're short an iron condor, then by the nature of the strategy you've used you're already hedged. You already know your max loss ahead of time. It sounds like you've already made an adjustment, which is technical talk for taken on a separate or offsetting trade along the risk/reward curve. So your strategy itself of an iron condor contains a hedge, then you've hedged your hedge with buying more puts, now you're thinking of hedging some more with the ES?<br /><br />My suggestion would be to just paper trade this actual scenario this month using the ES and see how things play out by expiration on Friday. You mentioned that its conceivable that SPY trades in a $1 range, that's your thought or desire, what really happens is out of your control. Now something that Don didn't mention today which he should have, is directional risk of hedging. It sounds like you're trying to hedge the risk of SPY going below 129 this month. So let's say you short one ES and ES drops 20, you'll be glad you hedged. You actually WANT the market to drop out of bed because your losses on the iron condor are capped but you can make money on the short ES down to 0. <br /><br />But what he didn't talk about is risk management of direction. So let's say you short one ES and then the market reverses sharply, again your gains are also capped on an iron condor but your losses are on the ES are not. So unless you're going to literally screen watch and get in and out exactly every time SPY crosses the 129 threshold then hedging an iron condor doesn't make sense. So take today's chart for example. If you got worried and shorted once the futures market opened down big, it was up 10 points a few hours later, that would be a $500 loss if you were short one ES contract. So hedging with futures works great as long as it goes in the direction you're hoping, but it can also work against you.Jason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-44149411219601971312011-03-14T15:30:31.528-07:002011-03-14T15:30:31.528-07:00So back to my example - it seems like if I were to...So back to my example - it seems like if I were to sell the ES future it would make the delta about 0, and allow me to stay in the trade to collect the accelerating theta with very little directional risk (at least for the first $1 move in SPY - but that is a pretty good size move in SPY and with only 4 days to expiration it's conceivable that it could stay in a $1 range, at least for a few more days. Any comments/advice would be appreciated.<br /><br />sAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-79478649232186310702011-03-14T15:11:27.501-07:002011-03-14T15:11:27.501-07:00Good presentation by Don, basically reinforced con...Good presentation by Don, basically reinforced concepts that I have heard him discuss in previous sessions. <br /><br />As I mentioned, I'm trying to figure out if there is a good way to use futures as an adjustment or hedge to my existing option positions. I'll give an example of a typical real example that I have right now. As part of a SPY iron condor I am short the March 129/128 Put spread (March 135/136 call spread is the other half which should expire harmlessly). I have 30 contracts, so at the moment the position has delta +290, theta +34. Just to make the math easy let's assume I had 60 contracts with delta +580, theta +68. So the question is this - if I wanted to protect myself against a downturn in the SPY which would put my short put in the money, would selling 1 /ES contract be a good strategy? As I understand things it would reduce my delta by 500, but it should not affect theta, which will accelerate in the last few days before expiration.<br /><br />So I'm thinking of this in terms of adjustments in general. For the position we are talking about I made an "adjustment" last week when SPY was 132 but I was concerned about a down move, that adustment was to buy a 130 March/April put calendar, with the thought that the calendar would make a little money to offset losses if I was forced to buy back the put spread at an unfavorable price.<br /><br />Regards,<br />SAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-14904259646943177862011-03-14T12:51:30.075-07:002011-03-14T12:51:30.075-07:00I was planning on watching that today myself.I was planning on watching that today myself.Jason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-25725704943205633222011-03-14T12:32:17.532-07:002011-03-14T12:32:17.532-07:00Thanks, will do. I see Don Kaufman on tos is doing...Thanks, will do. I see Don Kaufman on tos is doing a session about risk management using futures today at 3:30 CST, should be just the sort of thing I am looking for. <br />SAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-90796171193967981872011-03-14T10:43:26.226-07:002011-03-14T10:43:26.226-07:00Sandeep, I would suggest to look up articles on De...Sandeep, I would suggest to look up articles on Delta Hedging to get you started on how to use futures to hedge equity option positions. There is no one way or right vs wrong, it really depends on what type of risk you want to hedge and to what degree. I personally don't have a large enough portfolio of positions where I need to delta hedge. I'm only familiar with it on a conceptual level.Jason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-40146516530187337072011-03-14T01:35:49.689-07:002011-03-14T01:35:49.689-07:00Thanks for the link, I checked it out and have als...Thanks for the link, I checked it out and have also tried some paper trading of ES tonight. Next project will be to figure out the best ways to use ES to hedge risk in my option positions - a subject I have not seen discussed much. Regards,<br />sAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-83072162313505068042011-03-13T19:55:16.005-07:002011-03-13T19:55:16.005-07:00Sandeep, thank you for writing. I absolutely agree...Sandeep, thank you for writing. I absolutely agree with you that adding futures to your arsenal has an advantage. However, the advantage is not in that the majority of the public cannot trade them as you've said, but rather that most just don't. Whether they are too complex to understand, the capital requirements to trade too great, or any other reason, it is still a rather small field. Though I believe the volume of futures is now growing exponentially like options have the last ten years.<br /><br />I found my way in to using futures for just the same reasons you are mentioning. I don't remember the exact event but I remember the feel in my stomach watching news over the weekend and seeing the futures vastly changed on Sunday and not having access to offset your equity options positions until the next day. I have used the ES a few times to hedge now and very glad I have that as part of my game.<br /><br />If you were able to immerse yourself in options and understand them in a quick period of time then futures will be even quicker for you. Then futures options work exactly as equity options only the underlying asset is not 100 shares of stock but will be different for each instrument. I guess my suggestion would be to open a paper trade account if you don't already have one. It sounds like you would primarily be interested in the financial futures to start with so I've included the link below to the CME website page for that asset class. If you're wanting to hedge the S&P you use ES, use NQ for the NASDAQ, and YM for the Dow. Let me know if you have any questions once you take a look around there.<br /><br />http://www.cmegroup.com/trading/equity-index/<br /><br />JasonAndrewHaas@aol.comJason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-88436492848147308502011-03-13T16:26:37.543-07:002011-03-13T16:26:37.543-07:00Sorry, I just looked at the blog and see you have ...Sorry, I just looked at the blog and see you have made a post about trading ES just a few days ago so obviously you have some futures experience. Do you have any advice for someone looking to add futures to their repertoire?<br /><br />sAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-78072278129702470032011-03-13T16:21:39.138-07:002011-03-13T16:21:39.138-07:00Very interesting story, in many ways parallels my ...Very interesting story, in many ways parallels my evolution to option trading, going from knowing very little to having a fairly sophisticated understanding in a short period of time after immersing myself in the field.<br /><br />I was wondering if you have any experience with futures. For me, futures now are somewhat like options were to me a year ago, I have a basic understanding but have not traded them and I know that there are nuances that I am unaware of. However, days like today (Sunday) make me wonder if there might be a big advantage in adding that to my arsenal, if for nothing else just the ability to take positions when the majority of the public cannot trade. For example, after hearing about the disaster in Japan all weekend one might anticipate the general public causing a sell off in the market Monday morning. If I could trade futures I would have the ability to take a position right now rather than waiting until the vast moajority of the public can do so at market open tomorrow. Obviously you might win or lose based on your premise, but just the ability to make those bets when most people cannot because they only trade during US market hours seems like it would give the futures trader an advantage. This is something I would like to add to my arsenal, especially as a way to hedge existing option positions that I have. Do you have any opinions or experience with using futures?<br /><br />sandeepAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-7195040206232625522011-03-11T19:54:51.810-08:002011-03-11T19:54:51.810-08:00Hi Brad, thank you for contributing on the blog. T...Hi Brad, thank you for contributing on the blog. To answer your question, I don't know, beginners luck, intuition, lucky to be in an environment where we weren't going sideways? The market was going up and then went straight down so playing the right direction made things look easy. I'll be honest and say I wasn't quite sure what I was doing. That's why I was taking the trades off the table when they made a few hundred bucks. I was more worried about losing anything. The truth is I didn't believe it either and that's why it took me over 8 months before I had the courage to increase my contract size from 5 to 10. There was a lot of money left on the table during that time by not believing in myself.<br /><br />It also looks like the first few trades took 40-60 days, that tells me that they were losses on paper for much of that time because I was only looking for a $1 move in the underlying stock. If it took that long to happen then I was probably under water on those. I really don't recall since it was three years ago. But I do remember that once we hit August it felt easy, it was clear the markets were in trouble and then Lehman went down and it got even easier. Just as the last 24 months all you had to do was buy anything long and you've made money, at that time all you had to do was buy puts and you made money. I only wish I had more experience or confidence at the time because I should have been getting rich and not pecking away trying to pick up small victories.Jason Haashttps://www.blogger.com/profile/08138027111150684908noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-4422793498269385282011-03-11T17:48:24.465-08:002011-03-11T17:48:24.465-08:00How were almost ALL of those trades so damn profit...How were almost ALL of those trades so damn profitable?Bradhttps://www.blogger.com/profile/01150288297852995487noreply@blogger.comtag:blogger.com,1999:blog-973587304515257848.post-65252201265824766332011-03-11T11:06:05.462-08:002011-03-11T11:06:05.462-08:00Greate Post. Thanks for sharing with all of us.Greate Post. Thanks for sharing with all of us.Dominicnoreply@blogger.com