If I am trading small one and two lot positions, I will leave the
original spread in place. This is often the case for folks trading
smaller accounts. If the market continues to move against me, I will
begin closing the spreads and collapse the profit zone in the more
distant strikes to maintain my capital committment within acceptable
parameters. If I am trading larger multi-contract positions I may close
a portion of the original position as a risk management
Bear in mind that I tend to keep a lot of cash in reserve and do not
like to go "all in" with my initial position. My starting assumption is
that I will have to adjust and I need to hold capital in reserve to
allow for those adjustments. Much of that has to do with how much
capital is being allocated to the particular trade. More than 5% makes
my nervous.
I don't have a problem with Dan's approach. What I think is important
is that you adopt a reasonable back-tested methodology and apply it
consistently. If you want to model it based on Dan's methods, that's
fine. But, be consistent with its application.
Christopher Smith
TheOptionClub.
--- In OptionClub@yahoogro
wrote:
>
> Chris Smith's Comment to Jeff: When I trade calendars, which is what
the Super Put is, I tend to keep the back month option just one or two
months out and have cash in reserve. When the price of he underlying
reaches on my the break-even points, I'll put another calendar on to
broaden the profit zone.
>
> Chris, I've taken Dan Sheridan's course and he handles break even
points differently. If the stock moves to the break even point, he will
take half of the original calendar off and move it to the next strike.
From your post, it looks like you leave the original calendar as is and
just add another one higher (or lower as the case may be). If I'm
correct in my assessment, do you put on an equal number of calendars at
the new strike? This does seem to increase risk quite a bit as well as
your total outlay, which in turn requires you to make an even greater
percentage profit on the trade to reach your goal in the position. If
the stock keeps moving against the original position, you end up taking
a bath on the original calendar and start losing on the second one. I
got burned on AAPL last month with my original calendar at the 115
strike, and I chased it all the way to 145 with 10 point increments.
However, I was taking away from the original 115 calendar and putting on
higher ones as the stock moved up. Could you kindly comment on this?
>
> Thanks,
> RFH
>
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