Obviously to each her own. However, I would argue that style has nothing to
do with good risk management (which is what adjustments are really all
about). The reason a condor trader has fewer decisions is because of the
nature of the trade. Almost by definition a big "90% probability" type of
trade like a condor means that you have much greater latitude in waiting on
any action you have to take in order to defend the trade.
But again I'd urge anyone wanting to learn how to trade seriously to at
least figuratively take the other side of your position. if you are short a
condor and that decay is working against you, you need to figure out some
way to make the trade work out profitably. If you get some favorable
movement, you have to do something decisive.
So let's take a small example. Let's say abcde stock is trading at 90 and
the 80/85/95/100 iron condor is trading at $1.00. if you are short the
condor (i.e. -80p/+85p/+95c/
ways to mitigate or eliminate your $1 at risk. let's say that abcde rises to
93. There, the 95/100 call vertical is now trading for $1. This gives you
the opportunity to sell the call side of your condor and then own the
+85p/-80p for a net zero debit. the short condor player now has the market
yelling for her to lock in the opportunity. Most novices would say, "why
should I lock in that trade when it looks like the market is moving higher
and all I'd be left with is that far otm put vertical?" but that's
completely wrong headed thinking from a risk perspective. A long time trader
will see that the market has presented a gift and it shouldn't be refused.
Meanwhile now look at how the long condor player is thinking. If the
traditional condor was traded for that original $1 credit (i.e.
+80p/-85p/-95c/
that condor might now be valued at $1.50. the novice might say, "well it
hasn't really threatened my short strike enough so I will just wait things
out a bit further and the market should come back my way." (hopefully in
this caricature-ization you can see how I'm trying to show that poor trading
is based on what you hope the trade will do rather than what it is actually
doing; in the first case the do-nothing short condor trader is hoping the
market will continue to rally while the long condor do-nothing trader is
hoping the market will fade). But again, the market is shouting to the long
condor trader, "time to act and defend your position!" what to do is of
course the challenge but the path at this point is basically to either
double down by adding more risk (e.g. +95c/-2 100c/+ 110c for zero debit to
kick away the localized threat) or do something like take some of your
original credit and buy some protection (e.g. pay maybe $0.50 and buy an
extra 100c).
So for me it really doesn't matter how aggressive or active your trading
style happens to be. It's all about taking a cold hard look at your position
relative to the market and then acting when decision time is there.
-----Original Message-----
From: OptionClub@yahoogro
Behalf Of Ricky Jimenez
Sent: Thursday, October 01, 2009 8:18 AM
To: OptionClub@yahoogro
Subject: Re: [TheOptionClub.
Michael, I think the OP was asking for adjustments to basic spreads,
like vertical calendar, condor. I believe he is from the mindset that
a spread of a month's duration should not have have more that a couple
of modifications before it is closed.
On the other hand, your trading style starts with a spread and adds
and subtracts to it at a rate of perhaps once per trading day, with
the dual goal of increasing the size of the position and making it
risk free by expiration. There just might be a difference in the
answers.
On Wed, 30 Sep 2009 21:39:04 -0500, "mcatolico"
<mcatolico@mindsprin
>To me it's all about trading your position and seeing what the market
>offers. The rule is basically "no rules."
>
>
>
>My little pdf file on vertical adjustments (in files section) was intended
>to show a battery of potential defensive and opportunistic adjustment
>strategies based on what the underlying and of course the relative options
>are all doing. In a nutshell, if you can ever get a locked risk-free
>position that offers more upside potential, it never hurts to pounce on
that
>opportunity.
>
>
>
>Conversely, if you can maintain a "funhouse mirror" mindset and you
flipflop
>your position to see where someone holding the completely opposite trade
>would have the opportunity to enjoy a locked in winner, then that is
usually
>the time you need to make a defensive adjustment.
>
>
>
>To me that's all there really is to understanding "market timing." Whatever
>position you have, there will come a time where an adjustment can be made
>that will turn it into a sure winner or where someone holding the opposite
>side of your trade would have that same type of opportunity. That's when
you
>have to decide to act. Combine this with a solid grasp of position sizing
>and a dose of phenomenal option strategy fundamentals and the game is
easily
>won.
>
>
>
>From: OptionClub@yahoogro
>Behalf Of David Steele
>Sent: Wednesday, September 30, 2009 4:03 PM
>To: Option club
>Subject: [TheOptionClub.
>
>
>
>
>
>
>
>
>
>Did anybody make a list of rules for adjustments for different spread
>trades. like when to adjust and why. like on moving average crosses,
>standard deviations, or between your breakeven and short, when a trendline
>breaks , or when your short goes in the money by a certain percentage, or
>adjusting when your greeks are showing certain percentages. who in the
group
>have been doing adjustments base on these factors for calendar spreads,
bull
>puts, bull calls, bear puts, bear calls, diagonals, and iron condors.
>
>
>
>
>
>
>
>
------------
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