Watch HowardCohodas Trade Index Options Credit Spreads

[HowardCohodas]

These are MID prices, not Mkt prices.

Once again, a reading of this thread, only since I posted the trade not many posts ago, would have told you I was dealing with Mark prices and the consequences therefrom.

Your comment is no surprise to those paying even an modicum of attention here. If only you were one of them.

 

[HowardCohodas]

For anyone in any doubt, Howard's Strategy, from scratch.

Good job.

I didn't quite recognize what I do in the paragraph under Risk Management.

 

[MrGecko]

I didn't quite recognize what I do in the paragraph under Risk Management.

Risk Management:

IF the PoT for any individual option that the portfolio is short reaches > 20% (accounting for slippage of up to 30%), exit the trade at market (Howard doesn't say whether to exit the Whole IC or just the vertical spread).

Is this better?

When one short PoT breaches your pain threshold, do you liquidate the vertical spread or the whole IC?

 

[MrGecko]

I give everyone the benefit of the doubt until they prove they do not deserve it.

Had you carefully read my posts you would know that I do not and will not take other people's money to trade. So this comment is not relevant.

Well, demonstrably it is relevant because:

i) you have no legitmate edge in your strategy, yet you continue to claim otherwise, and;
ii) you suggest that an audit of how much money you have "made" negates point i).

I am not suggesting that you are a fraudster.

 

[HowardCohodas]

Risk Management:

IF the PoT for any individual option that the portfolio is short reaches > 20% (accounting for slippage of up to 30%), exit the trade at market (Howard doesn't say whether to exit the Whole IC or just the vertical spread).

Is this better?

When one short PoT breaches your pain threshold, do you liquidate the vertical spread or the whole IC?

Replace PoT with "loss on capital at risk" and I think you have it.

A spread is entered, managed and exited or expires as a spread separate from it's association with another spread to make it part of an Iron Condor.

 

[HowardCohodas]

Well, demonstrably it is relevant because:

i) you have no legitmate edge in your strategy, yet you continue to claim otherwise, and;
ii) you suggest that an audit of how much money you have "made" negates point i).

I am not suggesting that you are a fraudster.

Try saying this in a way I can understand.

 

[HowardCohodas]

you have no legitmate edge in your strategy

Here is your chance to define what an edge is, legitimate or otherwise. Do you have an "edge" in your trading?

Then maybe we can sort this question out.

 

[DionysusToast]

Try saying this in a way I can understand.

Cute reply.

 

[DionysusToast]

While we're waiting for Martinghoul do you feel like addressing the DionysisToast stuff?
To be honest I'm still not sure about your per

formance metrics either and I just can't think of a way to reconcile your account gains from the information as presented.
Care to ave another bash at explaining and I may be able to translate and help bring down the flame level a bit.
A bit intrusive but would you consider banging up an account statement? It would settle it all and would really add to your credibility.

The risk of a spread is the difference between the strike prices. Howards assumption is that he will always be able to get out with max 30% of that. All of Howards swans are white.

To make the returns stated given that his weeklies do not contribute to returns he would need to be close to or at 100% invested. The end result of this is an account balance of zero.

 

[MrGecko]

Try saying this in a way I can understand.

This thread is over 600 posts long. Did it ever occur that the onus is on you to catch up?

 

[HowardCohodas]

This thread is over 600 posts long. Did it ever occur that the onus is on you to catch up?

Congratulations. In spite of one post of yours that I admired, you managed to join the club of the ignored.

 

[MrGecko]

Good, put me on ignore then at least I can speak my mind without fear of causing a confused old man offence.

I don't know why you said "good job" for describing your strategy, because to me it has been obvious from about the middle of the thread (archaic %ages considered). Moreover, it is obvious to just about everyone else that you have no clue what you are doing. Of course it is easy to rest the blame on "everyone" for not making the collective position clear enough for you you understand, yet you continue to exclude the possibility that what you think you know to be true... isn't. Probability of Touching is a good example of this, IMO if you knew what you were doing you'd talk in terms of IV at least.

If you ever try to sell this to other people I am going to ask very sensible questions that you are unable to answer in front of your potential customers. I consider it my 2011 duty.

 

[HowardCohodas]

Some thoughts that came out of some quite time.

Even trolls serve a purpose, so I have decided not to have their false and distorted posts removed from this thread. I wont answer them, but they will be useful.

This thread has been going since Nov 25. Since then, readers have seen quite a few spreads from their inception until their expiration date passed. Since these records were made contemporaneously, there can be no doubt about what was traded, when it was traded or the results of the trade. Those are facts and they are undisputed.

Appropriately arguable are two things. Do I have a money management strategy that will minimize my risk of ruin? In this thread I do not discuss money management. I discuss the p/l derived from my strategy in trading credit spreads and forming Iron Condors as entities. Perhaps it was unwise for me to publish my month on month p/l in spite of the reasons I chose to do it. I'll have to review this decision before the end of Jan when I would normally do so again.

The second arguable point is, is my risk analysis (reference in my signature but often ignored by the trolls) accurate and does it cover areas of jeopardy such as major market moves or black swan events. I have not seen anyone take the time to review it and point out flaws in my analysis. Just saying that I am inappropriately exposed does not make it so. Some analysis must be provided to back it up or it should be dismissed.

I look forward to learning from those with knowledge, experience and the patience to teach me. Their are several of them who have posted on this thread.

The trolls easily stand out from those who are here for serious dialog, don't you think?

 

[MrGecko]

Howard, you can call me a troll if you like, but the fact of the matter is that I understand:

a) your strategy
b) why it is b0ll0cks

and you don't.

I have tried to explain why b) follows a) in laymans terms, but you choose to sidestep the reality in favour of your own cognitive bias*. Others will try to explain from first principals why b) follows a), but the likely fact of the matter is that you lack the intellect and experience to follow these arguments also.

so **** off.

* in addition, I am sure that the unsavory nature of my delivery has impacted upon your bias of my testimony.

 

[meanreversion]

2. Look along the "Probability of Touching" for each Put option, and examine the first option (moving away from the money) where PoT =< 15% (call this option Strike 1)
3. Then examine the next strike away, and perform the following calculation:

IF
(OFFER of strike 1 PUT - BID of strike 2 PUT) >= (strike 1 - strike 2) * 5%

[that is, you can short the vertical spread for >= 5% of the difference between the strikes. ]


++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Risk Management:

IF the PoT for any individual option that the portfolio is short reaches > 15%, exit the trade at market (Howard doesn't say whether to exit the Whole IC or just the vertical spread).

Trade Management:

IF, after an undefined period of time, spot has moved sufficiently in one direction such that the existing spread can be liquidated for 80% of it's maximum value and another set of strikes nearer the money satisfy the 15% & 3% rules, "roll" the spread by closing the "far" PoT vertical and replace it with the "near" PoT vertical.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

EXIT STRATEGY:

Either close the trade once PoT >= 15% or let the spread expire worthless.

Without having studied index options, it's hard for me to comment. However it is perhaps possible that occasionally small price discrepancies open up, and the above method is a way to identify them.. this is all that's left to dissect. I know a couple of traders who love selling low delta S&P puts, so maybe on occasion one strike is a little offered whilst the slightly closer strike is a bit more neutral or bid.

This is the only potential source of edge ... continually scanning low delta strikes for microscopic price differences (I'd be surprised if banks cared about these tiny inefficiencies, if they exist, because it would only be in small amounts).

Nonetheless, my opinion is that if these small mispricings do exist, attempting to extract value from them is marginal over the long run, once you factor in commission, bid/ask and lack of scaleablity. Furthermore, for what would end up being a meagre return, you would be prone to occasional nastiness in position and P/L management.

I'm not going back over the way in which Howard reports his P/L, as he has repeatedly said that money management is not being covered. As such, the P/L should be ignored and we should focus only on whether there are small pricing inconsistencies.

 

[scose-no-doubt]

Just though I'd throw this question out there again to people who are more in the know.

Is Howard not inadvertently managing his greeks through his PoT risk threshold?

 

[meanreversion]

No, I don't believe so. At a basic level, managing your delta would mean selling some of the underlying index on the way down.. this is never done. He's only really managing his strikes, with the occasional rip-cord pull.

 

[scose-no-doubt]

Maybe managing is the wrong word. Is considering any better?
Now I understand what's going on I've come full circle and I think Howard's edge lies in the relative value of stocks and anything else contributing to the steady equities up move.

 

[meanreversion]

Let's say the middle price of a 1175 strike should be 2.5, and the middle price of a 1200 strike should be 7.5 (as an example). These numbers would be arrived at using a standard options pricer, where the required inputs would be ATM implied vol, 25 delta and 10 delta butterfly (in vol) and 25 delta and 10 delta risk reversal (in vol).

The "fair value" of this spread is 5. If HC spots that the spread can be traded at 6, and sells it there, then he's taking advantage of some small inefficiency.

However, he seems to cross two bid/ask to trade, so the calculation would be more like -

1175 put, fair value 2.5, price 1/3 (mid 2.0)
1200 put, fair value 7.5, price 7/9 (mid 8.0)

So you can see that the 1175 K is slightly offered, whilst the 1200 K is slightly bid. HC would then sell 7 and buy 3, for a net credit of 4, when fair value is actually 5. Due to crossing spread twice, he ends up dealing WORSE than fair value.

So if HC can trade these spreads AS spreads (i.e. only cross one bid/ask), and can accurately calculate their theoretical mid using Black Scholes and the associated interpolated implied vol, then there might be some microscopic edge to be extracted over time. However, commissions will probably negate this approach.

So.. I'm still not seeing a valid strategy here. It's worth noting that the markets have been extremely accommodating since he started trading.. we'll need to see a bit of a shakeout to the downside to see how he handles a volatile market.

 

[scose-no-doubt]

So.. I'm still not seeing a valid strategy here. It's worth noting that the markets have been extremely accommodating since he started trading.. we'll need to see a bit of a shakeout to the downside to see how he handles a volatile market.

Could he not introduce a VIX threshold which forces him to the sidelines? Would that not help his expectancy over the long haul?