Watch HowardCohodas Trade Index Options Credit Spreads

[HowardCohodas]

DT Howard has talked about his "quarantined funds" since the beginning of the thread :S

DT's inability to understand why it is important to focus on the trades themselves and not the money management is intentional. It seems everyone else appreciates that understanding the trades is what determines the risk/reward characteristics of the strategy.

Whether intentional due to maliciousness because of personality defect or due to intellectual limitations is mostly irrelevant.

 

[DionysusToast]

What if he got 10:1 and made 3%+ on weekly spreads for 4weeks plus the monthly spreads?

Have a read up on how margins are calculated on credit spreads. Of course his buffer could be 10% in which h case he will take years to recover from the blow up.

 

[meanreversion]

It's not entirely without merit .. most people don't look at money management in this way.

What you should perhaps have done is point out at the very beginning that your numbers in no way relate to likely returns as measured in the standard fashion.

So for example, if I said "would $100k have become $165k" you should have said "yes, but you would be nuts to invest more than 20% of your trading pot in this strategy" or words to that effect.

 

[DionysusToast]

What if he got 10:1 and made 3%+ on weekly spreads for 4weeks plus the monthly spreads?

DT's inability to understand why it is important to focus on the trades themselves and not the money management is intentional. It seems everyone else appreciates that understanding the trades is what determines the risk/reward characteristics of the strategy.

Whether intentional due to maliciousness because of personality defect or due to intellectual limitations is mostly irrelevant.

Only the big picture matters, HC. You know that.

Your attempts to shoot the messenger here are very cute but the truth will come out.

Ooh look - an extra account! Lol !

 

[HowardCohodas]

I think that refers to the money held by the broker. E.g. if max loss is $10,000, the broker holds $10,000 until such time as the spreads expire.

The existence of the "other" money is new to me, not surprising though. What % of your trading pot do you dedicate to this strategy Howard?

I believe I've mentioned it before, but with all the flurry it was likely missed.

I started with about 20% of my financial market investment funds devoted to this strategy. Some of the investments are managed by others in much more conservative ways. With the rate of growth of this account, it now approaches 25%. I may take some money off the table soon.

This again, is why I stay away from issues like allocation of resources among different strategies and products (gold, real estate, etc.) and money management of this account. I think it just muddies the waters when trying to understand the risk/reward characteristics of this trading method.

 

[HowardCohodas]

It's not entirely without merit .. most people don't look at money management in this way.

What you should perhaps have done is point out at the very beginning that your numbers in no way relate to likely returns as measured in the standard fashion.

So for example, if I said "would $100k have become $165k" you should have said "yes, but you would be nuts to invest more than 20% of your trading pot in this strategy" or words to that effect.

I fear we are mixing frames of reference.

The account that I trade credit spreads in stands by itself. The only time I now refer to any "bigger" picture than the individual spread or Iron Condor is in reporting the month on month performance. I have repeatedly given my reasons for this limited exception. This is fair because there is no fallback for this account if it performs badly. There is fallback for myself and my family if I lose everything in this account. That's the essence of the idea to only trade with money you can "afford to lose."

With hindsight, I know I should have done several things differently. Some have been mentioned, some have not. I am, after all, a "work in progress."

 

[scose-no-doubt]

Have a read up on how margins are calculated on credit spreads. Of course his buffer could be 10% in which h case he will take years to recover from the blow up.

Not questioning that he's likely to lose his shirt but it is possible to make the money isn't it?

 

[robster970]

I think it just muddies the waters when trying to understand the risk/reward characteristics of this trading method.

Au contraire Howard. I don't think you can make an assessment of a trading method without considering your account and money management. It's like making an independent assessment of wings of a plane for their aerodynamic qualities without considering the engine - it's largely theoretical, interesting but ultimately limited.

IMO your view of trading is not sufficiently holistic and therefore demonstrates a degree of naivety - something I've seen you accept in this thread with other facets of the strat. You are definitely in the 'minority of one' to think you can solely define a strat without MM. We're all humouring you through goodwill (largely) and genuine interest in what you are doing but I and others would urge you to start framing your strat with clearly understood risk management, conveyed as percentages. You never know, we may all end up learning more about Options trading as a consequence.

Nobody here is interested in net worth as we all understand this is a private area.

 

[DionysusToast]

First off, let's hope that HC does not have 20% of his retirement riding on this. If he loses that, there is no way he'll put more of his retirement to this. The mutual funds he has are a better bet.

This strategy is a bet that certain market conditions will prevail. Martinghoul will probably soon define those conditions. The problem is that HC has no hypothesis by which to assess the probability of those conditions prevailing.

It also appears that HC doesn't really want to understand because of the future earnings in training revenues he has already mentally spent.

 

[HowardCohodas]

Not questioning that he's likely to lose his shirt but it is possible to make the money isn't it?

Black Swan Day results ranked from most likely to least likely with some small variations not listed:
Half my spreads are taken out at 30% loss
Half my spreads are taken out at 100% loss
All spreads are taken out because of a double Black Swan

Black Swan Days happen with a frequency we can estimate. Has anyone ever observed a double Black Swan day? Anyone care to estimate its probability and support the reasoning?

 

[meanreversion]

That's racist.

 

[HowardCohodas]

Au contraire Howard. I don't think you can make an assessment of a trading method without considering your account and money management. It's like making an independent assessment of wings of a plane for their aerodynamic qualities without considering the engine - it's largely a theoretical, interesting but ultimately limited.

IMO your view of trading is not sufficiently holistic and therefore demonstrates a degree of naivety - something I've seen you accept in this thread with other facets of the strat. You are definitely in the 'minority of one' to think you can solely define a strat without MM. We're all humouring you through goodwill (largely) and genuine interest in what you are doing but I and others would urge you to start framing your strat with clearly understood risk management, conveyed as percentages. You never know, we may all end up learning more about Options trading as a consequence.

Nobody here is interested in net worth as we all understand this is a private area.

You are one of the calmer ones here so I take your input with enhanced interest.

I'll take the blame for not being clear and not understanding those with more trading and options experience than I. Also, I have been unintentionally careless in differentiating a trading method (credit spreads, Iron Condors) from a trading strategy. However... Isn't there always a however with me?

I think we are conflating too many layers of what makes up a strategy. There is a hierarchy, of which the trade is the elemental unit of my focus. Its characteristics must be understood on their own. If the wings wont lift, there is no point in adding them to the analysis of the airplane.

Once the performance characteristics of the trades (wings) are understood the question becomes how to integrate the trades into a money management method (fuselage) and create a trading strategy. We then have to add a competent trader (pilot) to maximize the possibility of long term success (successful takeoff, flight and landing).

I absolutely agree that all elements of a trading strategy must be considered. However, you have not convinced me that it is inappropriate to start by analyzing the characteristics of trading credit spreads and Iron Condors in isolation before attempting integration.

Have I still got it wrong? Humor me or educate me, but I still want to understand why my analysis is faulty.

 

[robster970]

That's racist.

I thought it was a WWF wrestling move

 

[HowardCohodas]

That's racist.

You are kidding, right?

 

[meanreversion]

I don't get it.

http://www.wwf.org.uk/

 

[robster970]

Have I still got it wrong? Humor me or educate me, but I still want to understand why my analysis is faulty.

I think the primary issue is that audience is pre-empting impacts on MM and real risk:reward based upon your trading strat through experience and wisdom that you have not had chance to consider by taking a linear approach to problem solving.

The audience is also used to considering trading problems in a holistic sense too. You are presenting only one side of an equation and it cannot be solved without the other sides. A successful strat is about balance - a balance between the trader, the strat and the money.

Hence the desire to push you to disclose more including MrGecko, DT, MR, Martinghoul, SND and myself is primarily a desire to help you balance that equation through discourse, analysis, the odd lulz, the odd flaming and flounce. Whatever it takes really to help you build a successful strat that will allow you not to go broke and make a nice return.

It's all, on a very base level being done out of goodwill and when you reject it, it makes people frustrated.

 

[meanreversion]

I've never seen as much energy expended on a thread as this one. One of my New Year's resolutions is to spend less time on t2w. This thread is my final vice. It's strangely compelling, probably because we all know how it's going to end.

 

[UgoDadeo]

I would like to understand the cost of “rolling” of some of the vertical spreads. For example, from post
# 614:
-----------
NDX JAN1 11 Vertical 2200/2175 PUT
2200 $.375
2175 $.025
Spread Value $.35
Sold @ .80
56% of potential profit
PoT 1%
If PoT remains <10% will let expire

NDX JAN1 11 Vertical 2300/2325 CALL
Short side came within PoT 10% - 15%
Placed sell at $.75 credit
Mark rose to $.80 without fill
Checked on PoT, near 30%, order cancelled
----------

Later, this spread was closed in post # 675

------
NDX JAN1 11 Vertical 2200/2175 PUT (Weekly)[/B]
2200
2175
Sold @ .80
100 % of potential profit
PoT 0%
Return on capital at risk 3.3%

Tomorrow we look an using the freed funds to go into the next weekly.
-------

Was there a “cost” not limited to commissions to make the “roll”?

 

[HowardCohodas]

I've never seen as much energy expended on a thread as this one. One of my New Year's resolutions is to spend less time on t2w. This thread is my final vice. It's strangely compelling, probably because we all know how it's going to end.

Everyone except for Howard apparently. But he is getting increasingly nervous. Perhaps he can be saved.

 

[HowardCohodas]

I would like to understand the cost of “rolling” of some of the vertical spreads. For example, from post
# 614:
-----------
NDX JAN1 11 Vertical 2200/2175 PUT
2200 $.375
2175 $.025
Spread Value $.35
Sold @ .80
56% of potential profit
PoT 1%
If PoT remains <10% will let expire

NDX JAN1 11 Vertical 2300/2325 CALL
Short side came within PoT 10% - 15%
Placed sell at $.75 credit
Mark rose to $.80 without fill
Checked on PoT, near 30%, order cancelled
----------

Later, this spread was closed in post # 675

------
NDX JAN1 11 Vertical 2200/2175 PUT (Weekly)[/B]
2200
2175
Sold @ .80
100 % of potential profit
PoT 0%
Return on capital at risk 3.3%

Tomorrow we look an using the freed funds to go into the next weekly.
-------

Was there a “cost” not limited to commissions to make the “roll”?

There was no roll here. I was reporting on the same spread, but on two different days to assist the analysts to understand the characteristics of the spread from day to day. The last report was expiration.

However, asking about commissions is a great question. In general they account for about 6.5% of my total income.

I pay by the option without a base cost.
To enter a spread is two options traded.
To execute a roll is four options traded.