Watch HowardCohodas Trade Index Options Credit Spreads

[DionysusToast]

I'd also re-consider the e-book you are writing on options trading.

Perhaps a tad premature...

I am in the process of editing a small book tentatively titled "All I Know About Options Trading I Learned in Flight School." It will be self-published and first available in electronic form. I use maxims I learned while training to become a private pilot to illustrate points about my experiences in trading.

Here are a few I use in the text:

Takeoffs are optional. Landings are required.

There are old pilots and bold pilots, but no old bold pilots.

Learn from the mistakes of others. You won't live long enough to make all of them yourself.

The three most common expressions (or famous last words) in aviation are:

1. Why is it doing that?
2. Where are we?
3. Oh Sh!t!

I think we are now officially at the "Oh Sh!t" phase.

 

[HowardCohodas]

You shoulda done this research before .. !

Sometimes wise counsel actually has an impact.

Are you suggesting that Garcia would be worth careful reading? Are you familiar with it?

I think I have lots to learn, but I also think I have engineered a strategy that is very rewarding and with the help of some on this thread have engineered useful risk mitigation methods. Even a double black swan event is survivable. I'd have a good landing (one that I can walk away from), but the plane might need repairs before I could fly it again.

 

[meanreversion]

Not familiar with any books on options, apart from the one by Hull. I learned "on the job" so to speak.

To recap, does commission form 7% of your total profits to date?

 

[meanreversion]

Sometimes wise counsel actually has an impact.

Are you suggesting that Garcia would be worth careful reading? Are you familiar with it?

I think I have lots to learn, but I also think I have engineered a strategy that is very rewarding and with the help of some on this thread have engineered useful risk mitigation methods. Even a double black swan event is survivable. I'd have a good landing (one that I can walk away from), but the plane might need repairs before I could fly it again.

You really need to have an idea of why you think your strategy should work before you start trading it. This is the essence of edge. You talk about surviving a double black swan, which implies the very worst that can happen is two losses and then no more.

What about 4 losses in a row? Or 4 losses in 10 trades? This could happen if the market was to move to a much higher vol base.

My other concern is that you're paying too much commission with all this.

 

[HowardCohodas]

You really need to have an idea of why you think your strategy should work before you start trading it. This is the essence of edge. You talk about surviving a double black swan, which implies the very worst that can happen is two losses and then no more.

What about 4 losses in a row? Or 4 losses in 10 trades? This could happen if the market was to move to a much higher vol base.

My other concern is that you're paying too much commission with all this.

Commissions
As of today it is 5.5% since opening this account. This averaged over all my trades.

The impact of commissions depends on the difference in strike prices. I have now eliminated SPX with 5 point strike difference. I still trade RUT with 10 point difference in strike prices. Most of my funds are now used to trade NDX with 25 point difference in strike prices.

If I only entered credit spreads and let them expire, the commissions would be about 2.5%. Rolling and exiting before expiration requires more commissions and push the rate up to an estimated 4.5% overall if I trade mostly with 25 points between strikes.

I negotiated a better rate with ToS than their "walk in the door" rate. Perhaps there is room to do better.

Black Swans in Flocks
The probabilities of two or more consecutive black swan events in a time frame that would not permit account recovery are minuscule and would still leave the account healthy but bruised. Two double black swan events close enough to not permit recovery has never been seen AFAIK. That doesn't mean it is impossible, but I wont be mortgaging my house, selling my furniture or my Rolex. Oh wait. I don't own a Rolex. In fact, I'll still have more than 20% of my account left.

 

[rsh01]

It's a huge thread Howard but well worth the effort.

I vehemently disagree with this having just spent the last 3 hours reading it - this is only my second post and unfort its to disagree with a moderator, but i just want to save somoene else wasting their time. As one poster said it was utter "drivel", the only time it became educational was when one troll had been temporarily banned and the other was too "bizzi" to rant. This represents I wld guess <1% of the threads' content.
If you're tempted dont bother, I thought perhaps it might improve as the thread / so called strategy developed but it didnt.
Not sure why the moderators didnt just end the thread, or at least limit it to a thread with only the troll posting.
In stark contrast Howard's thread has been debated with reason and respect (in the most part). I have learnt a lot from it, and is definitely adding value to these forums.

Happy trading all.

(Sorry to have temporarily hijacked the thread)

 

[j b]

Any thoughts on The Art of Credit Derivatives: Demystifying the Black Swan to help me understand the risk characteristics of my strategy?

That's not even a book about options - you'd probably be better with something like this:

http://www.amazon.com/Option-Volati...r_1_11?s=books&ie=UTF8&qid=1294603241&sr=1-11

 

[RPEX]

I'm so sick of hearing the "Black Swan" soundbite what a load of fking sht, there are range of viable alternatives.

Also, i think an options trading ebook jam packed with aviation maxims would wind me up considerably, more than the Daily Mail website. On a less serious note i think the basis of the aviation maxims and the title "All I Know About Options Trading I Learned in Flight School" reveal a greater deficiency. Irrespective of any phoney analogies, they don't teach options theory in flight school, (do they?). At least there are no material similarities excepting maybe the testosterone in the classroom.

I think the anecdotes are a bit misleading and suggest you have experience in both aviation and options trading and are confident enough to draw these sweeping similarities between the two areas. I think to a lot of people these maxims will just look like an attempt to gloss over difficult situations with pseudo-technical speak, and only the stupidest people will keep reading, like always.

Just feedback.

 

[RPEX]

I'm so sick of hearing the "Black Swan" soundbite what a load of fking sht, there are range of viable alternatives.

Third nipple event?

 

[HowardCohodas]

I think the anecdotes are a bit misleading and suggest you have experience in both aviation and options trading and are confident enough to draw these sweeping similarities between the two areas. I think to a lot of people these maxims will just look like an attempt to gloss over difficult situations with pseudo-technical speak, and only the stupidest people will keep reading, like always.

Just feedback.

We'll see.

 

[Pazienza]

A VERY interesting thread. Well done for starting it, and well done to some of the posters who have made some extremely illuminating contributions. I have skimmed part of it so far, but am looking forward to going through it carefully tomorrow. Very interesting indeed.

 

[DionysusToast]

The probabilities of two or more consecutive black swan events in a time frame that would not permit account recovery are minuscule and would still leave the account healthy but bruised. Two double black swan events close enough to not permit recovery has never been seen AFAIK. That doesn't mean it is impossible, but I wont be mortgaging my house, selling my furniture or my Rolex. Oh wait. I don't own a Rolex. In fact, I'll still have more than 20% of my account left.

I presume your "Black Swans" are full losing trades.

1 losing trade = 40 winning trades.

So - I presume you think you will not see 2 full losers without 40 winners in between.

The problem with this is you are betting on market conditions. when market conditions change, you should expect a series of losers if you still attempt to apply the same techniques.

The only book you need right now it this one:

 

[HowardCohodas]

DionysusToast often has wise advice that is worthy of consideration.

However he frequently uses false statements is his premise to justify that advice. In my experience he as been a practitioner of the theory that "the end justifies the means."

For those of you new to this thread, you need to verify for yourself the premises that DionysusToast uses before accepting them. I no longer waste countless posts correcting his countless errors. I learned that they were no accident. Unfortunately I periodically have to warn those who don't know him to take great care.

Live long and prosper.

 

[DionysusToast]

Howard - feel free to point out the errors.

One losing trade of yours will wipe out 30-40 winners. Your version of a black swan is what everyone else calls a "losing trade". You can only get the stated overall returns if you commit most of your funds to this strategy which will lead to a blow up. Also - this 'spare account' you have isn't factored into your overall returns, so your numbers are inflated. You have now decided to scale back how much of your account you commit to this strategy. This is a wise move and proves that the assumptions about your position sizes were correct.

This strategy over time will reduce your account balance to zero.

From the start, you have been very open about your intent to sell a book on options and to sell training courses in the technique described herein. From the start, I have maintained that there is absolutely zero value in this.

There are a lot of charlatans in the trading world. Perhaps your intentions are good but as it is you are embarking on an endeavour to sell information which will cause people to lose money. You are beginning to see this now but you still don't want to believe it.

 

[HowardCohodas]

A lie told often enough becomes truth.

Verify, verify, verify.

 

[HowardCohodas]

Summary of trades in this account to date:

Total closed spreads:       59
Profitable spreads:         55
Average profit per spread: 6.1%
Unprofitable spreads:        4
Average loss per spread:   9.3% 

How were spreads closed?
Rolled spreads:             21
Exited spreads (last day):   7
Expired spreads:            31

Some interesting observations:
One of the questions that comes up frequently is the reliability of the probability of touching probability estimate. Of the seven spreads that were not allowed to expire, only one exceeded my loss limit. The other six were too close by my probability of touching rules. None of the six actually settled ITM. I was just exercising an abundance of caution.

38 were open on the last day of trading. 1 ended ITM. It would seem that the probability of touching underestimates the true probability. The market conditions included up, sideways and down conditions with low volatility. Higher volatility conditions remain untested with money trading.

Although the statistics are small, it seems that the performance did not vary with market condition. That is, PoT adjusted for market conditions encountered. Since volatility is one of the components of PoT, it remains to be seen how that will adjust for higher volatility conditions.

Also worth considering is my post on risk analysis.

 

[HowardCohodas]

10 JAN 2010 Trading Plan

10 JAN 2010 Trading Plan

The Dashboard above informs me as follows:
Opportunity - Takeoffs are optional
Spread #61 is unpaired. Opportunity to form an Iron Condor

Spread #64 is at 85% of it's potential profit. Opportunity to roll.

Spread #55 is at 80% of it's potential profit. Opportunity to roll.

Jeopardy - Landings are mandatory
No spreads show excessive probability of touching.

No spreads are within their last week of trading, which requires extra effort at management.

All but one spread is showing positive return. The one that does not is showing a 1.8% loss with 38 days left to trade at a 25% probability of touching. No action required at this time.

New Opportunity
NDX weeklies are available for entry.

 

[HowardCohodas]

Iron Condor Trading Summary

The last summary looked at my results from the point of view of individual spreads. Here we look at the results from the point of view of completed Iron Condors.

Summary of trades in this account to date:

Total closed Iron Condors:         16
Profitable Iron Condors:           15
Average profit per Iron Condors: 20.3%
Unprofitable Iron Condors:          1
Average loss per Iron Condors:   20.3% 

x ICs had y spreads each for a maximum return of z
x   y     z
8   2   12.6%
2   3   25.9%
4   4   35.2%
2   5   51.5%

 

[HowardCohodas]

10 JAN 2011 Trading Summary

10 JAN 2011 Trading Summary

A complete Iron Condor (#30) was formed on the NDX weekly (JAN2 11) with both a PUT spread (#75) and a CALL spread (#76).

A roll was executed within Iron Condor (#15) by closing a PUT spread (#64) and opening another PUT spread (#74) closer to the NDX price.

A roll was executed within Iron Condor (#16) by closing a PUT spread (#55) and opening another PUT spread (#77) closer to the RUT price.

 

[Pazienza]

A lesson in very poor and transparent evasion techniques. Little else.

DT had it right, although I think this fiasco is occasioned by delusion rather than a desire to engineer a wind up.

Highly entertaining though .