Following Live Trades

Mark,

Out of curiosity, if we're following one of your own trades at Options for Rookies Premium, would you be able to writeup a quick sentence or two each time (at most once per day) you re-evaluate the position to describe why you decided to hold it, make an adjustment, or close?

I understand most of the time, it would be 'underlying moved X, still Y% away from shorts, reward still worth risk, holding position' or some such. But still, I think a lot of us would be extremely interested.

***

Hi davmp,

When writing Follow that Trade, I hope to make it as realistic as possible.  And I'd want to provide information that is of interest to members.  But consider what you are asking:

'At most once per day.'  On most days I NEVER look at the position.  Not even once.  During some weeks, I never look at the position.  Unless I have a position that is very sensitive to theta (and that's a soon to expire position), I see no need to take the time – unless something has happened to the price of the underlying asset.  Sure, if there is a huge decline in implied volatility, I may take a peek to see if the position is worth closing.

When I own an iron condor and the market doesn't move, why would I want to look at the position?  The answer is that there is no reason, and part of good risk management is knowing how to use investing time effectively.  When a position obviously requires no attention, that is what I give it.

I do not make a decision to hold every day.  Holding is my default decision.  I know when to look at the position to see if things are still okay with the trade.  I know that dull markets and positions that gain by collecing theta can be very dull to follow.  The compensation for that is the huge probability of making money on the trade.

More exciting markets make for more interesting opportunities to make adjustments and use those as educational opportunities for readers.  On the other hand, they are often – but not always – money losing situations.  Thus, I'd welcome those with very mixed feelings.

davmp – there are alternatives.  I may initiate a (paper) trade that is far from neutral – a trade that will likely require an adjustment soon.  That's good for educational purposes, but wrong from the persepective of attempting to manage a winning trade.  Thus, I have decisions to make, and that's why reader input is important. 

Consider an adjustment

When I look at the position and believe there is some reason to consider an adjustment, I'll write about that – even when I don't make the adjustment.  And it cannot be only a sentence or two because there is nothing valuable I can pass on in that type of post.  If you see nothing, assume there is nothing to report.

davmp – who would want to see this day after day: "nothing done"?  That would be a major turn off and not at all helpful.

I am hoping that no one will actually enter into the trades I make – for reasons I've stated before, but will offer timely comments when the comment is useful.

davmp: I want to provide information that interests you.  But try to look at this from my perspective:  I would never take the time to calculate: how much the underlying moved, how far it is OTM in either percentages or standard deviations, or comment on whether the reward was worth the risk. [You may assume it is, or else I would be out of the trade].  I don't do that now and I want this to be a realistic experience.

The trades I make and follow on OFRP (and Members will be encouraged to submit trades) are not to be actively traded.  It is necessary to be aware of what the market is doing, but if the underlying moves 0.1%, I do not bother to look at the position.  I want FTT to be realistic, so I will not look at positions for the sole reason of being able to issue a report. 

Follow the Trade is real life.  It requires patience until action is needed – or at least considered.  That's why I hope to follow more than one trade at one time.  That will eventually present a real problem when the market gets volatile (and that is the reason why I trade only one underlying asset) and there are several positions at risk simultaneously

I try to never turn down a request, but what you ask is not possible.  It's not in the best interests of readers. 

858

December 2010 issue of Expiring Monthly was published yesterday.

, , ,

8 Responses to Following Live Trades

  1. davmp 12/21/2010 at 7:02 AM #

    Hi Mark,
    Thanks for the response, but I think you read my question quite a bit more literally than I intended. I have no idea if you watch the market continuously, check in on it every couple hours, every day, or every week. By stating ‘at most once a day’, I was simply trying to lighten the load on you if you did watch more often. I did not say ‘at least once per day’ after all. 🙂
    Anyway, my intent was simply to understand what someone with your experience does with an IC. If you don’t think about your position every day, then by no means should you write something up every day. My mistake was on assuming you did think about them daily, at least to check the market, perhaps checking greeks on your position(s), made an (obvious?) decision to hold, and went on about life. All of which took 30 seconds to do, (and possibly 10’s of minutes to write up for us.) Seeing how often you did check on them might be an enlightening experience to some (like myself as obvious by your response!) From my perspective, all the better if this is ‘dull’ as you put it — that would mean I’ve not built up bad habits (yet), or misunderstood your other writings so far.
    To be explicit, I’m trying to understand what is _realistic_ for an experienced IC trader. I understand this is a huge burden on you but I had thought that that was why this would be on the new pay-site rather than the free one.
    As always, thanks very much for the efforts you go to on this blog. It is _VERY_ much appreciated!

  2. Mark Wolfinger 12/21/2010 at 8:28 AM #

    davmp,
    You are correct. “At most once per day” reads exactly as you describe it. However, I chose the alternative meaning – ‘don’t be concerned with updating every hour.’
    I ‘think about them’ all the time. But if the market is not moving, I know that it’s a waste of time to check on adjusting, exiting, checking greeks, or making any other decisions.
    Don’t misunderstand. If the position is very near a decision point (as decided the last time I checked), then of course I’d be following it very frequently.
    I expect to be reporting on ‘decision’s’ to hold – when they are real decisions – using the commonly accepted definition: That there was a reasonable alternative worth considering. There’s no need to report that all’s well on a steady basis. I could do that on occasion – just to let followers know that the position is not being ignored. The fact that I anticipate much dull time when following is the reason to try to follow more than one position at a time.
    It’s not the 10’s of minutes that’s the problem. It’s writing the message that – to me – contains no useful information. If the original position were 80 points OTM and now it’s 70 points OTM, who really cares? If it’s 40 points OTM, I’d have something to say.
    How often do I check? My computer is open to the market all day, every day. I check very often. If I am too busy, it may be once per hour, but it’s more likely to be every 10 minutes. After all, I do have to know whether the market has just moved 1% while I was doing something else. Imagine flash crash day. I watched the drop and recovery, but was unable to act – even if I wanted to do so. Every bid/ask spread for every option was no bid, $2,000 ask. The market was essentially shut down as far as my broker was concerned.
    davmp, I’m taking on the burden both to educate and to earn some money for my efforts. I will update as often as I believe is necessary. If I get ‘complaints’ or suggestions that more frequent updating is needed, then I’ll do it. I will not ignore you. If you have a comment, then send it as a discussion point.
    One reason I don’t want to do the frequent update is simply this: Let’s say the trade is complete and you want to go back and review how it was managed. How would you like to find 60 separate posts on the one trade with 50 of them being: ‘Nothing done; going well’?
    I want the finished FTT series to be something of value. I want readers to get something out of the posts. I cannot make the market move. I cannot force comments that are meaningless, just to make comments. I want the finished product to be something worth reading. Thus, there is a fine line between giving you the frequency that you want to see and having the finished series be worth reading – as an educational tool.
    Davmp thanks. I want to provide what is needed. I don’t want to fill up space with ‘fluff.’
    Let’s see how it goes. Feel free to pepper me with requests for more updates – if you truly believe that there would be something to learn.
    In my world, I seldom look at my iron condors with an eye towards doing anything. Right now, I am bidding 15 and 20 cents for FOTM (610/620) RUT Feb put spreads. Doing nothing else.

  3. 5teve 12/21/2010 at 9:30 AM #

    Hi mark
    Thanks for sharing expiring monthly dec issue, its a lot of info for a rookie like me.
    recently I ran into a post claiming a risk free option strategy that no matter which direction the unlying go, he will make a profit.
    Short xyz stock@8.23
    Long xyz 8 call for 2.20
    Short xyz 8 put for 2.51
    $54 profit will be earned no matter what
    Some argued commission fee and cost of borrowing share to short will eat up all profits
    Mark, what is your comment on this type of “risk free” option strategy? Is it really possible to trade those trade?thanks

  4. Mark Wolfinger 12/21/2010 at 10:14 AM #

    5teve,
    This is a ‘reverse conversion’ or reversal.
    Without knowing the stock, I can assure you that these situations arise (and they do arise) ONLY when the stock cannot easily be borrowed.
    There are two possibilities: The more likely is that the stock cannot be borrowed and cannot be shorted. Period. Some traders try to sell short anyway. If they succeed and if the broker allowed the trade to go though, there is a high probability that they will be forced to cover the stock. That means taking a loss (you must unload the option position).
    The other possibility is that they will have to pay more than $54 to borrow the shares.
    So the truth is: Yes this is free money. But the bigger truth is that you would find it impossible to make this trade. Thus, it is a guaranteed loser.
    This trade makes sense ONLY for people who already own the shares. They can sell the shares (long, not short), buy the calls, sell the puts and lock in this free money. They would continue to own a position that is equivalent to owning shares.
    But only when you already own the shares. [Don’t go buy shares just to make this play. Why would you want to own these shares?]

  5. 5teve 12/21/2010 at 11:44 AM #

    Mark,
    the underlying stock is mnkd. thank you for sharing the “trap” behind these “easy money” risk free trade. It is so easy and hard to resist for unexperienced traders to
    fall into.

  6. Mike 12/21/2010 at 12:50 PM #

    Mark, sorry to change the subject, but I am considering selling naked calls. I know that some traders sell naked puts, but why is it so rare to sell naked calls? Aren’t the risks equal?
    Mike

  7. Mark Wolfinger 12/21/2010 at 1:47 PM #

    5teve,
    This is one trap that may not be a real trap. If your broker prohibits the short sale of that stock, then that would serve as avoiding the trap.
    It should be EASY TO RESIST. There is no free money. When you see free money, it’s not what it appears to be.

  8. Mark Wolfinger 12/21/2010 at 1:52 PM #

    Mike,
    All subjects welcome.
    Sure the risk are ‘similar’ but not technically equal. A stock can only fall to zero, but in theory (never in practice), it can rise thousands of dollars.
    Some brokers forbid naked call selling. That’s one reason it’s more rare.
    Some people sell stocks short. That is essentially the same as selling a deep in the money call option naked. Somehow the powers that be do not object to short stock, even though it is no different from selling naked calls.
    If you do go ahead with this plan, just be aware that any naked option sale does carry with it the possibility of a large loss.
    Good trading